U.K. MINISTRY OF JUSTICE OPENS CONSULTATION PERIOD REGARDING DRAFT ADEQUATE PROCEDURES GUIDANCE UNDER THE U.K. BRIBERY ACT

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1 CLIENT MEMORANDUM U.K. MINISTRY OF JUSTICE OPENS CONSULTATION PERIOD REGARDING DRAFT ADEQUATE PROCEDURES GUIDANCE UNDER THE U.K. BRIBERY ACT On September 14, 2010, the U.K. Ministry of Justice (the MoJ ) opened an eight-week consultation period on its recently issued proposed guidance regarding what would constitute adequate procedures for the prevention of corruption under the newly enacted U.K. Bribery Act (the Bribery Act or the Act ). The Bribery Act, which is anticipated to go into effect in April 2011, is a comprehensive new anticorruption regime that, among other things, creates a new strict liability offense for commercial organizations that fail to prevent bribery. 1 Under the Act, strict liability may be avoided if the company can establish that the offense occurred despite the company s adoption of adequate procedures for the prevention of corruption. The new strict liability offense for failure to prevent bribery applies broadly to commercial organizations, defined to include corporations and partnerships that are incorporated or formed under the laws of the United Kingdom or incorporated or formed outside of the United Kingdom but that carr[y] on a business, or part of a business in the United Kingdom. A commercial organization is guilty of failure to prevent bribery if a person associated with the organization, including an employee, agent, or subsidiary, pays a bribe intending to obtain or retain business or a business advantage for the organization. A commercial organization can avoid liability for the acts of associated persons if it can show that it had in place adequate procedures to prevent such conduct at the time the bribery occurred. The Bribery Act requires the U.K. Secretary of State to publish guidance regarding the procedures that will satisfy this defense. The consultation period for the newly issued draft procedures runs through November 8, 2010, and provides the opportunity for any interested person or entity to comment on or seek clarification of the proposed guidance. To this end, the MoJ has published a consultation paper containing information about the consultation process, the proposed guidance, and a series of illustrative scenarios that will not be included in the final guidance. These materials can be found on the MoJ website at We encourage clients with U.K. connections as set forth in the preceding paragraph to review the consultation materials and participate in the consultation process. Willkie s Compliance and Enforcement Practice Group is available to advise or assist clients in drafting and/or submitting consultation feedback. 1 For more information about the provisions of the Bribery Act, please consult our April 19, 2010, Client Memorandum, United Kingdom Enacts Bribery Act NEW YORK WASHINGTON PARIS LONDON MILAN ROME FRANKFURT BRUSSELS in alliance with Dickson Minto W.S., London and Edinburgh

2 The Proposed Guidance on Adequate Procedures The proposed guidance sets out six general principles designed to help organizations understand the types of procedures they can put in place to prevent or detect bribery. The six principles are intended to be sufficiently general to be applicable across sectors and for all types and sizes of business. As a result, they do not prescribe particular elements or procedures; rather, they are intended to assist an organization in reviewing and assessing the adequacy of the compliance program it has in place and to identify areas for improvement. The six principles constituting the elements of adequate procedures are: 1. Risk Assessment. An organization regularly and comprehensively assesses the nature and extent of its bribery risks. o Key risks to consider include internal risks (e.g., deficiencies in employee training, and the organization s compensation structure) and external risks (e.g., level of corruption risk in countries of operation, transactions involving government customers, and transactions involving third-party partners or intermediaries). 2. Top Level Commitment. An organization s top level management (i.e., its board of directors or owners) is committed to preventing bribery and establishing a culture in which bribery is not tolerated. o Top level managers may consider such steps as issuing public statements of commitment to countering bribery in all parts of the organization s operations or appointing a senior manager to oversee the organization s antibribery program. 3. Due Diligence. An organization has due diligence policies and procedures that cover all parties to its business relationships, including agents, intermediaries, joint venture partners, suppliers, and similar parties, and all markets in which it does business. o Due diligence inquiries may focus on factors such as the risk of bribery in the country in which the organization seeks to do business, the reputation of a proposed business partner, and the risks associated with the particular business opportunity. 4. Clear, Practical, and Accessible Policies and Procedures. An organization s policies and procedures to prevent bribery are clear, practical, accessible, and enforceable. o Bribery prevention policies and procedures should take into account the functions performed by all officers, directors, and employees, as well as all individuals and entities over which the organization has control. o The policies should include a clear prohibition of all forms of bribery, guidance regarding political and charitable contributions, gifts, hospitality and promotional expenses, and guidance on reporting procedures and whistleblower protections

3 5. Effective Implementation. An organization effectively implements its antibribery policies and procedures and ensures that they are embedded throughout the organization. o Some measures to ensure effective implementation may include providing bribery prevention training courses, publishing antibribery information on the organization s website, and establishing policies subjecting employees to internal sanctions if they pay or accept bribes. 6. Monitoring and Review. An organization institutes monitoring and review mechanisms to ensure compliance by its employees and to identify compliance issues as they arise. o Organizations should consider employing internal monitoring and review mechanisms, such as financial and auditing controls. o Larger organizations may consider requiring regular reporting to the Audit Committee of the Board of Directors or an equivalent body, which, in turn, may wish to commission an independent assessment of the organization s antibribery policies. Additional Information About the Act In addition to the foregoing six principles, the MoJ s consultation paper includes an additional text entitled Further Information About the Act, which appears to be part of the guidance, as well as a set of illustrative scenarios, which do not form part of the guidance. The former describes the principal provisions of the Act and discusses specific issues relating to the application of the law, including the treatment of hospitality and promotional expenditures and the status of facilitation payments. The latter includes hypothetical scenarios addressing topics such as hospitality and promotional expenditures, facilitation payments, political and charitable donations, the use of intermediaries and agents, and dealing with business partners. Hospitality and Promotional Expenditures The application of the Bribery Act to routine hospitality and promotional expenditures has been the focus of significant debate, particularly with respect to the offense of bribery of a foreign public official. Under the Act, a person may be convicted of bribery of a foreign public official if he or she offers, promises, or gives, directly or indirectly, a financial or other advantage to a foreign public official with the intent to influence that official in his or her official capacity and to obtain or retain business or a business advantage. Unlike the U.S. Foreign Corrupt Practices Act (the FCPA ), the Bribery Act does not require that the offer, promise, or payment be made corruptly, nor does it include a defense for reasonable and bona fide promotional or contractual expenses. Thus, the plain language of the Act would appear to criminalize all promotional gifts or hospitality expenses, which are, by definition, provided with the intent of influencing the official in order to obtain or retain business

4 However, the MoJ explains in Further Information About the Act that a reasonable and proportionate hospitality or promotional expenditure which seeks to improve the image of a commercial organisation, better to present products and services, or establish cordial relations, is recognised as an established and important part of doing business. Acknowledging the expansive statutory language, the MoJ nevertheless suggests that such expenses are unlikely to trigger the Act because either (a) they do not amount to financial or other advantages if they are costs that would otherwise be borne by the relevant foreign government, rather than the official, or (b) there is not a sufficient connection between the expenses and the intention to influence the official and to secure business or a business advantage based on the fact that standard hospitality is not likely to impact decision making on a high-value business opportunity. The MoJ does not describe the types of expenses that would be likely to trigger the Act, stating only that the more lavish the hospitality or expenditure provided to a public official the greater the inference that it is intended to influence the official to grant business or a business advantage in return. Thus, although this clarification regarding the legality of hospitality or promotional expenditures under the Bribery Act is helpful, it seems more theoretical than practical and may be of limited use to companies struggling to develop policies and procedures. In addition, the illustrative scenario that discusses hospitality and promotional expenditures is similarly of limited assistance because it describes a situation in which the hospitality provided was neither reasonable nor bona fide and, therefore, does not assist the reader in understanding exactly where the line will be drawn. Facilitation Payments With regard to facilitation payments, the MoJ observes that, unlike in the FCPA, there is no exception for facilitation payments under the Bribery Act (or current U.K. law) and that such payments are likely to trigger the Bribery Act. However, in a later section discussing prosecutorial discretion, the MoJ explains that in deciding whether to bring a case under the Act, prosecutors will consider both (1) whether there is sufficient evidence to convict, and (2) whether prosecution is in the public interest, observing that [t]he more serious the offense, the more likely it is that a prosecution will be required in the public interest. Thus, the MoJ appears to be suggesting that a prosecutor may decline to prosecute payments that would qualify as facilitation payments under the FCPA, as such a prosecution might not be in the public interest. Conclusion Although the proposed guidance leaves many questions unanswered, it highlights the need for organizations operating even a part of a business in the United Kingdom to assess the adequacy of their current compliance policies and procedures and implement any necessary enhancements before the Bribery Act becomes effective in April As we have discussed in this and previous client memoranda, there are several ways in which the provisions of the Bribery Act are potentially more restrictive than those of the FCPA. Accordingly, compliance policies and procedures designed to ensure compliance with the FCPA may not qualify as adequate procedures under the Bribery Act and should be reexamined in accordance with the principles set forth in the Act and the guidance

5 Consultation Process The consultation period will run for eight weeks, ending on November 8, During the consultation period, individuals and companies are invited to submit feedback on the form or content of the draft guidance by or post, or through an online questionnaire. 2 In addition, the MoJ will be hosting a series of open discussion seminars in cities throughout the United Kingdom, including a seminar in London on October 4. We encourage clients to review the consultation materials and participate in the consultation process. The feedback provided during the consultation period will assist the MoJ in identifying and addressing deficiencies in the guidance before it is finalized. Once finalized, the guidance will be a critical piece of the U.K. s new antibribery regime. Willkie s Compliance and Enforcement Group will be following the consultation process closely and may be called upon to assist clients in analyzing the guidance as it applies to their particular businesses or industries and in formulating and submitting consultation feedback. * * * * * * * * * * * * * * * If you have any questions concerning the foregoing or would like additional information, please contact Martin J. Weinstein ( , mweinstein@willkie.com), Robert J. Meyer ( , rmeyer@willkie.com), or Jeffrey D. Clark ( , jdclark@willkie.com) in Washington D.C.; Abra E. Edwards (+44 (0) , aedwards@willkie.com) in London; or the attorney with whom you regularly work. Willkie Farr & Gallagher LLP is headquartered at 787 Seventh Avenue, New York, NY and has offices located at 1875 K Street, NW, Washington, D.C and Citypoint, 1 Ropemaker Street, London EC2Y 9HT, United Kingdom. Our New York telephone number is (212) and our facsimile number is (212) Our Washington, D.C. telephone number is (202) and our facsimile number is (202) Our London telephone number is +44 (0) and our facsimile number is +44 (0) Our website is located at September 23, 2010 Copyright 2010 by Willkie Farr & Gallagher LLP. All Rights Reserved. This memorandum may not be reproduced or disseminated in any form without the express permission of Willkie Farr & Gallagher LLP. This memorandum is provided for news and information purposes only and does not constitute legal advice or an invitation to an attorney-client relationship. While every effort has been made to ensure the accuracy of the information contained herein, Willkie Farr & Gallagher LLP does not guarantee such accuracy and cannot be held liable for any errors in or any reliance upon this information. Under New York s Code of Professional Responsibility, this material may constitute attorney advertising. Prior results do not guarantee a similar outcome. 2 For more information, visit