Bribery Legislation Holds Global Implications

A new law is coming to the United Kingdom that might ultimately affect fraud-fighting communities around the globe.

The new U.K. Bribery Act 2010, which received Royal Assent on April 8 of last year and is due to become law in April, creates the controversial offense of “Failure of Commercial Organisations to Prevent Bribery.” An important point for CFEs is that Section 7 of the act reads that an organization has to prove that it had in place before an offense adequate procedures designed to prevent persons associated with it from undertaking such conduct.

This section also says a commercial organization is guilty of an offense if a person associated with that organization bribes another person intending to obtain or retain business or to obtain or retain an advantage in business.

A person associated with an organization (defined by Section 8) is a person who performs services on behalf of it. This could be an employee but also an organization’s agent or subsidiary. Section 7 not only covers U.K. companies but any other incorporated body from any other country that carries on business or part of a business in any part of the U.K.

The new act requires government to provide guidance on the legislation, which is scheduled to be published in January, prior to implementation.

When other countries realize that the U.K. has power to prosecute anybody financially connected with any U.K. organization – not just employees – who is allegedly committing bribery outside of the U.K., they might report the offense to U.K. authorities. This would cause an investigation to begin.

THE ACT IN PRACTICE 

Consider the following case history (that we’ve adapted a bit) provided by the U.K. Ministry of Justice as a practice exercise under proposed guidance accompanying the Bribery Act 2010: Let’s say you’re a fraud examiner for a U.K. company in a tender exercise (a bidding process) for a contract to operate a liquified natural gas (LNG) plant in the nation of “Beneficia.” To demonstrate your proven track record as front runners in LNG expertise and your sensitivity to local environmental, social and community issues, the management of your plant in the city of Altruria make arrangements to host a Benefician government delegation.

The Benefician energy minister and an entourage made up of members of his family, private secretaries, senior officials, and members of their families travel first class to Altruria and stay in a five-star hotel at your company’s expense.

The visit is organized around a few days of tours and seminars at the plant, but the energy minister says he’s ill and postpones the first day of the visit. However, he actually is quite well and goes shopping with the rest of the entourage. Over the next few days, the Benefician delegation makes short cursory visits to the LNG plant but spends most of the time in leisure activities before abruptly returning to Beneficia unannounced.

Shortly afterwards, your Altrurian management, which has received a tip from contacts in Beneficia that your tender is “looking good,” approves payment of a number of high value “expenses” incurred by the Benefician delegation in Altruria. A competitor in the tender exercise lodges a formal complaint with the Benefician and U.K. authorities claiming that in seeking to be awarded the contract, your company bribed the Benefician authorities with lavish hospitality.

Under the Bribery Act 2010 and proposed guidance your U.K. company would need to satisfy authorities that it had adequate procedures in place to avail itself of a statutory defense, and it should have considered the following questions raised by the guiding principles.

Principle No. 1: Risk Assessment  

Do your procedures provide for a regular assessment of bribery risks associated with hospitality and promotional expenditure that extends across all operations and to your business partners?

Have you undertaken any assessment of the risk of bribery associated with the LNG sector and, in particular, did the assessment benefit from any survey of any sectoral anti-bribery codes of conduct or industry standards and the existence of industry focused anti-corruption alliances in the LNG sector?

Principle No. 2: Top-level Commitment  

Do your procedures require senior U.K. management to be involved in ensuring that your policies and procedures on hospitality and promotional expenditures are effectively implemented in Altruria?

Did top-level U.K. management facilitate an opportunity to discuss levels of hospitality and promotional expenditures for the tender exercise collectively with competitors and the Benefician government?

Principle No. 3: Due Diligence  

Were any inquiries made to ascertain the level of bribery in Beneficia and the types of bribery most commonly encountered and the preventive actions that might be most effective?

Did you research the law of Beneficia concerning the extent to which officials are permitted to receive hospitality and, if so, under what circumstances?

What inquiries did you make about the rules and regulations that applied to the Benefician tender exercise?

Principle No. 4: Clear, Practical and Accessible Policies and Procedures  

What guidance have you given staff in Altruria about the risks associated with lavish hospitality or promotional expenditures and the need to ensure that the company does business fairly and competitively?

Did you do enough to ensure the company’s policy was known to business partners and in particular the Benefician government?

Do your Altrurian procedures provide for checks and balances to ensure that all hospitality and promotional expenditures are bona fide (reporting and transparency requirements, pre-approval procedures, thresholds and criteria for senior management approval, etc.)?

Principle No. 5: Effective Implementation  

What arrangements have you made to manage hospitality and promotional expenditures in line with your policies? For example, do employees arranging corporate hospitality in Altruria have access to guidance on levels? Are they required to seek pre-approval?

Does your training deal with scrutiny of membership of any government delegation that might receive hospitality or benefit from promotional expenditure? Does the training address interrogation of the rationale for the inclusion of any ancillary staff or family members?

Was your Altrurian management informed about the bribery risk profile of the Benefician government and did it and/or U.K. management consider the extent to which greater than normal oversight of hospitality and promotional expenditures is required? (For example – the use of transparent reimbursement to clearly identified public accounts.)

Principle No. 6: Monitoring and Review  

When did you last review your procedures and guidance of procedures and guidance on hospitality and promotional expenditures for the Altrurian operation?

Do your procedures provide for input of views and comments of all employees and key LNG sector stakeholders into the continuing improvement of policies and procedures on hospitality and promotional expenditures?

Do your procedures provide for a report on the company’s involvement in the Benefician tender exercise to the board of directors or similar body?

An Overview of U.K. Bribery Act 2010 

The Crown Prosecution Service, the most prominent U.K prosecution authority, treats bribery and corruption as serious offenses because they destroy the fabric of society. Here are the descriptions of select sections (Sections 1 – 6, and 12) of the U.K. Bribery Act 2010 in addition to the controversial Section 7: 

Section 1 of the act cites one offense in which a person offers promises or gives a financial or other advantage to another and intends the advantage to induce the other to perform improperly a relevant function or activity or to reward someone for so doing. The second offense in the section describes a situation in which a person offers, promises or gives a financial or other advantage to another and knows or believes that the acceptance of the advantage would itself constitute the improper performance of a relevant function or activity. It doesn’t matter if the advantage is given through a third party. 

Section 2 creates four offenses committed by a person being bribed. Broadly speaking, this covers situations in which a person: 

• Requests, agrees to receive, or accepts an advantage intending that a relevant activity will be improperly performed or 

• Where the request, agreement or acceptance itself constitutes improper performance or 

• Where the acceptance agreement or receipt is as a reward for improper performance or 

• Where in anticipation of or in consequence of the request, agreement or acceptance a relevant function is improperly performed by that person or another  

Again, it’s immaterial if any of these situations take place through a third party. 

Section 3 defines a relevant activity as any function of a public nature; connected with business; or performed in employment or by or on behalf of a body of persons and the person performing the function is expected to perform it either in good faith, impartially, or is in a position of trust when performing it. Importantly, in this section, a “relevant function or activity” can have no connection with the U.K. and can be performed outside the country. (For example, a British citizen living in France bribes a judge in Italy but is still captured by the Bribery Act.) 

Section 4 says a relevant function or activity is performed improperly if it’s performed in breach of a relevant expectation (see Section 5 below), and if there’s a failure to perform the function or activity and that failure is itself a breach of a relevant expectation. 

Section 5, which deals with the relevant expectation, says that for the purposes of this act the test of what’s expected is what a reasonable person in the U.K. would expect in relation to the performance or activity concerned. So, for example, in the United States, §78dd of the Foreign Corrupt Practices Act 1977 allows payments to a foreign official, political party or party official if the purpose is to expedite or secure the performance of a routine governmental action. But this isn’t so in the U.K.; if an organization is operating in a region of the world where facilitation payments are the customary way of doing business, that organization isn’t permitted to participate under the Bribery Act. The act says all local customs or practices must be disregarded in considering the expectation test unless the activity is permitted by the written law of the country in which it takes place. 

Section 6 creates the specific offense of bribery of a foreign official if the person bribing intends to retain business or an advantage in the conduct of business.  

Section 12, which deals with territorial application, states that a Section 7 offense is committed irrespective of whether the acts or omissions that form part of the offense take place in the U.K. or elsewhere. 

It will now be apparent why such legislation is of great concern to many U.K. and foreign companies because offenses under Sections 1, 2, and 6 can be committed by a corporate body if it’s proved to have been committed with the consent or connivance of a senior officer or a person purporting to act in such capacity.  

There are a number of other provisions within the act, which can be found in full at www.legislation.gov.uk/ukpga/2010/23/contents. 

Tool for anti-bribery authorities  

The U.K. Bribery Act 2010 is a laudable piece of legislation that sets the bar for other countries. Businesses might find it onerous, but the objective is to create a zero tolerance business environment because bribery destroys the fabric of our society.  

This far-reaching piece of legislation might have financial implications if U.K. authorities are to investigate business activities in foreign jurisdictions. It’s unlikely that U.K. enforcement authorities will be increasing in the near future, so just how many alleged fraudsters will be investigated and prosecuted remains to be seen. However, it’s clear that the U.K. government has given the authorities the tools to prosecute bribery suspects. 

Columnists’ note: This article is for information only and isn’t designed or intended as a comprehensive guide or legal advice on U.K. legislation.  

Tim Harvey, CFE, is director of the ACFE’s UK Operations, and a member of Transparency International and the British Society of Criminology.  

Richard Hurley, Ph.D., J.D., CFE, CPA, is a professor in the University of Connecticut (Stamford) School of Business. 

SIDE BAR  

BRIBERY ACT CONSOLIDATES OLD LAWS 

The U.K.’s Bribery Act 2010 consolidates old legislation and introduces new controversial, wide-reaching offenses – the topic of heated discussion. The legislation goes beyond the U.S. Foreign Corrupt Practices Act and raises questions about “facility payments” and corporate hospitality. Historically, bribery and attempted bribery are offenses against common law in the United Kingdom, but corruption offenses have been normally dealt with fewer than two main statutes: the Public Bodies Corrupt Practices Act of 1889 and the Prevention of Corruption Act of 1906. Corruption is also mentioned in several other statutes going back to the Sale of Offices Act of 1551. However, the new Bribery Act encompasses these and other laws.

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