Friday, April 1, 2011

Long Awaited Guidance on UK Bribery Act 2010 Issued Amidst Heavy Criticism

Amid much criticism the Government of UK has issued the long awaited Guidance Procedures to support the implementation of the UK Bribery Act which was passed on 9th April 2010.   The Government says the Act aims to ensure the UK can clampdown on corruption without being burdensome to business. For example, ensuring anti-bribery procedures are proportionateto the bribery risks firms face and to the nature, scale and complexity of its activities. The Guidance issued on 30th March 2011 underscores six (6) principles which corporations seeking to avoid liability should follow.

The six key principles are:

  • Proportionate procedures
A commercial organisation’s procedures to prevent bribery by persons associated with it are proportionate to the bribery risks it faces and to the nature, scale and complexity of the commercial organisation’s activities. They are also clear, practical, accessible, effectively implemented and enforced.

  • Top-level commitment
The top-level management of a commercial organisation (be it a board of directors, the owners or any other equivalent body or person) are committed to preventing bribery by persons associated with it. They foster a culture within the organisation in which bribery is never acceptable.

  • Risk assessment
The commercial organisation assesses the nature and extent of its exposure to potential external and internal risks of bribery on its behalf by persons associated with it. The assessment is periodic, informed and documented.

  • Due diligence
The commercial organisation applies due diligence procedures, taking a proportionate and risk based approach, in respect of persons who perform or will perform services for or on behalf of the organisation, in order to mitigate identified bribery risks.

  • Communication (including training)
The commercial organisation seeks to ensure that its bribery prevention policies and procedures are embedded and understood throughout the organisation through internal and external communication, including training, that is proportionate to the risks it faces.

  • Monitoring and review
The commercial organisation monitors and reviews procedures designed to prevent bribery by persons associated with it and makes improvements where necessary.
Justice secretary Kenneth Clarke says: “I have listened carefully to business representatives to ensure the Bribery Act is implemented fully and in a workable, common sense way – this is particularly important for small firms that have limited resources. I hope this guidance shows that combating the risks of bribery is largely about common sense, not burdensome procedures.”

The above notwithstanding, the Guidance has already come under some severe criticism.  Transparency International UK calls the Guidance "deplorable" and insists it will weaken enforcement efforts under the Act.  Chandrashekhar Krishnan, Executive Director of Transparency International UK explains:

"The Bribery Act, as passed by the last Parliament, is one of the best anti-bribery laws in the world. But the Guidance will achieve exactly the opposite of what is claimed for it. Parts of it read more like a guide on how to evade the Act, than how to develop company procedures that will uphold it.
‘It is deplorable that changes made to the draft Guidance since late last year, and now enshrined in the published version, depart from international good practice in several areas. The Ministry of Justice has exceeded its brief with this final Guidance which undermines the Act and will limit its effectiveness. There is now a significant risk that bribery will go unpunished."

Some of the identified loopholes include:

  • A non-UK company listed on the London Stock Exchange (LSE) is not automatically caught by the Bribery Act. This means that a) it could use capital raised in the UK to pay bribes overseas, and b) a UK-based company that loses a contract to a non-UK company listed on the LSE which paid a bribe to win the contract, may have no recourse in the UK courts. [Guidance para 36]
  • A non-UK parent company A with a large UK subsidiary B could pay bribes through subsidiary C based in a third country. If UK subsidiary B did not directly benefit from the bribes, the non-UK parent company A would not be caught by the Bribery Act – even if its other subsidiary C was competing unfairly with honest UK companies. [Guidance paras 36 & 42]
  • A UK company would be able to outsource bribery by building a chain of subcontractors sufficiently long to distance itself from bribe paying [Guidance para 39]

The Bribery Act 2010 was passed with all-party support. It introduces an offence of corporate failure to prevent bribery unless a company can prove that it had ‘adequate procedures’ in place to prevent bribery. The Secretary of State for Justice is required, by section 9 of the Bribery Act, to provide official Guidance on ‘adequate procedures’. The corporate offence of failing to prevent bribery can only come into force after the Guidance has been issued. Transparency International UK has been campaigning for early publication of the official Guidance that would not dilute the Act. Publication of the Guidance was delayed by further consultations in late 2010 and a last-minute burst of lobbying in early 2011 by some business groups.

It is expected that the Act will come into effect from July 2011. 

Download a copy of the UK Bribery Act 2010 and the Guidance

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