It’s been just over a year since the UK Bribery Act (UKBA) became law, and recently Britain’s Serious Fraud Office (SFO) has reaffirmed its commitment to pursuing bribery cases. The act and its enforcement have important consequences not only for UK companies, but for anyone doing business with the UK.
Rob Morris, managing director of AlixPartners, explains to FinanceAsia what the act means and its likely effect.
What is the geographical reach of the UKBA? Who does it apply to and where?
The act has a global reach, applying to any person or business that has a link to the UK. So this will include any company, regardless of whether they are British or not, that has some connection to the UK. The act also applies to UK nationals, British overseas citizens and those ordinarily resident in the UK. In addition, it applies to the acts of any party “associated” with an organisation — meaning a person or company that “performs services” for or on behalf of an organisation. This includes employees, agents and subsidiaries and can also include the likes of contractors, suppliers and joint ventures.
What happens when its provisions conflict with the US Foreign Corrupt Practices Act (FCPA) or other rules in other jurisdictions?
With regard to the FCPA it is hard to see there being conflict between the two laws. The UKBA parallels the FCPA in many areas, and where there are differences (facilitation payments, non-government official corruption and corporate offences for failing to prevent bribery) it will be up to the enforcing body in each respective country to determine whether the actions constitute a contravention of the law, or whether the company’s defence is an appropriate one. A particular act may be acceptable in one country while being illegal in another (each with extra-territorial laws). Where an organisation is subject to multiple jurisdictions (ie, UK and US) — a situation faced by all multinational companies — organisations will need to work towards the “higher standard” of regulation and ensure that their compliance procedures are sufficient to meet the higher test.
Can UK companies expect to compete on a level playing field in other parts of the world, for instance Russia, China and the rest of Asia?
Absolutely not. Laws like the UKBA and the FCPA undoubtedly put companies that fall under their jurisdiction at a disadvantage simply because competitors may be able to win contracts through the use of bribes. However, their position may not be as bad as it first seems. Firstly, because both pieces of legislation are extra-territorial (ie, they can be applied in appropriate circumstances to non-US or UK firms), it is possible that a UK firm’s competitors may be subject to the same law even though they are not a UK business. The SFO has encouraged firms to confide in them if they are finding that they are competing on a slanted playing field, which may lead to the SFO bringing actions against the competitor. Secondly, while the UKBA and FCPA are the most visible pieces of legislation, the 34 members of the OECD have signed up to the OECD Anti-Bribery Convention, which criminalises the bribery of government officials. Furthermore, an additional five countries that are not in the OECD, including Russia, have also ratified this convention. Of course, signing up is one thing, enforcing another, and some countries have been singled out by the OECD as needing to have more active enforcement, Sweden and Slovakia being the two most recent. China is not a signatory, though China does have powerful anti-corruption legislation, though again, enforcement is uneven.
What will be the main effect on UK companies doing business in Asia?
It will move bribery and corruption up the importance scale for CEOs, general counsels and compliance officers. Companies will need to take a more proactive and prescriptive approach to how they assess such risks, looking at the environment that they are working approach to how they assess such risks, looking at the environment that they are working in, and then formulate policies, procedures and controls to address those risks. They will also have to ensure that these policies, procedures and controls are getting implemented down at grass roots level. In Asia the use of agents and distributors is more common than in say Europe, and UK companies will need to understand that they will be expected to monitor and assess the compliance of their agents with this law. This will mean tailored due diligence, the drafting of contracts that require UKBA compliance, and possibly the right of the UK company to audit the agent to ensure compliance. For multi-national companies headquartered in the UK this should not mean much change though, as any company with operations in the US would already be caught under the FCPA which as we have said makes similar requirements. All of these measures, forming a robust corruption compliance programme, will need to constitute “adequate procedures”, which companies will need to implement in order to protect themselves against potential prosecution and liability.
What will be the main effect on Asian companies doing business in the UK? For example, how might the act be used against a Hong Kong businessman with extensive interests throughout the world who also owns companies in the UK? Perhaps more obviously, how might it apply to a Russian businessman?
Both the Hong Kong and Russian businessmen, along with their respective companies, would be potentially liable for acts of bribery if they or their businesses were to have some connection to the UK. Should either businessman have a business in the UK the potential liability would arise as a result of any of their worldwide actions — not just those in the UK.
Are the criteria for corrupt practices universal or discretionary?
Universal. Within the FCPA there is a carve-out for payments that are considered as grease payments to make something that will happen as routine happen faster, the important thing being that the government official does not have any power of discretion. The UKBA provides for no such carve-out. A contravention of the laws is not discretionary. In fact, the UKBA has introduced a “strict liability” corporate offence for “failing to prevent bribery”. A strict liability offence is one that occurs virtually automatically unless a defence can be shown. If someone in an organisation (or someone on behalf of an organisation) commits a corruption-related offence, the organisation also commits an offence unless it can demonstrate that it has implemented “adequate procedures” to prevent the bribery from taking place.
The “red flags” listed by the SFO in November 2011 seem to have many grey areas, so how will they be dealt with in a fair, proportionate and consistent manner?
I believe that any greyness within the red flags is intentional, since to be to prescriptive invites people to seek refuge behind the strict definition of the red flags: “Look, we took steps to address all the red flags identified by the SFO so we must be innocent.” As to how this greyness should be managed, the SFO appears to have been at pains to want to encourage dialogue. Therefore in the event of companies becoming aware of red-ish flags, it would encourage them to discuss these signs with the SFO to determine what sort of steps it would need to be taking, in a similar, but possibly less formal way to the US Department of Justice Opinion Procedure process. Ultimately, as with all statute-based law, uncertainties will be addressed and the overall law developed by way of case law.
Will governments, including UK ministers and representatives, be treated the same way as private companies? For instance, how will the appropriateness of private meetings be monitored and assessed?
Obviously, I have no inside track on this, but one would hope that if government officials are subject to the UKBA (ie, they are acting within the UK or are UK officials) that they would be handled similarly. They are UK citizens so they will fall under the same jurisdiction as anyone else that is also covered.
Why has there not yet been a successful prosecution against a company by the SFO since the introduction of the UKBA?
Primarily, it’s because the UKBA’s application is not retroactive. Therefore, in order for an act to constitute an offence under the UKBA, it must have been carried out since July 1, 2011. Many frauds or illicit acts are not usually detected immediately so there will likely be a lag time between the introduction of the UKBA and any substantive prosecution. The SFO has stated that there are prosecutions afoot under the old patchwork of legislation that outlawed corruption, and that there will be prosecutions under the UKBA, but that it takes time to bring such cases to fruition. They have also stated that they will not necessarily go after the easier cases. In terms of barriers, I certainly do not believe that it is a lack of evidence or culprits. One only has to look at the number of settlements achieved under the FCPA. And that, of course, leaves motivation and resources. The new director of the SFO, David Green [since April 2012], appears to have the motivation. Resources, however, are an issue; £2 million ($3.1 million) is a minute sum. If the SFO wants the UKBA to be taken seriously it needs successful cases, and to have successful cases it needs resources. Nobody had heard of the FCPA until 2002. Now everyone knows about it.
How does the SFO expect breaches of the act to be identified? Serendipity, whistleblowers, media, analysts or blanket scrutiny?
Whistleblowers will be the major source of identification — whistleblowers in the form of employees, ex-employees and competitors. This is increasingly the case with the US SEC having introduced its whistleblower bounty program, coupled with ever-increasing levels of cooperation between foreign regulators. The US bounty program can award 10% to 30% of ultimate penalties levied against corporations (for penalties exceeding $1 million), which provides powerful incentives for illicit behaviour to be reported. Blanket scrutiny has been effective in the States, but obviously can’t be achieved on the existing UK budget.
Will the act have a significant effect, or will it be easily circumvented?
The FCPA is a very hard piece of legislation to circumvent — if you are a company of 10,000 people, you potentially have 9,999 sources for a tip-off. It has the potential to have a significant effect on companies, but whether it does will be a function of how it is enforced. The UKBA is a more robust piece of legislation than the US FCPA so it will come down to the way in which it is enforced, primarily by the SFO.
How much political commitment is there for the act, or is it public relations?
The circumstances surrounding the genesis of the UKBA were very reactive — to the fall-out from the British Aerospace bribery case. As such it could be that it is a sop to critics of the UK government’s derisory efforts to punish corruption up until now. Introducing legislation that is frequently regarded as anti-business at a time when the economy is dire has certainly attracted criticism from politicians. It remains to be seen whether Green can overcome the constraints that he has to live up to the aggressive commitment he made to enforcing the act on taking office.
Anything else you would like to stress?
The FCPA is very much a big-stick piece of legislation: “If we find out that you have broken the law, we will demand a material settlement from you to avoid dragging the matter through the courts.” The UKBA is, in theory (since we haven’t seen it in action yet), far more of a carrot piece of legislation: “Come to us with the problems you are facing in the real world, and let’s determine how best you can proceed.” If the carrot is not taken however, it also can be a very large stick, with unlimited corporate fines for failing to prevent bribery. Corporations should be assessing their corruption-related risks and seek advice in order to implement an appropriate risk-based corruption compliance programme.
