Companies would be foolish to ignore the Bribery Act
By Philip Urofsky and Josanne Rickard. The opinions expressed are their own.
The new Bribery Act, which comes into force on July 1, exposes British companies and other companies doing business in the UK to prosecution under its broad and somewhat undefined provisions. The risks it presents, although perhaps overblown by some commentators and practitioners, are nevertheless significant.
Companies would be foolish to ignore the Act in the hope that they will not be caught or, if caught, not prosecuted. On the contrary, the Serious Fraud Office (SFO), which has just escaped abolition, and other parts of the UK government, will be under great pressure to demonstrate that the Act is effective and enforceable.
However, it is in the interest of both the government and companies to seek efficient ways to ensure that such prosecutions are resolved quickly and with clear and certain consequences. To that end, the SFO and companies should continue the experiment of negotiating pre-charge alternative dispositions – known in the U.S. as ‘deferred prosecution agreements’ – which will be a less expensive option for the budget-constrained SFO and a more predictable process for companies.
The SFO has already done this – most notably when dealing with Balfour Beatty in 2008. The construction company was suspected of bribery in relation to a £75m joint venture project to build a prestige library in Alexandria, Egypt. Under investigation by the SFO, Balfour Beatty agreed to admit ‘payment irregularities’ and accept a penalty of £2.25m, in exchange for no charges being brought.
The agreement reached with Balfour Beatty was essentially a deferred prosecution. Such deferred prosecution agreements, under which a company agrees to pay a fine without going to court, have long become a routine tool for prosecutors and companies alike in the U.S. to achieve a prompt and certain resolution to foreign bribery investigations. Last year, five of the twenty-one corporate prosecutions in the United States were resolved through deferred prosecution agreements, with most of the remaining actions resolved through a combination of guilty pleas by subsidiaries and deferred prosecutions with parent companies.
In the best of all worlds, a company will not need to worry about prosecutions, because it will have complied with the Bribery Act’s requirements. The guidance from the Ministry of Justice (MoJ), issued in March, was supposed to provide help in that regard. British companies and their compliance officers, however, should be careful not to focus all their preparatory attention on scrutinising this document. Indeed, the MoJ guidance appears in places to contradict the law as set out in the Bribery Act. For example, the guidance appears to limit parent liability for acts by its subsidiaries only to instances in which the benefit flows directly to the parent. In contrast, prosecutors are likely to read the statute as imposing liability on a parent who fails to prevent bribery by its subsidiaries regardless of whether the parent benefits directly or indirectly.
While the MoJ guidance is in places more lenient than the Bribery Act, it is extremely unlikely that, in a prosecution and trial scenario, the UK courts would accept a company’s argument that it was simply following the MoJ guidelines. The courts, not the SFO or the MoJ, are the ultimate authority on the scope of the Bribery Act; unfortunately for British companies the courts’ approach to the new law cannot be known until several major cases have come to trial.
If a company finds itself in the unfortunate position of being accused of violating the Bribery Act, its options under current practice are not appealing. It can, of course, challenge the SFO to a trial by combat in the UK courts and, given the difficulties of obtaining and presenting evidence in these cases, it may well prevail. In the meantime it risks facing years of litigation, and a continuous drumbeat of bad publicity and reputational harm that could well hamper its ability to do business and threaten its share prices.
The second option for a company charged by the CPS and the SFO with an offence under the Bribery Act is to seek a plea bargain. In such a plea bargain, a company might negotiate the scope of the factual allegations to which it must admit and agree a financial penalty with the SFO and the CPS. Any plea bargain will need to be sanctioned by the courts, and a judicial guarantee cannot be assumed. Indeed, the UK courts have vigorously resisted any perceived intrusion by the government into their role in sentencing, and a plea agreement, until it is finally accepted by the court, thus may not provide a company with any assurance of certainty.
Deferred prosecutions are a radical option, already common in the U.S., that have much to recommend them in the UK. The company would make a real admission of responsibility, suffer significant penalties and monitored remediation, but wouldn’t have the risk and expense of a trial.
Given the ambiguities in the MoJ guidance on the Bribery Act, and the fact that it is likely that the SFO will be looking for opportunities to prosecute, companies should be open to seeking alternative types of resolution at the pre-charging stage. The SFO has already shown signs of a willingness to move towards that model. British business should encourage this trend.
Philip Urofsky and Josanne Rickard are partners at the law firm Shearman & Sterling LLP. Philip Urofsky, the head of the firm’s global anti-corruption practice, is a former U.S. prosecutor who works across the firm’s London and Washington DC offices. Josanne Rickard advises on anti-corruption matters at the firm’s London office.