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The UK Bribery Act of 2011
How the Bribery Act Can Apply to US Businesses
International bribery (payments to grease the wheels of business) is a major problem all over the world. The United States has limited its laws against bribery to primarily reach payments to public officials, allow facilitation payments, and rarely prohibits kickbacks and bribery in private industry. The federal Anti-Kickback Act of 1986 (41 U.S.C. § 8701 et seq) covers payments to government contractors. The Foreign Corrupt Practices Act of 1977 (FCPA) prohibits illicit payments to foreign officials.
After the US led the way with the FCPA, the international community became involved through the 1997 Organization of Economic Co-operation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (“OECD Convention”). The Convention became effective in 1999 and had been ratified by 38 countries including the US and the UK. More
I. Jurisdiction under the Bribery Act
Individual countries are beginning to enact their own versions of the FCPA. The UK’s version, the Bribery Act, became effective on July 1, 2011 and is commonly referred to as the “FCPA on steroids”. There are a number of provisions that greatly expand the transactions covered by the FCPA and its jurisdiction.
US companies with international sales are potentially covered by the Bribery Act. Unlike the FCPA which limits its reach to issuers of securities of securities registered with the SEC, the Bribery Act’s jurisdiction is more expansive. It is divided into two parts. Part I of the Bribery Act applies to all businesses that have a “close connection” to the UK. The mostly likely application of the close connection test to US businesses is to ones that own or control part or all of an entity “incorporated under the law of any part of the United Kingdom” (§ 12(3)). This seems easy to apply. If a US company controls a UK incorporated entity, it is covered by the Act.
Part II (§ 7) is potentially a more serious risk for US businesses. It makes it a criminal offense for a “commercial organization” to fail to prevent bribery. A “commercial organization” includes any other body corporate (wherever incorporated) which carries on a business, or part of a business, in any part of the United Kingdom (§ 7(5) (b)) any other partnership (wherever formed) which carries on a business, or part of a business, in any part of the United Kingdom (§ 7(5) (d)). Any US business that makes sales into any part of the UK could be subject to the jurisdiction of Section 7 of the Bribery Act. The Act punishes the US business if an “associated person” violates Section 1 or 6.
Associated persons include any person or entity that “performs services for or on behalf of” the organization (§ 8(1)). This includes employees, agents, and subsidiaries (§ 8(3)). Employees are presumed to be associated persons absent a showing to the contrary (§ 8(5)). The Bribery Act states that “[t]he capacity in which [the associated person] performs services for or on behalf of [the company] does not matter,” (§ 8(2)) and the existence of an associated person “is to be determined by reference to all the relevant circumstances and not merely by reference to the nature of the relationship between” the company and the associated person (§ 8(4)).
How this will be enforced in practice is uncertain. The Serious Fraud Office (“SFO”) has enforcement responsibility and has discretion to determine what conduct to prosecute.
II. Requirements of the Bribery Act
If a US business is covered by the Bribery Act (see previous section), liability can attach in circumstance that may not be covered by the FCPA. Under the FCPA’s anti-bribery provisions, there must be a payment, an offer of payment, authorization, or promise of payment which is intended to influence a foreign public official to misuse his office “corruptly”. Section 6 of the Bribery Act does not require an improper purpose or corrupt intent. It was intentionally drafted to cover situations where the payment was considered legitimate under the customs of the foreign county but would be considered a bribe under UK cultural norms. Thus even a trip to visit company facilities could be considered a bribe under Section 6. The Act prohibits payments or offers of payments for the purpose of “financial or other advantage”. A “senior officer” of the company is liable for her “consent or connivance”.
The UK government issued Bribery Act Guidance explaining that bone fide business expenditures are not included (¶¶ 26-32). The Director stated that “sensible promotional entertaining expenditure is not an offense under the Act”. It is only an offence “when hospitality is done so that people will be induced to act in a certain way – when the expenditure is beyond what is sensible and proportionate” (from Gibson Dunn discussion with Director Alderman on gibsondunn.com). “Financial or other advantage” is not defined in the Act. The Joint Prosecution Guidance (March 30, 2011) issued by the Director of the Serious Fraud Office and the Director of Public Prosecutions states that “advantage” has its normal everyday meaning and should be left as a matter of common sense to the trier of fact.
The Bribery Act differs from the FCPA in three major respects: 1) “facilitation” payments are not exempted; 2) private bribery is prohibited; and 3) there is no accounting requirement in the Act.
The FCPA exempts “facilitating or expediting” payments when the purpose is to facilitate or expedite a routine government action including obtaining permits and licenses, processing government papers, and obtaining government services like utilities and mail service. The OECD has pressured the US to narrow the facilitation exemption. The DOJ has constricted its understanding of the exemption but the statute is unchanged. The UK Bribery Act Guidance (note 27) makes it clear that facilitation payments are illegal but may not be prosecuted in the discretion of the prosecutor.
Private bribery is prohibited under the UK Bribery Act. Unlike bribery of public officials which does not require a corrupt intent, private bribery prohibited under the UK Bribery Act includes the requirement of intent to cause improper performance. Commentators expect this to be interpreted similar to the FCPA’s “corruptly” standard. Unlike the FCPA, the Act also punishes the person who accepted the bribe.
Even though the Bribery Act has no accounting records requirement like the FCPA, if the US company is operating through a UK subsidiary, the result is similar. UK companies have an accounting records requirement under the UK Companies Act of 2006.
If a US business sells products or services (directly or indirectly) into any part of the UK or owns a UK subsidiary, it is essential to have financial controls and compliance procedures in place to comply with the UK Bribery Act.