Back to overview

Commercial Question

Just a little 'thank you'?

updated on 11 January 2011

Question

What is the Bribery Act 2010 and what impact will it have?

Answer

The Bribery Act 2010 received Royal Assent on 8 April 2010 and is due to be brought into force in April 2011. It is being introduced on the back of widespread international criticism - notably from the Organisation for Economic Cooperation and Development - about the United Kingdom's lenient stance on bribery and corruption.

The act repeals existing legislation and creates four new offences: active bribery (offering a bribe), passive bribery (receiving a bribe), bribing a foreign public official, and a new corporate offence of failure of a corporate or partnership to prevent those performing services on its behalf from paying bribes.

Active and passive bribery
The act's provisions regarding active and passive bribery echo in many respects the current common law position, although they also introduce the concept of improper performance. Section 1 of the act makes it an offence to offer, promise or give a financial or other advantage to another person with the intention of inducing that person to perform a relevant function or activity improperly or to reward that person for doing so. Section 2 of the act makes it an offence for a person to request, agree to receive or receive a financial or other advantage intending that a relevant function or activity should be performed improperly as a result (either by that person or another), or as a reward for such performance.

'Relevant function or activity' includes functions of a public nature, or activities connected with a business. For 'improper performance' there is both a subjective and an objective test; the objective part is judged by what a reasonable person in the United Kingdom would expect in relation to the performance of the type of function or activity concerned, and therefore means that a person cannot use the defence that his actions were normal practice in the country in which he is operating.

Sections 1 and 2 apply to acts committed overseas as well as those committed in the United Kingdom; provided that the act or omission would have been an offence if it had been done or made in the United Kingdom and provided that the offender has a close connection with the United Kingdom. The definition of 'close connection' includes British citizens, an individual ordinarily resident in the United Kingdom or a body incorporated in any part of the United Kingdom. The residency test goes further than previous common law and statute.

Bribing a foreign public official
Section 6 of the act makes it an offence for a person to offer, promise or give a financial or other advantage to a foreign public official with the intention of influencing the foreign public official in his capacity as a foreign public official in order to obtain or retain business, where the foreign public official was neither permitted nor required by written law to be so influenced. It is not necessary for the person to know or intend the official to act improperly or for the official to actually act improperly - it is sufficient for the person to intend to influence him.

Penalties
The penalties for the main offences are very harsh: the maximum jail term for an individual convicted of bribery has been raised from seven to 10 years, while a company convicted of failing to prevent bribery could receive an unlimited fine and be debarred from entering into public tenders. In addition, individuals and companies can be subject to confiscation procedures under the Proceeds of Crime Act 2002; there is also personal liability for directors, secretaries and managers who 'consent or connive' to an offence made by a corporate entity.

New corporate offence: failure to prevent bribery
The main change to the law is the introduction of a corporate offence - that of failing to prevent bribery. Section 7 of the act states that an offence is committed where a person associated with a relevant commercial organisation (which includes not only employees, but agents and external third parties) commits one of the offences above, intends to obtain or retain a business advantage, and that the organisation cannot show that it had adequate procedures in place to prevent bribes being paid.

Currently, a company is only likely to be guilty of a bribery offence if very senior management is involved. The new rules are therefore intended to place much more responsibility on corporates to ensure that their associates comply with the law. Under this corporate criminal offence, the company may be guilty even if no one within the company knew of the bribery. Under Section 7(2), the only defence is for the company to show that it had adequate procedures in place designed to prevent persons associated with it from such behavior - this means that the burden falls on corporates to ensure that they have strict enough anti-corruption procedures to prevent their associates from committing bribery.

Extra-territorial reach
This offence will apply to commercial organisations with a business presence in the United Kingdom (regardless of where the bribe is paid or whether the procedures are controlled from the United Kingdom). This gives the legislation much wider reach than there is currently and brings the UK regime more in line with that in the United States, which also applies to extra-territorial activities.

Government guidance
Under the legislation, the government is required to provide guidance on what amounts to 'adequate procedures'. This guidance is due to be published in January 2011 and will centre around six principles:

  • risk assessment;
  • top level commitment to preventing bribery;
  • due diligence;
  • clear, practical and accessible policies and procedures;
  • effective implementation of such procedures; and
  • monitoring and reviewing such procedures.

The guidance has been widely criticised, however, for not providing much real guidance for companies on how to best implement policies and procedures in order to give them a strong defence. Ultimately, it will be up to the courts to decide whether a corporate had adequate procedures in place - something that will not provide corporates with a great deal of comfort.

Impact on acquisitions and joint ventures
Although an acquirer will not be liable for the acts of a target company pre-acquisition, the target could subsequently be prosecuted, fined and/or face an action for civil recovery; its assets could also be confiscated, and the company could be debarred. An acquirer will therefore want to carry out detailed due diligence in this area and also demand warranties and indemnities if it suspects any suspect behaviour; the same will be true for a company acquiring a stake in an existing joint venture. For both new and existing joint ventures, a partner in a joint venture entity could incur liability for acts of the joint venture entity - it could also incur liability for acts of the other joint venture partner if the other partner is performing services on its behalf or on behalf of the joint venture entity. Protection for the parties will therefore need to be built into joint venture agreements to address these risks.

Rhiannon Davies is a first-seat trainee in the corporate department of Herbert Smith LLP