COLUMN – UK Bribery Act guidelines: has the lobbying worked?
By Helen Parry, senior regulatory intelligence expert, Complinet. The views expressed are her own.
LONDON, April 5 (Complinet) – Seemingly unnerved at the anti- Bribery Act lobby’s dire predictions of British corporations losing out to competitors hailing from jurisdictions with a more relaxed approach to such matters, the Ministry of Justice appears to have taken heed. This is clearly demonstrated by the reassuring, empathetic and positively emollient tone employed in the revised version of the guidance for companies issued last week, particularly when sensitive issues such as facilitation payments and corporate hospitality are being addressed. This change of heart can be clearly discerned by comparing the original and revised versions of the case study on facilitation payments featured in the guidance documents.
THE ORIGINAL CASE STUDY
The original version posited a UK company engaging with a US counterpart in a consortium which was contracting in a third country jurisdiction “rife with corruption.” They were already in serious trouble, having made facilitation payments, struck a deal with union leaders, replaced the facilitation payments with IT services to educational centres connected to an opposition party and been accused of bribery by an overseas government.
The “remedial” part of the scenario consisted of the company being subjected to a barrage of hostile questions designed to elucidate in excruciating detail precisely how the firm had (probably) failed to manage its business to prevent such chicanery. Senior managers were referred to specifically on more than one occasion. The questions included whether:
— They had undertaken a risk assessment informed by the political, social and media environment;
— They had analysed the consortium’s contractual standards and their relationship to US, UK and third country legal regimes;
— Senior managers had provided leadership on anti-bribery policies tailored to the third country;
— They had offered any leadership within the local Chamber of Commerce or in partnership with local anti-corruption initiatives to develop options;
— They had investigated the political connections of the local workers and officials involved;
— They had assessed the third country’s government’s policy;
— They had analysed the local political situation;
— They had a clear and accessible policy for staff in the third country;
— They had designed the project to comply with the policy;
— They had utilised local staff and management expertise when drafting the policy;
— They had organised safe and confidential employee feedback facilities;
— They had procedures to deal with a refusal to pay facilitation payments;
— They had to report changes like the shift to IT to top level of management;
— They had provided training in UK and US law;
— They had arranged for regular reviews of the risk assessment concerning the payments;
— They had a way of using third-country experience to improve procedures;
— They had considered external verification of the policy.
Within this scenario there were several references to corruption, politicians and trade unions, and it clearly pulled no punches.
THE REVISED CASE STUDY
The most striking aspect of the revised version is that there is no assumption that the company has committed bribery — the corrupt behaviour is posited merely as a future hypothetical possibility which only concerns an agent of the company, not the company itself. The writer presumes that the company is engaged in another jurisdiction using a local agent and has already carried out a bribery risk assessment and has identified facilitation payments as a significant problem. The corporate is not interrogated directly in the second person — as it is in the old version — but is addressed less directly in the third person. The suggestions are gentle and preventative and are mostly concerned with activities that could or should be undertaken not by the company at all, but by the agent after some helpful prompting by the company. The whole tone is highly tentative and conditional. The scenario indicates that the company could consider any or a combination of a list of actions, including:
— Communicating its non-facilitation policy to the agent and the agent’s staff;
— Seeking legal advice with regard to facilitation payments in the jurisdiction;
— Planning the project to allow where feasible for resisting demands for facilitation payments;
— Requesting that the agent train its staff about relevant local and UK law and resisting such demands.
SUGGESTIONS FOR THE AGENT
The scenario then proposes that the company could suggest that the agent and its staff should adopt certain procedures which may include one or more of the following, if appropriate:
— Questioning demands for payments;
— Requesting receipts and identification requests to consult with superior officials;
— Trying to avoid paying “inspection fees” (if not properly due) in cash and directly to an official;
— Informing those demanding payments that the company (and possibly the agent) will commit an offence under UK law and will have to inform the UK embassy;
— Maintaining contact with the agent concerning developments that may provide solutions, and encouraging the agent to develop its own strategies;
— Using UK diplomatic channels or participation in locally active non-governmental organisations, so as to apply pressure on the authorities to stop the demands.
HOSPITALITY AND PROMOTIONAL EXPENDITURES
A notable shift of emphasis is also evident in the passages that address the highly contentious question of when corporate hospitality crosses the line and becomes a bribe. The revised version notes that the standards or norms applying in a particular sector may be relevant — a qualifier of benefit to those who operate in an industry, such as banking, whose norms are more generous than the average. The overall general tenor is again much less hostile and threatening. In the original guidance document, reference was quickly made to recent UK convictions for corruption of foreign public officials documenting how contrived “professional education” schemes could use promotional expenditure as a cover for bribery. By contrast, the new version starts reassuringly with pointing out the difficult evidential hurdles placed in the path of any prosecutor seeking to make a case for bribery in this context. It notes that an invitation to foreign clients to attend a Six Nations rugby match at Twickenham as part of a public relations exercise would clearly not constitute a bribe.
THE ORIGINAL HOSPITALITY CASE STUDY
This new conciliatory approach is again prominent in the revised hospitality case study. The original version resonates with allusions to the Bonny Islands corruption cases, over a liquefied natural gas operation in Nigeria. The company is shown as having clearly engaged in bribing foreign officials and is again interrogated directly in the second person as to which preventative measures they have taken, such as whether:
— Their procedures assessed hospitality and promotional expenditure bribery risks generally and in the liquefied natural gas sector;
— They had surveyed anti-bribery codes of conduct, including sector specific codes;
— Senior UK managers had implemented the policy in the relevant overseas jurisdiction;
— Top-level UK managers had facilitated an opportunity to discuss the issue with the overseas government;
— They had inquired as to whether bribery was commonly found there and looked into possible preventative actions;
— They had researched relevant local law and regulations;
— They had provided staff guidance;
— They had made sure the overseas government and business partners were aware of their policy;
— Their approval procedures were appropriate;
— They had proper pre-approval management systems;
— They had recently reviewed their procedures and guidance;
— They had provided for employee contributions.
THE REVISED CASE STUDY
By contrast, the new case study provides the reader with the comfortingly bland, benign and thoroughly worthy example of a firm running a programme of events involving entertainment, quality dining and attendance at various sporting occasions for its customers. Problems had, however, arisen with the issue of the firm footing the bill for overseas participants’ travel and accommodation. The possible actions that could be considered were not too demanding and included:
— Conducting a bribery risk assessment;
— Publishing a policy statement;
— Issuing guidance;
— Ensuring compliance with any relevant domestic or foreign laws;
— Ensuring that the motive was only general PR;
— Making sure that recipients did not feel obliged to engage in business with them as a result;
— Ensuring the approval by the relevant authorities (which could be senior managers) for large amounts;
— Providing appropriate accounts, policy reviews and staff training;
— The Commercial Court recently considered gifts and hospitality payments, discussed here.
THE FCPA AND FACILITATION PAYMENTS
Much has been made of the fact that, unlike the Bribery Act, the U.S. Foreign Corrupt Practices Act (FCPA) has an exemption for facilitation payments. It is unlikely, in practice, however, that the English authorities should take a radically different approach from those in the US. Although there may not be a formal statutory exemption for such small bribes, the joint prosecution guidance, which was published by the director of the Serious Fraud Office and the Director of Public Prosecution, emphasises that prosecution is unlikely in cases of single small payments. In the US, meanwhile, the authorities will come down hard on “facilitation” payments if they do not fall within the definition of “small bribes”.
In one recent major FCPA case concerning customs clearances, the payments were classic facilitation type payments in form but were clearly too large. Panalpina World Transport (Holding) Ltd, a global freight forwarding and logistics services firm based in Basel, Switzerland, and its US-based subsidiary, Panalpina Inc., admitted that through subsidiaries and affiliates, they paid bribes of $27 million to foreign officials in Angola, Azerbaijan, Brazil, Kazakhstan, Nigeria, Russia and Turkmenistan on behalf of many of their customers in the oil and gas industry to get around local rules and regulations relating to the import of goods and materials. Panalpina’s customers included Shell Nigeria Exploration and Production Company Ltd (SNEPCO), Transocean Inc and Tidewater Marine International Inc, who all admitted that they approved of or condoned the payment of bribes on their behalf in Nigeria and falsely recorded the bribe payments made on their behalf as legitimate business expenses in their accounts.
Another factor which militates against prosecution in the UK, according to guidance from the Serious Fraud Office and the Director of Public Prosecution, is whether there has been a genuinely active approach involving self-reporting and remedial action. Firms, however, should not be lulled into a false sense of security. Although Kenneth Clark, writing in the foreword to the Justice Ministry guidance, is at pains to reassure readers that the government does not wish to unduly burden the vast majority of decent, law-abiding firms and that the core principle driving the legislation is proportionality, the Bribery Act has not been amended. It has always been as unlikely that firms would be prosecuted for minor borderline bribery offences as it has been in any area of criminal law, given the current guidelines which provide both evidentiary and public interest hurdles to prosecution.
On the contrary, firms must take on board the fact that this new regime will be in place soon and that they have three months in which to devise and put in place appropriate systems and procedures to ensure, as far as possible, that they will not be in the frame for a charge of failing to prevent commercial bribery resulting from the inappropriate conduct of an employee. The Serious Fraud Office has been very active in recent years in utilising the existing bribery laws to convict firms in serious cases and will no doubt continue to do so with renewed vigour once the new law is in force. There are still many parts of the world where it is very hard to do business without forking out very large bribes indeed. It may be advisable to hang on to the old version of the guidance as it contains very useful advice.
(To view the revised Bribery Act guidelines, please click here http://bit.ly/hpekpN)
(This article was first published in Complinet (www.complinet.com). Complinet, part of ThomsonReuters, is a leading provider of connected risk and compliance information and on-line solutions to the global financial services community.)