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Burning Question

Degreasing the wheels

28/05/2013

Walker Morris LLP

Question

How effective has the Bribery Act 2010 been?

Answer

Conviction rates have been low since the inception of the Bribery Act 2010, but there are obvious risks for both individuals and companies. With the Serious Fraud Office (SFO) vowing recently to take a harder line, the implications of the act may start to be felt sooner rather than later.

Background to the act

The implementation of the act in 2011 was an attempt by the government to reform archaic British laws on bribery. At its heart was the intention to curtail corruption in the business world by setting out new laws that made bribery-related offences illegal.

More specifically, the act created two main offences: the act of bribing another person and the act of being bribed. There are two further offences: bribing a foreign public official; and – a new corporate offence – the failure of a commercial organisation to prevent bribery on its behalf. The penalties can be severe; individuals can face up to 10 years in prison and an unlimited fine, while companies can also face unlimited fines.

Convictions so far

The limited number of convictions to date has been restricted to individuals (although this does not take account of the possibility of discreet settlements reached by the SFO). The first conviction in 2011 involved a court clerk in London accepting a bribe to prevent the entry of a traffic penalty for speeding onto a legal database. The clerk received six (later reduced to four) years' imprisonment. More recently, a student (who is the son of a Chinese public official) received a 12-month sentence for attempting to cajole tutors at the University of Bath into giving him a good grade with a £5,000 wad of cash. Both of these offences would have led to convictions under the old regime, but the sentences imposed are arguably stricter as a consequence of the post-Bribery Act culture.

A lack of company prosecutions under the act should not lull UK businesses into a false sense of security, particularly as the SFO has recently toughened its stance. In the past nine months we have seen BAE's proposed merger with the European Aeronautic Defence and Space Company (EADS), which ultimately collapsed, overshadowed by allegations that an EADS subsidiary had bribed public officials in Saudi Arabia. There have also been claims that the stalwart of British motoring, Rolls-Royce, has been involved in bribery in the past.

In early 2013 the SFO issued new guidance setting out the harder line it intended to take as an investigator and prosecutor, focusing on facilitation payments, self-reporting and corporate hospitality.

Corporate hospitality

It was the creation of the new corporate offence that gave rise to much of the public clamour during implementation of the act. Although the current conviction rates seemingly indicate that this aggrieved rhetoric from companies was unfounded, it is undoubtedly the factor that poses the greatest concern to businesses in their day-to-day activities.

Guidance from the Ministry of Justice acknowledges that "gifts and hospitality that promote the image of a company, better presents products or services, or promotes cordial relations between organisations is an important part of doing business and are permitted". However, the gifts and hospitality need to be given in good faith, must be reasonable and proportionate, and must be within the norms of that particular industry.

The summer is usually a busy period in both the sporting calendar and the corporate hospitality sector. This year, in addition to the annual Wimbledon tennis championships, the British formula one grand prix and Royal Ascot, there is a home Ashes cricket series and, of course, the Champions League football final which was held at Wembley Stadium on Saturday 25 May. With a plethora of sporting events across Britain this summer, there are more opportunities for businesses to host clients and contacts, but this is accompanied by potential risk. This becomes even more pertinent when considering that the act outlaws "lavish" entertainment and the fact that the most expensive Wimbledon packages (including a champagne reception, fine dining and a top seat at the men's final) can cost in excess of £4,500.

With that in mind, what is "reasonable and proportionate" or the "norm" for a particular industry remains a grey area and has understandably created trepidation. For example, would an international telecommunications company taking clients to the Champions League final be considered a "norm", but a local engineering business entertaining at Ascot be deemed otherwise?

Conclusions

In a recent report by the House of Lords committee on small and medium-sized enterprises, the committee called for urgent scrutiny of the act and suggested that it had been met with "confusion and uncertainty." Some small businesses even went as far as to tell the committee that the act had put the United Kingdom at a disadvantage in attracting overseas business. This can, of course, be counterbalanced by those that report that the act has enhanced the United Kingdom's reputation for ethical standards in business and made it a more stable place for foreign investors to conduct business.

What is certain is that, despite a lack of activity to date, the act is here to stay and both individuals and companies need to be wary of the consequences of breaching the legislation. Even allegations of bribery can have a significant effect on a company's public image and, as such, companies should strive to have effective and thorough internal anti-bribery policies and governance strategies to minimise the risk of committing an offence. As for individuals, well, just don't offer your tutors £5,000 in exchange for a pass!

Robert Crossley is a professional support lawyer at Walker Morris.


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