The U.K. Bribery Act: The Stakes Have Been ... - Stout Risius Ross

The U.K. Bribery Act:
The Stakes Have Been Raised
Ryan C. Pisarik, CPA, CFF, CFE, CAMS –
rpisarik@srr.com
With the rapid convergence of numerous national economies into
one large global economy, U.S. based companies conducting
business abroad are likely familiar with the Foreign Corrupt
Practices Act (“FCPA”), enacted by Congress in 1977. Increased
bribery and corruption prosecutions by the Department of
Justice (“DOJ”) and Securities and Exchange Commission
(“SEC”) in recent years have brought the FCPA to the forefront
of many executive’s consciences. The stakes are being raised
even further by the United Kingdom’s Bribery Act (the “Bribery
Act”), which is expected to become effective in April 2011. The
updated legislation is long overdue, as the United Kingdom
(“U.K.”) was operating under legislation enacted in the early
part of the 20th century. The Bribery Act would bring the U.K. in
compliance with the Organization for Economic Co-operation and
Development, a group from which the U.K. has received much
criticism after the U.K. Serious Fraud Office (“SFO”) dropped
its investigation into BAE Systems PLC’s alleged bribery of
Saudi officials in 2006. Companies with any business operations
in the U.K. must now enhance anti-corruption compliance
programs to meet not only FCPA standards, but the wider scope
of the Bribery Act.
Key Differences n n n
Although there are many commonalities between the FCPA
and the Bribery Act, there are also fundamental differences that
companies need to be aware of in developing anti-bribery and
anti-corruption compliance programs. One key difference is who
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must comply with the Bribery Act. Public companies based in the
U.S. or listed on a U.S. exchange must comply with the FCPA,
whereas the Bribery Act includes any company, whether public
or private, listed in the U.K. or not, who conducts any business
in the U.K. Similar to the FCPA, the Bribery Act will have an
extraterritorial application, whereby a bribe anywhere in the world
is not required to be approved or paid through the U.K. branch of
the company for the Bribery Act to have jurisdiction.
Another fundamental difference between the FCPA and the
Bribery Act is the focus on non-government officials. The FCPA
makes bribery of foreign government officials illegal, while the
Bribery Act broadens the scope of coverage by making any bribe
illegal, whether to a government official or a private citizen.
The Bribery Act also institutes a strict liability offense for
businesses who fail to prevent bribery. The FCPA does not
provide for strict liability on companies who potentially violate the
FCPA, either within the language of the statute or as interpreted
by judicial review. Under the FCPA, the government must prove
that the corporation knowingly transmitted a payment to a foreign
official in return for influencing that official. Under the Bribery Act,
if any employee of a company offers or makes a bribe, and the
individual responsible for preventing or controlling bribery within
the company does not prevent it, the individual can be held liable
unless the company proves “adequate procedures” were in
place. In addition to scrutinizing the company’s corporate culture
to determine how well the processes accurately reflect the “true”
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corporate environment, the SFO has provided guidance (although
still being debated) on what they are looking for as evidence of
“adequate procedures.”
Six General Principles of
Adequate Procedures n n n
1I Risk assessment
Risk assessment procedures
Key bribery risks
Risk mitigation
Ongoing risk review and monitoring
2I Top level commitment
A clear statement of commitment to counter bribery
in all parts of the company’s operations
Reflecting commitment against bribery in the
company’s structure
3I Due diligence
Location
Business opportunity
Business partners
4I Clear, practical and accessible policies and procedures
Policy and procedure documentation
Support and operational procedures
Management of incidents of bribery
5I Effective implementation
Implementation strategy
Internal communication
External communication
6I Monitoring and review
Internal monitoring and review mechanisms
Transparency
External verification
Similar to recent SFO enforcement actions, regulators in the U.S.
have recently begun to hold individuals in positions of control
responsible for improper business activities, regardless of whether
they were aware of specific activities. For example, the CEO and
CFO of Nature’s Sunshine Products, Inc. were charged under the
FCPA due to improper cash payments made in 2000 and 2001 by
a Brazilian subsidiary of the company. These improper payments
were made in order to import unregistered products into Brazil,
and the subsequent falsification of the company’s books and
records to conceal the improper payments also violated the FCPA.
Further, the SEC’s civil complaint accused the executives of
violating the books and records and internal controls provisions of
the securities laws in their capacities as control persons, despite
the fact that the payments occurred in the early part of the decade
and neither of the executives were aware of the activities.
If the SFO’s recent enforcement actions are any indication,
individual prosecutions will also be on the rise in the U.K. In late
March 2010, three top executives of the British unit of French
industrial giant Alstom were arrested on suspicion of paying
bribes overseas to win contracts. In another matter, a former Vice
President of DePuy International, a U.K. subsidiary of Johnson &
Johnson, was prosecuted for conspiring with the corporation to
pay bribes to Greek healthcare officials. The SFO also has ongoing
investigations underway with individuals at Mabey & Johnson and
AMEC, after the corporations settled civil actions. In fact, recent
comments by Richard Alderman, Director of the SFO, reiterated
the belief that prosecutions will focus on individuals involved
rather than the corporation.
Another distinction between the FCPA and Bribery Act involves a
company’s use of agents or third parties. Under the Bribery Act,
corporations can be held liable for improper activities or bribery by
an “associated person,” or one who performs services on behalf
of a principal. The relationship can generally be described as any
agent or consultant acting on behalf of the company with actual
or implied authority. The FCPA takes into account the relationship
between the principal and the agent/consultant, and the principal’s
influence or control over the “associated person.” The Bribery Act
takes no such influence or control into account. The company will
be held liable in the event improper payments are made by its
representatives, regardless of control.
An important feature of the Bribery Act involves improper
performance, whereby the briber intends for the person being
bribed to intentionally perform their duties improperly to carry out
the bribe. To qualify as improper performance, the person being
bribed must be in a position of trust that performs their duties
impartially, in good faith, and is asked to deviate from the norm.
Local customs or expectations are not taken into consideration
when judged by the proposed U.K. standards.
In regards to a Foreign Public Official (“FPO”), the intent of improper
performance is not required. Under U.S. law, the FCPA requires
the payment to the FPO be “corrupt” in nature. There is no such
requirement under the Bribery Act. One merely must demonstrate
the intent to influence the FPO in his or her official capacity to gain
or obtain business or to receive an unfair advantage in the normal
course of business. In addition, the payment must not be allowed
by local policy. It should be noted that a bribe or payment need not
be carried out; merely the mention or offer of payment is enough
to be considered a bribe.
In many countries, facilitation or “grease” payments are made
to enable business. Companies making these payments often
receive shorter processing times and the advantage of receiving
business. The FCPA allows for certain types of payments in the
instance where local customs allow for such transactions. The
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Bribery Act does not permit facilitation payments, no matter how
small or routine. With less gray area, the Bribery Act provides a
clear “zero tolerance” policy and minimizes any loop holes in the
law that companies might exploit.
Although still being debated, the belief is that the Bribery Act will
prohibit companies convicted of bribery (and of implementing
inadequate control procedures to prevent bribery) from
participating in public contracts in the future, thus inhibiting the
company from possible channels of revenue and business.
One final distinction between the FCPA and Bribery Act
involves the criminal penalties for bribery. The Bribery Act
authorizes unlimited fines for companies and a maximum ten-year
prison sentence for individuals, as opposed to a five-year term
under the FCPA.
Conclusion n n n
Companies that currently have robust FCPA compliance
programs, and those that do not currently fall under the FCPA’s
reach, may have to revisit and possibly revise their compliance
programs based upon the expanded requirements of the Bribery
Act. In addition, the SFO is expecting companies that are selfreporting
to the DOJ and SEC to simultaneously self-report to the
SFO. Richard Alderman (SFO Director) stated in a recent speech
that there is almost daily contact between the SFO, the DOJ and
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Key differences in the U.K. Bribery Act and the FCPA
Issue/Requirement U.K. Bribery Act U.S. FCPA
Public v. Private Covers any company doing business in
the U.K., whether public or private,
headquartered or not in the U.K.
Specifically covers non-governmental officials
(i.e., private citizens)
Makes any bribery illegal
Facilitation Payments No defense for facilitation payments
Certain types of corporate hospitality are
prohibited if they are “intended to subvert the
duties of good faith or impartiality that the
recipient owes his or her employer”
Strict Liability for Failing to
Prevent Bribery
Strict Liability of Corporate Offense for the
failure of a corporate official to prevent bribery
Associated Persons Not defined by reference to the nature of the
relationship with, or control exercised over,
the associated person
Bribe recipient is liable Holds the bribe-taker, as well as the party
making or offering the bribe, liable
No “corrupt” element required Does not require that payments actually
be made
Penalties Criminal penalties up to 10 years per offense
Unlimited fines for companies
the SEC. The three regulatory bodies are working hand-in-hand
and sharing information, which will lead to more global settlements
and resolutions. The SFO has also issued guidance on the selfreporting
function and their expectations before companies meet
with the SFO.
Companies conducting business in the U.K. have been put on
notice with the recent SFO enforcement actions and the passage
of the Bribery Act. Those companies must review their global
compliance programs and how they communicate anti-corruption
efforts to employees and third parties. Companies’ anti-corruption
programs will likely be the difference between a hefty enforcement
penalty and a pass by the regulators.
Ryan C. Pisarik, CPA, CFF, CFE, CAMS, is a Director in the Dispute
Advisory & Forensic Services Group at Stout Risius Ross (SRR). He
specializes in corporate internal investigations, forensic accounting,
and complex commercial litigation. Mr. Pisarik can be reached at
+1.312.752.3338 or rpisarik@srr.com.
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Covers U.S. based or U.S. listed
public companies
Focus on anti-corruption of foreign
government officials
Makes bribery of foreign government
officials illegal
Specific defense for facilitation payments
No Strict Liability either written directly into
the statute or interpreted by judicial review
Defined by what control the company has
over the agent or third party
Does not target actual or would-be
recipients of a bribe
Payment must actually be made
Criminal penalties up to 5 years per offense