The Great Debate UK
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.
When the going got tough, banks were quick to bring down the shutters and cut off loans to European companies, forcing them to seek other sources of funding. The result — a dramatic shift to the bond markets, where corporates borrow directly from investors.
This failure of the banks to be there when borrowers needed them most could spell the end of the European syndicated loan market as the powerhouse of corporate finance activity in the region, marking a longer-term shift in the funding mix for European companies from loans to bonds.