BusinessHR Hot topic : the Bribery Act 2011 May

Introduction BusinessHR Hot topic : the Bribery Act 2011 May The Bribery Act 2010 was originally scheduled to come into force in April 2011, but was delayed until three months after the guidance from the Ministry of Justice was produced. This is now available and the Act will therefore come into force on 1 July 2011. The Act applies to all UK companies/organisations in all sectors, as well as foreign businesses operating a branch or subsidiary in the UK (but the guidance exempts those that are simply listed on the London Stock Exchange). It applies in England and Wales, Scotland and Northern Ireland - but note that it covers offences committed worldwide, ie an offence can be committed even where no relevant act takes place within the UK. Whilst bribery is already an offence under the Prevention of Corruption Acts 1889-1916, the law is out of date, has developed through case law, and does not have a good enforcement record. The Bribery Act has taken years before receiving Royal Assent, which it finally did in April 2010. The recent delay in implementation is not due to the Act itself (which does not change) but because it could be interpreted in a way that meant that the acceptance of apparently harmless corporate gifts (eg bottles of alcohol and tickets to sporting events) could breach the Act and expose employers to the risk of accusations of bribery. Guidance was therefore required to clarify the Act. Whilst this has no legislative force, it is likely to carry some weight when the courts start ruling on the Act. It is not prescriptive but requires a risk-based approach and for "proportionate" steps to be taken. The Justice Secretary says that the guidance emphasises a "common sense approach" rather than increased red tape. Despite protests and criticisms of the guidance from some groups as "deplorable for weakening the Act", Vince Cable, Business Secretary, said that over time the government expects the new Act to boost the prospects of UK businesses through enhanced reputation for ethical standards, reduced costs and a level international playing field. Main features of the Act The Act introduces four main offences which may be committed in the UK or overseas: 1. offering, promising or giving a bribe 1

2. receiving a bribe - this includes requesting, agreeing to receive or accepting a bribe 3. bribing a foreign public official with the intention of obtaining or retaining business or an advantage in the conduct of business. Any local custom or practice must be disregarded unless permitted or required by the written law applicable to that particular country. (Written law means any written constitution, provision made by or under legislation applicable to the country concerned or any judicial decision evidenced in published written sources.) The sorts of payments covered here include facilitation payments and "grease payments" made across borders to move goods. 4. applicable to commercial organisations only, a new offence of failure by a commercial organisation to prevent a bribe being paid for or on its behalf that is intended to obtain or retain business, or an advantage in the conduct of business, for the organisation. If bribes are paid by or on behalf of a commercial organisation (that is a company incorporated in the UK or a partnership formed under UK law) by a person associated with it (either by employees or agents acting on behalf of the company, including workers, consultants, sub-contractors, distributors, subsidiary businesses and joint ventures), the company can be prosecuted for failing to prevent bribery. Note that suppliers of goods will not be 'associated persons' unless they are additionally providing services to the organisation. The last offence applies only to commercial organisations; the others relate equally to public and private-sector organisations. It will also be easier for the Serious Fraud Office to prosecute bribery and corruption offences. Definition of bribery To many people, bribery immediately conjures up visions of the giving or receipt of money: however, it is broader than this and more discreet forms, such as offering a commercial advantage, or offering and receiving lavish gifts, also come under the Act. The Act defines bribery as: "the receiving or offering of an undue reward by or to any person whatsoever in public office or in a business capacity in order to influence his behaviour and include him to act contrary to the known rules of honesty and integrity". Note that a bribe does not have to be paid: a mere promise will suffice, and this does not need to be deliberate but may be accepted unwittingly. Corporate hospitality Many employers were most concerned about this aspect of the Act, worrying that the acceptance/giving of relatively modest hospitality or gifts could create huge problems for them. However, Kenneth Clarke, Secretary of State for Justice, 2

states in the foreword to the guidance: "rest assured - no one wants to stop firms getting to know their clients by taking them to events like Wimbledon or the Grand Prix". The Guidance states that the Government recognises that bona fide hospitality, promotion or expenditure seeking to improve a company's image, present products or establish cordial relations is a legitimate and an important part of doing business. Such behaviour is not intended to be made a criminal offence. However hospitality or gifts must be reasonable, proportionate and made in good faith, with the overall aim of improving the image of the organisation. The guidance doesn't actually define the borderline between acceptable promotional activity or hospitality and something that is intended to induce improper performance or exercise inappropriate influence. Instead it states: "It is... for individual organisations, or business representative bodies, to establish and disseminate appropriate standards for hospitality and promotional or other similar expenditure." Employers therefore need to make their own assessment of what is acceptable, the key being the intention behind the giving of the gift/hospitality. Is it reasonable? Is it proportionate? All corporate hospitality will have to fit into these criteria. In determining whether an organisation is on the right side of the law, the full circumstances of each case will need to be considered. However, the Joint Prosecution Guidance clearly states: "The more lavish the hospitality or expenditure (beyond what may be reasonable standards in the particular circumstances) the greater the inference that it is intended to encourage or reward improper performance or influence an official." Facilitation payments Facilitation payments (ie payments to induce officials to perform routine functions they are otherwise obliged to perform) are regarded as bribes under the Act and are therefore not permitted - this is consistent with the old law. There is no exemption for such payments, irrespective of the amount, unlike under the US foreign bribery law. The guidance says that such payments will only be prosecuted where it is deemed to be "in the public interest", so it seems likely that some payments will continue to be made. The Joint Prosecution Guidance explains the public interest considerations, highlighting the need for organisations to have a clear and appropriate policy setting out procedures an individual should follow if facilitation payments are requested. The existence of, and adherence to, such procedures will be particularly important in defending a case. Legally required administrative fees or payments for fast-track services are not regarded as facilitation payments. 3

Likelihood of an investigation Prosecutions under the Act have to be sanctioned by either the Director of Public Prosecutions or the Director of the Serious Fraud Office (or someone they have personally authorised in writing to act on their behalf when they are 'unavailable'), who have to personally consider both that a conviction is more likely than not, and that prosecution is in the public interest. Therefore, any prosecution will normally be preceded by a formal investigation, and will usually be for serious offences including large sums of money. Defence against prosecution Ignorance of your employees' (or your agents') actions is no defence! The only defence is to show that you have "adequate procedures" in place to prevent bribery. Penalties for breach of the Act If bribes are paid by or on behalf of a commercial organisation (either by employees or agents acting on behalf of the organisation), the organisation can be prosecuted for its failure to prevent bribery. Fines are unlimited and an organisation may be disbarred from tendering for government contracts. Senior officers of the organisation may also face prosecution. If your employees breach the Act, they may face unlimited fines and/or a prison sentence of a maximum of 10 years. Case law What procedures are "adequate", and what is "proportionate" is hard to say until case law gives us some more clues. However, it is likely that tribunals will take a hard line on employees who are dismissed in breach of their employer's clear policies on this: in Esam v DSG Retail Ltd, an employment tribunal found that an employee who breached her employer's inducements, gifts and favours policy by accepting a laptop and printer from a contractor was fairly dismissed. Steps to prevent bribery and corruption Firstly, it is immaterial whether you know what your employees have done or not - if they offer or receive a bribe it remains your liability as the employer. The Ministry of Justice Guidance recommends "six principles for bribery prevention" which are intended to give all commercial organisations a starting 4

point for planning, implementing, monitoring and reviewing their compliance with the Act. These are as follows: proportionate procedures top level commitment risk assessment due diligence communication monitoring and review However, there is no set template to follow - it is up to each organisation to implement policies and procedures that will minimise the risk of bribery, taking into account their main areas of risk. The procedures should be proportionate to the risks; the higher the risks the more an organisation will need to do. It is also clear from the guidance that compliance extends beyond just having procedures and requires a more pro-active approach by employers. Steps you may wish to take are as follows: a risk assessment - look at the activities that your business currently undertakes. Find out what goes on on the ground. With whom do you do business, where and to whom are such decisions delegated? What are the risks? What are the markets in which you operate? Are contracts only agreed by employees, or do you use agents, distributors or other third parties? Look at commission, bonuses and other payments (including expense payments). Do you operate only in the UK or abroad (where the risks may be higher)? What hospitality goes on? Check any donations to political parties or charities, or sponsorship deals and other PR activities. What about your suppliers? (It is likely that you only need to concentrate on suppliers of services here, not suppliers of goods.) Record your risk assessment and your conclusions (as you may need these) and then review them from time to time. The guidance clearly states that an employer does "not need to put bribery prevention procedures in place if there is no risk of bribery"! Any steps should be proportionate to the risk. start at the top: as with all policies and procedures, it is best to start at the top level of the business. Top level commitment (ie from the board of directors or similar body) needs to be given to establish a "culture of integrity where bribery is unacceptable". The guidance recommends a formal statement issued by top level management which outlines the organisation's commitment to carry out business honestly and openly and which has a zero tolerance towards bribery. It also recommends that senior managers are selected and trained to lead anti-bribery work and training and that top management maintains a general oversight of their organisation's compliance with the Act. have clear policies: most organisations are unlikely to have a specific anti-bribery procedure, unless they operate in a particularly susceptible 5

industry, such as defence. For the majority of employers, a code of conduct, a section in the employee handbook or a set of robust HR policies such as the following should suffice: o Business ethics: this should cover general business ethics, ban bribery and include specific rules on accepting/giving corporate entertainment and gifts and declaring these. You may wish to have specific procedures for the acceptance of gifts from suppliers - some employers donate these to a set charity of the year, others pool them and raffle them off, others divide them equally amongst all staff. Many employers have rules about accepting hospitality with levels above which special permission has to be gained. All such procedures make it less likely that bribery will take place. See our template policies on business ethics - http://hcima.businesshr.net/docs/pol/ethics/index.html and business gifts and hospitality - http://hcima.businesshr.net/docs/pol/gifts/index.html o Expenses: corporate hospitality should be reasonable and proportionate. Is your expenses policy too generous? Is too much left to individual discretion? Do you need more rules or guidelines before hospitality is extended? Does/should expenditure above a certain limit require the prior approval of a senior manager? Do you keep good records? Is there transparency regarding payments? See our template expenses policy - http://hcima.businesshr.net/docs/pol/expenses/index.html o Whistleblowing: ensure that your whistleblowing policy is also up to date and widely communicated and covers corruption and bribery. Make it clear that a worker who suspects bribery must report this and will not suffer any detriment as a result, even if the suspicions turn out to be unfounded. See our template whistleblowing policy - http://hcima.businesshr.net/docs/pol/whistleblowing/index.html o Disciplinary procedure: you may want to add the "acceptance or giving of anything that could constitute a bribe" to your list of gross misconduct offences if you don't already cover this. See our template procedure - http://hcima.businesshr.net/docs/pol/discipline/index.html See the template policies on our website, and then consider any further sensible safeguards, based on the risks you have assessed above. Ensure that your policies are widely communicated, and that they are accessible and reviewed from time to time. contracts of employment: depending on your level of risk, you may also want to make a specific provision in your employment contracts that not only prohibits staff from offering or accepting bribes, but that also requires them to disclose any concerns about bribery (or any other unlawful activity), whether in relation to other staff members, contractors or 6

themselves. If they are involved with foreign countries with a poor reputation for anti-corruption, these terms will need to be more specific and more robust. commission payments and bonuses: given that sales staff are amongst the most likely to be the first area in any investigation, check that your commission structures are clear and transparent, and that large bonuses or commissions for closing specific deals do not encourage staff to take a bribe. training: train appropriate staff on ethical business practice. Ensure that they know that this is not just about protecting the organisation, but that they are also individually liable for their actions! Cover your policies in your induction and keep documentary evidence where employees have received specific training. Also ensure that all staff are aware of and encouraged to use your whistleblowing policy if they suspect any potential wrongdoing. disciplinary action: ensure that, if the rules are breached, appropriate investigations and prompt disciplinary action is taken. Never turn a blind eye to this! review your financial controls: ensure that these are tight and robust, especially regarding purchasing decisions and discounts to clients/customers, and that they minimise the scope for corrupt acts to be committed. (See also our guide to dealing with theft or fraud - http://hcima.businesshr.net/docs/guides/fraud.html - this has lots of useful tips on this subject!) agents and business partners: consider your due diligence on agents and business partners and take steps to ensure careful management of these commercial contracts: consider inserting anti-bribery clauses into your commercial contracts and ensure that managers undertake due diligence before entering into any business relationship or project. Where there is a risk of corruption, a senior individual should be required to make any decision. audit: finally, implement procedures to check that your rules are being followed, and that you review and update these as necessary. Further guidance For further details of the Act, see: http://www.legislation.gov.uk/ukpga/2010/23/contents For the 45-page guidance, which also includes practical case studies on hospitality, facilitation payments and joint ventures to provide additional clarity in these areas, see: http://www.justice.gov.uk/guidance/docs/bribery-act-2010- guidance.pdf 7

For the shorter, 9-page, non-statutory "Quick Start Guide", explaining the key points organisations should know prior to the Act's implementation on 1 July, see: http://www.justice.gov.uk/guidance/docs/bribery-act-2010-quick-start-guide.pdf The Government has also published Joint Prosecution Guidance, which sets out how the authorities will decide whether to prosecute under the Act, and the circumstances when there will be a public interest to prosecute. See: http://www.sfo.gov.uk/media/167348/bribery%20act%20joint%20prosecution%20 guidance.pdf For more general guidance on business gifts and hospitality, see our guide - http://hcima.businesshr.net/docs/guides/gifts.html Talk to us! As always, we look forward to hearing from you and advising you on your HR issues and concerns. If you have any feedback on this hot topic, our website or our service to you generally, please contact us on adviceteam. Hot topics are emailed to subscribers only. To unsubscribe We clearly hope you find these updates useful and informative, but if you do NOT wish to receive these hot topics in future, please use this link to cancel these updates. http://hcima.businesshr.net/stop.php?for=153cc31574730ad59cc53f540c036cc3 0 BusinessHR... best people practice for people in business BusinessHR is an HR services organisation dedicated to providing excellence in the field of people management, staffed by competent, experienced, CIPD qualified professionals. BusinessHR helpline: 0870 162 4882 For email advice please email us at: adviceline This email and any attachments are believed to be free from any virus but it is the responsibility of the recipient to ensure this is so. BusinessHR 55 Old Broad Street, London, EC2M 1RX Tel: 0207 022 2952 8