After much criticism and a diabolical prosecution record, the UK looks set to finally crack down on corruption committed by UK companies both at home and abroad. The country’s outmoded bribery laws – some of which date as far back as 1889 – are to be replaced by the new bribery bill which will make it a criminal offence to give or offer a bribe in the UK or abroad and will increase the maximum prison term from seven to ten years. The bill also introduces a corporate offence of negligent failure to prevent bribery on behalf of a business, and for the first time, MPs and peers can be prosecuted in bribery cases.

The planned legislation comes six months after the UK was criticised by the OECD for failing to modernise its anti-corruption protocols and its publication comes as 20 investigations are under way at the City of London police’s foreign bribery unit. During Labour’s 12 years in power, only two UK companies have been prosecuted for foreign bribery. One case – that of BAE Systems – spectacularly collapsed: the other was brought to the Serious Fraud Office by the company itself.

However, lawyers believe that the UK’s poor record in bringing prosecutions for overseas bribery may be about to end. Rebecca Robinson, solicitor at Wake Smith & Tofields, says that “the impact on companies and businesses is that the combination of the extra-territorial effect and the introduction of a new corporate offence may make it easier for bribery prosecutions to be brought against UK companies.”

She also says that while the new bill does not define what would constitute “adequate procedures”, she warns that “in light of the proposed new legislation, companies should be reviewing their bribery law compliance programmes to ensure that it has responsible and effective risk management systems in place.”

Under the bill it will be a criminal offence for someone – directly or through a third party – to offer, promise or give a bribe (whether or not financial), and it will also be a criminal offence for someone to request, agree to receive, or accept a bribe. The bill will also make it a “discrete offence” to offer, promise or give a bribe to a foreign public official, including those working for international organisations that have as their members, governments or countries. 

The Bribery Bill makes it clear that it does not matter whether the bribery was committed in the UK or abroad – if abroad, it will apply to all British nationals, UK companies and anyone ordinarily resident in the UK. If an offence is committed by a company, then any senior manager of the business will be similarly guilty if they consented to or connived in the bribery.

The maximum penalty for individuals is increased from seven to ten years’ imprisonment, as well as the possibility of getting an unlimited fine. For corporate offences only there will be an unlimited fine. Furthermore, it should be easier for government agencies to bring a case as the Attorney General’s consent is no longer required to prosecute a bribery offence.

The bill also creates a new offence for companies. Under the proposed legislation, it will be an offence where a “relevant commercial organisation” – essentially, any company established, or carrying on business, in England, Wales or Northern Ireland, and so extends to foreign businesses operating here – negligently fails to prevent bribery in connection with its business. 

This offence focuses on the failure to prevent an “active” bribe only. The offence is committed where “a person performing services for a commercial organisation (including its employees, agents and subsidiaries) bribes someone anywhere in the world in connection with the commercial organisation’s business”, and “those in the organisation with responsibility for preventing bribery negligently fail to do so”. 

The draft legislation says that if there is no person (or persons) with specific responsibility for preventing bribery, the responsibility is deemed to be that of any senior officer in the organisation, including any director, secretary or manager of a company or a partner in a partnership. 

The finger of blame
However, lawyers point out that there is an incentive in ensuring that someone other than a senior office in the organisation is given such responsibility; and that adequate systems are adopted to prevent bribery.

This is because a defence is available where the person deemed responsible for preventing bribery is not a senior officer and the commercial organisation can show that it had adequate procedures in place to prevent bribery. This means that the onus is on the organisation to prove its defence on the balance of probabilities. As a result, Keith Allen, an associate in the business, crime and regulatory department at law firm Clarion Solicitors, says that “all companies should consider appointing a person with the responsibility of ensuring compliance and that person should not be a senior officer, as defined in the bill, to attempt to ensure that the potential defence remains available to the company.”
 
Generally, experts agree that the draft legislation will make it easier to prosecute companies and individuals for bribery, whether committed in the UK or abroad. Will Kenyon, forensics services partner at accountants PwC, says that the real implications for companies come in the form of a new offence of negligently failing to prevent bribery, which puts directors and senior managers firmly on the hook for corrupt practices at home or abroad.

“The fact that the offence carries both corporate and personal criminal liability for corruption within a company should make directors sit up and listen,” says Kenyon. “Companies of all sizes will need to look carefully at their own anti-bribery programme and controls as well as those of their agents and subsidiaries as they may potentially be liable for breaches in other significant parts of their supply chain and sales channels.”

The UK has had a poor reputation for its lacklustre attempts to stamp out bribery overseas, and the only real stick that has been wielded against UK firms for corrupt practices has been a US law, which until recently, had also not been used a great deal.

The Foreign and Corrupt Practices Act (FCPA) was created in 1977 after a 1970s investigation by the SEC found that over 400 US companies had made questionable or illegal payments in excess of $300m to foreign government officials, politicians, and political parties. During the 32 years since the Act was enacted, its scope has been extended with US prosecutors using it in a tenacious pursuit of corporate wrongdoing – in the US and abroad. Due to the extra-territorial nature of the legislation – as well as its highly punitive measures – business advisers now warn that many UK companies and individuals could be in the firing line, and that many of them fail to appreciate the risk.

Zach Harmon, a partner in US law firm King & Spalding’s Washington, DC office and a member of the firm’s special matters and government investigations practice group, says that “the extra territorial scope of the Act does seem to be expanding”, which he says is in part “due to a feeling that if the US does not move to change poor business practice, then no one else will.”

Harmon says that “US companies have complained that foreign companies are at an advantage in terms of taking part in corrupt business practices. Not only do these practices win them contracts, but they are also unlikely to face any kind of serious penalty for carrying them out. The threat of action under the FCPA will help reduce that and this is partly the reason why the FCPA has become more extra-territorial over the past decade.”

Jim Hough, head of the litigation group in the New York office of law firm Morrison & Foerster, says that “enforcement priorities are not really aligned between the US and Europe. As a result, the US is now much more prepared to push both foreign companies and individuals to follow its set of governance standards and regulations on corruption than rely on European regulators to clamp down on corrupt business practices.”

Practising corruption
Over the past few years US regulators such as the Department of Justice (DOJ) and the SEC have increasingly turned their attention towards the “more questionable” activities of foreign companies. Those firms that conduct business in the US are subject to scrutiny, along with those that use the services of firms and individuals based there. The FCPA allows prosecutors to take action against such companies for corrupt practices, even though the corruption may be taking place in another country.

There have been some very high profile foreign prosecutions under the FCPA in recent months. In June 2007 the US Department of Justice announced that it is investigating defence contractor BAE Systems for its possible non-compliance with anti-corruption laws regarding securing contracts with the government of Saudi Arabia – an investigation that the UK Serious Fraud Office decided not to continue. The US investigation is still ongoing.

In November 2006 the DOJ announced that it was investigating German electronics and engineering giant Siemens over suspicious payments to win business contracts. It was also looking into possible violations with regards to its conduct concerning the UN Oil-For-Food humanitarian assistance programme in Iraq. The case was settled in December 2008 when Siemens pleaded guilty to a host of charges ranging from falsifying its books and records to paying over $1.7 million in kickbacks to the Iraqi government in exchange for 42 contracts from which the company earned profits of more than $38 million. The company was fined a total of $1.6 billion by the Department of Justice, the SEC, and German prosecutors.

Tony Parton, partner in the forensic practice at accountants PwC’s, says that “in recent years the emphasis upon ensuring businesses are ‘whiter than white’ has led to the FCPA being interpreted broadly. When the Act initially came into force, an amnesty produced over 500 companies admitting violations, but few prosecutions. But 1995 proved a milestone as advanced technology firm Lockheed paid a $25 million fine for improper payments relating to contracts in Egypt and, for the first time, a businessman was sentenced to jail for violating the Act.”

Experts agree that sanctions under the FCPA are potentially the toughest in the world. Under criminal prosecution, corporations and other business entities are subject to a fine of up to $2 million while officers, directors, stockholders, employees, and agents are subject to a fine of up to $100,000 and imprisonment for up to five years.

Moreover, under the Alternative Fines Act, these fines may be up to twice the benefit that the defendant sought to obtain by making the corrupt payment. So, for example, if a company paid an official $10,000 to secure a $30 million contract, then the SEC and DOJ can attempt to fine the company $60m. Furthermore, fines imposed on individuals may not be paid by their employer or principal.
 
The Act also affords a threat of civil action. The Attorney General – the government’s principal legal adviser – or the SEC may bring a civil action for a fine of up to $10,000 against any firm as well as any officer, director, employee, agent of a firm, or stockholder acting on behalf of the firm who violates the anti-bribery provisions.

Compare that level of enforcement and punishment to the UK. According to the OECD, 108 allegations of corruption have been recorded against UK citizens or companies since February 2002. Yet of these, 24 were closed due to insufficient evidence, one was discontinued and in 32 cases no action was taken because the allegation was not substantiated.

In fact, the first UK company to be successfully prosecuted for overseas bribery only took place in July this year. British engineering company Mabey & Johnson admitted it was involved in overseas corruption after it tried to influence officials in Jamaica and Ghana when bidding for public contracts. It also paid more than $200,000 to Saddam Hussein’s Iraq regime, violating the terms of the UN oil for food programme.

The Reading-based firm, which builds temporary bridges, said it regretted its past conduct.

It pleaded guilty to ten charges of corruption and sanctions violation at Westminster Magistrates Court. The company had brought the matter to the attention of the Serious Fraud Office itself, following an internal investigation and five of its eight directors have resigned since the allegations came to light.

Blurred boundaries
Evidence suggests that UK companies are unaware of the US legislation and the risks it presents. According to a report issued last year from KPMG Forensic, the fraud investigations arm of professional services firm KPMG, almost half (46 percent) of respondents that conducted business in the US either wrongly believed they were not subject to the FCPA or did not know whether they were subject to it. In addition, 56 percent of respondents who said they were subject to the FCPA did not have, or did not know whether they had, an FCPA compliance programme.

However, despite criticism of the UK’s failure to investigate or prosecute bribery cases, the US Act is not as wide-reaching as anti-bribery legislation in the UK. Bribery of public officials has been an offence since 1889. This was extended in 1906 when a new Act was introduced which makes it a crime to bribe any “agent” – defined as anybody employed by or acting for another, whether in the public or private sector.

In 1916 the law was changed again and the “presumption” of corruption was introduced. Under this provision, if a contractor gives a gift to a public official, that gift shall be presumed to be corrupt unless the accused person can prove otherwise. This can be said to represent a “reversal of the burden of proof”, meaning the accused person is in effect denied the presumption of innocence, though the Law Commission has recommended the abolition of this presumption and the government has said it will repeal this law soon.

In the past ten years the government has ratified the OECD’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, a voluntary framework aimed at reducing corruption in developing countries by encouraging sanctions against bribery in international business transactions carried out by companies based in the Convention member countries, and has strengthened its laws on international corruption with the Anti-Terrorism, Crime and Security Act 2001. Part 12 of the Act, which came into force in 2002 and amended the scope of the UK law as it relates to bribery, gives UK courts jurisdiction over crimes committed abroad by UK nationals and UK companies.

The UK toughened its stance on foreign-based UK corruption again when it ratified the United Nations Convention Against Corruption (UNCAC) in 2006. UK law became fully compliant with the convention when the Criminal Justice (International Co-operation) Act 1990 (Enforcement of Overseas Forfeiture Orders) and the Proceeds of Crime Act 2002 (External Requests and Orders) Order 2005 both came into effect from 2006.

 “The US definition of ‘corruption’ is about bribing a foreign government official. It is not about bribing individuals, third-parties or other companies, all of which are deemed corrupt practices in UK law,” says Jennifer Hammond, director at KPMG Forensic. Furthermore, she points out that the FCPA contains an explicit exception to the bribery prohibition for “facilitating payments” for “routine governmental action”. For example, a person charged with a violation of the FCPA’s anti-bribery provisions may assert as a defence that the payment was lawful under the written laws of the foreign country or that the money was spent as part of demonstrating a product or performing a contractual obligation.

Moreover, under Federal sentencing guidelines, if a company can safely prove that it has a good system of internal control and has in place procedures to detect, report and stamp out corrupt or unethical practices, it may benefit from up to a 90 percent reduction in any fines awarded. This is because the FCPA actually requires companies to devise and maintain an adequate system of internal accounting controls.

As a result, some feel that the threat of prosecution is overstated. Mark Jones, partner in the internal audit practice at accountants RSM Bentley Jennison, says that – in theory – the law should pose no real problems to UK firms because compliance with UK anti-corruption legislation is tougher than with the US act, which only focuses on bribing foreign officials – not other parties. The real difference, he says, is in enforcement and prosecution. “US regulators are more proactive in tackling such abuses and do not shy away from taking companies to task,” he says.

Simon Bevan, head of the fraud services unit at professional services firm BDO Stoy Hayward largely agrees. “It is little wonder that US firms are becoming increasingly willing to point the finger at non-US firms and prompt regulators to investigate the business practices of rivals working in the same sector,” he says.

1: The US Foreign and Corrupt Practices Act (1977)

• Brought into statute in response to endemic business corruption

• Enables US authorities to prosecute US and foreign companies for corrupt practices involving public officials abroad

• Extended in 1988 to apply to “foreign firms and persons who take any act in furtherance of such a corrupt payment while in the US”

The Act says that if there can be shown to be any connection to the corrupt practice and a US employee, a US operation or any part played by anyone within the US itself, then the SEC and the Department of Justice have a case to prosecute.

2: The Council of Europe’s Criminal Law Convention on Europe (1999)
 

• Obliges signatories to criminalise a wide range of acts of corruption, which it defines as the “requesting, offering, giving or accepting, directly or indirectly” of a bribe

• A pioneering aspect of the Convention is that it extends criminal responsibility for bribery to the private sector.

3:  OECD’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (1999)

• Countries that have signed the Convention are required to put in place legislation that criminalises the act of bribing a foreign public official.

4: The United Nations Convention against Corruption (2003)

• Includes measures on prevention, criminalisation, international co-operation, and asset recovery. The treaty entered into force on December 14, 2005. There are currently 140 signatories.