Decision time:  The UK Bribery Act and what it means for Australian companies

On 1 July 2011, and after much fanfare, the UK Bribery Act (the Act) came into effect. Similar in nature to the U.S. Foreign Corrupt Practices Act (the FCPA), Australian Criminal Code and recently enacted Chinese legislation, the Act stands to be far broader in scope - with virtually all companies that conduct business in the UK being subject to its strict regulations. Furthermore, penalties for noncompliance are also more agressive than those of its international counterparts; these penalties will include unlimited fines to be levied against any person or organisation, along with imprisonment of up to 10 years. The Act has far-reaching implications for any business (including Australian business) which is registered in the UK, has any part of its operations in the UK, or employs UK citizens. The breadth and importance of this legislation mean that companies and their senior officers would be well-advised to familiarise themselves with the effects of this new law.

The Act in brief
According to the Act, a bribe is defined as offering an advantage intending to persuade or reward a party to perform a "function or activity" improperly; such an advantage may be financial or nonfinancial. Applicable to any company that has a UK office, employs UK citizens, or provides any services to a UK organisation, the legislation includes three principal offenses of bribery:

• Offering, promising or giving a bribe 
• Requesting, agreeing to receive or taking a bribe 
• Bribing a foreign public official

In addition to these principal offenses, the Act includes the corporate offence of failing to prevent bribes being offered or paid on the company’s behalf — meaning that the company will be held strictly and criminally liable. An organization will be found guilty of such an offense when it fails to prevent an “associated” person from bribing another with the intent of obtaining business for, or with an advantage of conducting business with, that company.

This offense is of particular importance, because no motive is required and a company’s guilt can be the result of attempted or actual bribery by the associated person. This could include any person or company that performs services for the organization — such as employees, agents, subsidiaries or joint ventures. If the associated person would be liable under Sections 1 or 6 (bribery of another person or bribery of a foreign public official), then the organization may be liable under Section 7, as long as the bribe was made for the benefit of the organization. According to Section 7 of the Act, an organization will have an affirmative defense if it can show that it had in place “adequate procedures” to prevent bribery, however the standard of proof it would need in order to prove the defense hangs in the balance of probabilities.

Applicable Australian companies
Having taken effect on July 1, the Act will apply to an Australian company if:

• any act or omission as part of a principal offense takes place in the UK or a foreign country; or 
• any corporate offense of failing to prevent bribes occurs at an organization that “carries on a business or part of a business” in the UK — regardless of its place of incorporation or primary location.

In other words, the bribery activity can take place anywhere in the world. Furthermore, UK authorities have also expressed their intent to prosecute such offenses even when the improper payment has no connection with the UK and regardless of whether the payment was known or authorized by the company.

The Act does include some limitations, stating that “the mere fact” that a company’s securities are listed on the London Stock Exchange will not necessarily subject it to the Act’s regulations. In addition, simply having a UK subsidiary would not “in itself” be sufficient to subject a parent company or its affiliates to the Act’s regulations. However, it remains uncertain what degree of independence will be required to ensure that a subsidiary meets this standard.

Avoiding violations that carry strict criminal liability
In an effort to limit criminal violations, the Act includes a list of “adequate procedures” for companies to implement as a means of helping prevent bribery activity within their organizations. The Act’s guidance outlines six principles of adequacy on which companies will be evaluated. Brief descriptions of these principles are as follows:

1. Proportionate procedures:  Procedures created to prevent bribery within a company should be proportionate to the bribery risks of that particular organization and its business activities. These procedures must clearly and practically communicate what a company’s bribery risks are. The organization must also develop a business strategy for risk prevention that includes implementation and enforcement. 
2. Top-level commitment:  Companies must instill a concrete commitment to preventing bribery within their organization. This commitment must begin at the board level and include a statement of commitment to conducting business honestly and transparently, along with a zero-tolerance policy, a code of conduct regarding bribery, and strict consequences for breach of these measures. 
3. Risk assessment:  Policies and procedures must undergo an assessment as to the “nature and extent” of the company’s exposure to potential bribery risks. Such assessments should be timely and ongoing, taking into account such factors as size, sector, country of operation, transaction types, and business relationships, among other factors. 
4. Due diligence:  Due diligence procedures should not only contribute to a company’s bribery risk assessment, but also serve as a means of mitigating risk. Developed in conjunction with a company’s risk profile, these procedures may require additional review to identify risk areas properly, taking into account business operations and third-party involvement. 
5. Communication and training:  A company must communicate both internally and externally its commitment to preventing bribery. Accordingly, communication and training should include implementation of bribery-related policies and procedures and articulation of the consequences of failing to follow those procedures, as well as how to respond to and report potential violations. 
6. Monitoring and review:  Companies must develop means of properly monitoring and reviewing the effectiveness of their bribery prevention procedures. In addition, companies must be able to modify these procedures in conjunction with operational or regulatory changes.

Other important areas of the Act
Below are a few additional areas of the Act that may be of interest to Australian companies in their preparation for compliance with the legislation:

Corporate entertainment and promotional expenditures
The Act clearly prohibits many entertainment and promotional expenditures routinely made by most companies. However, as the Act’s guidance notes, the Act does not intend to penalize this type of activity, stating that hospitality (or promotional expenditure) that is “reasonable, proportionate and made in good faith is an established and important part of doing business.”

Facilitation payments
Facilitation payments, on the other hand, are strictly prohibited by the Act, without any exemptions. According to the Act’s guidance, the amount and number of facilitation payments will contribute to the size of the penalty, with a “single small payment” resulting in “only a nominal penalty” or potentially no penalty at all, while “large or repeated payments” may result in much stiffer consequences because such payments could indicate premeditated activity.

Commercial bribery
The Act covers “commercial bribery” in both the public and the private sectors, including bribery between two private parties. This is unlike the Australian Criminal Code and other international legislation, which only prohibits improper payments to foreign government officials when at least one party is in the public sector.

Conclusion
While the UK courts will decide the extent of the Act’s jurisdiction over non-UK companies, UK prosecutors will take the view that virtually any company that conducts business operations in the UK must comply with the Act. Because of the differences between the Act and existing legislation, companies that already have compliance programs in place should re-evaluate them for the effectiveness, or “adequacy,” of their anti-corruption policies and procedures, because adjustments may need to be made. Companies that lack anti-corruption compliance programs should take steps to implement adequate procedures and internal controls before the Act takes effect.

The Act’s guidance issued by the Ministry of Justice is intended to address such procedures as they relate to the concepts outlined, but there is no one-size-fits-all approach to compliance with the Act. When developing and deploying a compliance program, consider the size, the resources and the degree of risk associated with the organization. Conducting a risk-based assessment just makes good business sense in light of the evolving crackdown on potentially corrupt activities. Failure to act will count against you should your existing procedures prove inadequate. In the long run, taking action is a cost-effective way to avoid criminal liability, penalties, legal costs and reputational harm because of the wrongdoing of an employee or agent.

If you have any questions about the Act or would like to receive additional information about this Alert, please contact your usual Grant Thornton advisor or a Grant Thornton Forensic & Investigation Services professional.

The Ministry of Justice guidance can be found here

Chris Watson
Associate Director - Forensic & Investigation Services
T  +61 7 3222 0267
E  chris.watson@au.gt.com