The Bribery Act – Adequate Procedures Susannah Cogman, Herbert Smith LLP February 2011 1
The Bribery Act - Background The Bribery Act 2010 • The Bribery Act will repeal the common law offence of bribery, the 1889, 1906 and 1916 Acts • Structure of the Act: ° Offences of ‘active’ and ‘passive’ bribery ° Offence of bribing a foreign public official ° Corporate offence/failing to prevent bribery – committed by a company where a bribe is paid on its behalf • Timing: ° September 2010: Consultation on adequate procedures guidance ° January 2011: Referral to Coalition Growth Review ° February 2011: Delay in implementation announced ° March 2011?: Publication of Adequate Procedures guidance ° June 2011?: Act brought into force 31797895 2
The Bribery Act – Background Active and Passive bribery offences • Public and private sector • Offering, promising or giving a “financial or other advantage” • Intention that recipient perform a function “improperly”; reward for improper performance; or receipt of advantage improper • Improperly = in breach of expectation of good faith, impartiality or trust – reasonable UK person Foreign Public Officials offence • Offering, promising or giving a “financial or other advantage” • Intending to influence – but no need that influence be improper • Intending to obtain business or a business advantage 3
The Bribery Act – Background The Corporate Offence • Applies to a company or partnership (“C”) incorporated/formed in the UK or which carries on a business or part of a business in the UK • Offence committed if: ° someone who performs services on behalf of C ° bribes another person ° intending to obtain or retain a business advantage for C • Defence for C to show that there were “adequate procedures” in place designed to prevent such persons from paying bribes ° Importance of adequate procedures ° Statutory guidance – section 9 4
The Bribery Act – Key issues Key issues for companies • Geographical coverage • (In some circumstances) Liability for acts of business partners • (In some circumstances) Liability for acts of subsidiaries • Gifts, hospitality and contractual expenditure – particularly in relation to public officials • Facilitation payments • Lack of clarity in relation to ‘adequate procedures’ 5
The Bribery Act – FCPA comparison FCPA Bribery Act Public Sector Public and private sectors Definition of public official Narrower definition of public official Permits reasonable and bona fide Advantages to foreign public expenditure officials to obtain or retain business prohibited Parent liability in relation to acts of Subsidiaries/Joint venture coverage subsidiaries more limited – performing services test Permits expenditure for routine Prohibits facilitation payments governmental actions 6
7 Country X sub Bribery Act – Geographical scope PRC subsidiary UK company PRC operations
Bribery Act – Geographical scope PRC company Country X UK operations UK subsidiary subsidiary 8
The Bribery Act – Adequate Procedures ‘ Adequate Procedures’ guidance • Legal status of guidance • (Current draft) Content: ° Principle 1: Risk assessment ° Principle 2: Top level commitment ° Principle 3: Due diligence ° Principle 4: Clear, practical and accessible policies and procedures ° Principle 5: Effective implementation ° Principle 6: Monitoring and review ° General guidance on the Act ° Case studies • Other guidance 9
The Principles: Risk assessment Principle 1 of the draft ‘Adequate Procedures’ Guidance: "The commercial organisation regularly and comprehensively assesses the nature and extent of the risks relating to bribery to which it is exposed". Some issues to consider: • What does “regularly” mean? • Who undertakes the review? • How far do you extend the review – scope issues under the Bribery Act • How will you gather information? • What will your risk assessment ‘look’ like? • Resourcing? “… will need to ensure that it is devoting sufficient resources to the assessment and mitigation of bribery risks …" 10
Risk assessment – external risk factors What information will you gather? • External risk factors ° Country, transaction and partnership risks, i.e. where, what type and with whom you do business � Jurisdictional risk � Value of business opportunities � Public sector interactions/contracting? Licences, permits etc? � Offset requirements? � Lobbying? Political and/or charitable donations? � Cross-border transit of goods or people? � High risk industry sectors? � M&A activity (planned or historic)? Joint ventures? ° Third party business partners � Identify and devise appropriate risk categorisation � Procurement/supply chain � New versus existing relationships – should you/can you revisit current arrangements 11
Risk assessment – internal risk factors What information will you gather (cont.)? • Internal risk factors ° Deficiencies in employee knowledge and training � What training currently exists; who receives it; how frequently; content of training ° Remuneration structures (staff and also agents/intermediaries) ° Recruitment / vetting ° Appraisals / disciplinary 12
The Principles: Top Level Commitment Principle 2 of the draft Guidance: “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. They establish a culture within the organisation in which bribery is never acceptable. They take steps to ensure that the organisation’s policy to operate without bribery is clearly communicated to all levels of management, the workforce and any relevant external actors". 13
Top Level Commitment • Some issues to consider: ° Apportionment of responsibility ° ‘Item on the agenda’ ° Management information ° Training ° How is the company’s policy “communicated to…any relevant external actors”? Who is “relevant”? • Formal adoption of risk assessment and/or planned anti-corruption programme? ° Do controls track the identified risks? ° Where improvements are needed, have you set realistic goals? ° Procedures for review/updating 14
The Principles: Due diligence Principle 3 of the draft Guidance: “The commercial organisation has due diligence policies and procedures which cover all parties to a business relationship, including the organisation’s supply chain, agents and intermediaries, all forms of joint venture and similar relationships, and all markets in which the commercial organisation does business” 15
Due diligence and third parties Third party business partners • Risk assessment • Appointment - Due diligence - Compliance information? - Press searches/review of independent information? - Use of third party vetting organisations? - Investigate and resolve red flags! - (Recording) justification for appointment - Method of remuneration - Justification for remuneration - Approval – who and when; what training has been provided? 16
Due diligence and third parties Third party business partners (cont.) • Typical contractual provisions ° Scope of services ° Payment mechanics ° Representations and warranties – corrupt acts; investigations; public officials; customer links; anti-corruption policies? ° Undertakings not to bribe – consider scope of prohibition and extension to associated parties 17
Due diligence and third parties Third party business partners (cont.) • Typical contractual provisions (cont.) ° Right to train? ° Compliance with the company’s ethics or ABC policy? ° Monitoring � Right to call for information Audit rights? � Investigation rights? � ° Termination • Exercising contractual rights 18
Due diligence and third parties Third party business partners (cont.) • Approval of payment of commission; ° What documentation will be required before commission is payable? ° Who will approve payments? Interaction with AML/fraud controls? ° Bespoke procedures e.g. escrow accounts? • How will you monitor the activities of the third party? • What (if any) management information will be generated? • Renewal 19
The Principles: Policies and Procedures Principle 4 of the draft Guidance: “The commercial organisation’s policies and procedures to prevent bribery being committed on its behalf are clear, practical, accessible and enforceable . Policies and procedures take into account the roles of the whole work force from the owners or board of directors to all employees, and all people and entities over which the commercial organisation has control”. Principle 5 of the draft Guidance: “The commercial organisation effectively implements its anti- bribery policies and procedures and ensures they are embedded throughout the organisation. This process ensures that the development of policies and procedures reflects the practical business issues that an organisation’s management and workforce fact when seeking to conduct business without bribery” 20
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