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The introduction of the Bribery Act 2010 was unnecessary and potentially harmful to the interests of U.K. companies. Discuss. (100%)
Bribery has been described by the English Court as “an evil practice which threatens the foundations of any civilised society”, and “corrupts not only the recipient but also the giver of the bribe” (Hudson, 2012). Ever since USA introduced its Foreign Corrupt Practices Act (FCPA) in 1977, there has been growing international pressure for global anti-corruption reform. However, UK’s anti-bribery legislations has persistently been criticised, both domestically and abroad, for being outdated and difficult to apply in practice.
In 2008, an OECD Working Group condemned the UK for its failure in prohibiting bribes being paid by its companies in foreign markets as well as its ineffective implementation of the OECD Anti-Bribery Convention (OECD, 2008). The BAE scandal in Saudi Arabia further highlighting the deficiencies, complexity and general lack of clarity within the pre-existing legislations. On 8 April 2010, the Bribery Act 2010 (the ‘Act’) finally received a Royal Assent, reflecting UK’s cumulative efforts to consolidate, update and extend its anti-bribery laws. It was described as “the toughest anti-corruption legislation in the world” (Atkins,2011), providing the UK with the most draconian and far reaching anti-corruption legislation in the world (Harrison and Ryder, 2016). Nonetheless, there are concerns that this Act will make UK businesses less competitive compared to other international players, who are subject to less draconian anti-bribery laws.
This paper seeks to examine key areas of concern for UK companies within new Act, namely: corporate offence, facilitation payment, corporate hospitality and penalties. These offences will then be compared to the measures taken by the FCPA, which is the world’s leading anti-bribery act, in order to determine if the Act is too extreme and aggressive in comparison.
Brief Outline of Bribery Act 2010
The Bribery Act’s main objective is to provide a comprehensive anti-bribery statute that will replace the patchwork of statutory and common law offences. At its core, the Act creates four separate anti-bribery offences:
- Bribing another person [s.1]
- Being bribed [s.2]
- Bribing a foreign public official [s.6]
- Corporate offence of failing to prevent bribery by an associated person [s.7]
Offences 1-3 can be committed by an individual or a commercial organisation, whereas offence 4 can only be committed by a commercial organisation.
The new corporate offence for ‘failure to prevent bribery’ provision (s.7) places secondary criminal liability for another’s actions and is a first in the international anti-corruption arena. This new legislation allows the court to sidestep the limitations of corporate criminal liability under UK’s common-law identification doctrine (established in Tesco v Nattrass case), whereby a company is held criminally liable only on the basis of the acts and state of mind of senior company officials who represent its “directing mind and will”, which is inadequate in today’s modern decentralised multi-national corporation.
It applies strict liability to a relevant commercial organisation which carries on a business or part of a business in the UK, whereby bribery was committed by an ‘associated person’ (defined as a one who ‘performs services’ for or on behalf of the organisation). The company’s only defence against this offence is to prove that it had in place “adequate procedures” to prevent bribery from taking place. In comparison, FCPA’s accounting provision does not permit compliance programmes to shield a company from liability (Breslin et al.,2010). Hence, this new measure may not be as draconian as perceived.
Notably, it is irrelevant whether the associated person is unconnected with the UK or the entire offence takes place outside the UK. For example, a parent company incorporated in Japan, whose agent based in China bribes a Chinese official for the parent company’s benefit, could be prosecuted in the UK because one of its subsidiaries is located in the UK, regardless of the fact that the UK subsidiary was uninvolved in the act of bribery in China (Harris, 2012). This place a huge burden on foreign companies to have adequate anti-bribery procedures in place, even though it only carries out a small part of its business in the UK. Hence, it may deter foreign companies from setting up business in the UK.
Furthermore, this place companies subjected to this jurisdiction at a disadvantage against its competitor, as it must commit more resources in selecting and monitor the compliance of all parties associated with it. Moreover, large companies with long supply chains involving several entities are often only in contact with its contractual counterparty and not the other parties in the contractual chain. Hence, it will be near impossible for them to control and monitor all associated parties. According to the Ministry of Justice’s (MoJ) published guidelines, the company’s only approach is to employ a risk-based due diligence procedures in their relationship with the contractual counterparty and by requesting that the counterparty adopt a similar approach with the next party in the chain. Moreover, concerns have been raised in regards to the vulnerability of small and medium-sized enterprises(SMEs) in this situation, as they unable to put in place elaborate systems and controls due to their limited resources (Tyler, 2010).
This policy emphasises the company’s responsibility in maintaining and creating an anti-bribery culture. However, questions have been raised in regards to what constitutes “adequacy” in this context. Wee (2014) criticised the provision to be harsh as it uses the term ‘prevent’, which means stopping something absolutely, instead of trying your best to hinder it. Nonetheless, even though having a robust corporate compliance programme in place entails a cost, it is minimal compared to the reputational damage, legal costs and distraction from core business purpose that may result from substantial criminal investigation (Harris, 2012). Nevertheless, there has only been three prosecutions under the strict liability offence, for which in all three cases, the corporations involved admitted liability. Hence, it remains to be seen on how each of these aspects will be dealt with in practice and how the statutory ‘adequate procedures’ defence is tested.
Governed by s.6 of the Act, an individual will be guilty if he offers or gives an advantage to a foreign public official directly or through a third party. This inclusion of ‘third party’ is intended to prevent individuals using intermediaries to avoid committing a crime themselves.
Under the current OECD convention, facilitation payments, which are small bribes paid to facilitate routine government actions, are permitted. However, the UK has never recognised facilitation payments as exception to the foreign bribery offence and this position is reinforced in the Bribery Act. It does not matter if there is no intent to corrupt the government official in question. A bribery offence has been committed if the payment was made in order to “influence” the official, or was made with the intention of obtaining or retaining business or an advantage in the conduct of business. Due to the wide jurisdictional reach, a UK persons working in other jurisdictions have to adhere to the principles of the UK act, even if the local law does not classify facilitation payment as criminal. The only exception is when the foreign official is permitted by the written local law to be influenced by the offer, promise or gift.
This led to an outcry from businesses, who accused the Act of constraining British companies conducting business in foreign countries, arguing that in some countries, such as China and India, such payments are customary and so ingrained within the country’s culture that without them, business in those countries will become virtually impossible. Furthermore, the fact that FCPA offers a ‘safe harbour’ for such payments could may disadvantage UK companies against international competitors. Overall, making it difficult for them to compete in the foreign market.
Another concern raised relates to gifts and corporate hospitality, which is used to smoothen business relationships and is generally accepted to be a legitimate part of doing business.
Due to the wide definitions employed under s.1 and s.2 of the Act, both giving and receiving corporate hospitality could potentially be unlawful if the “improper performance” test is satisfied. However, it will be subjected to evidence and its surrounding circumstances. This area is further governed by s.7, which makes commercial organisations responsible in reviewing their policies on hospitality and promotional or other business expenditure in the selection and implementation of their bribery prevention procedures. The only defence is to demonstrate that it had adequate procedures in place to prevent bribery.
Notably, certain cases of offence for giving and receiving a bribe may be prosecuted without proof of intent. According to the ‘expectation test’, it will suffice if a reasonable person in the UK consider that in accepting the hospitality, the function was improperly performed as a result. Hence, the recipient or giver of this hospitality can be guilty of an offence without knowing that this ‘friendly gesture’ amounted to a bribe. In comparison, the FCPA only applies to person giving or offering a bribe and not to those accepting one.
The ambiguity of the law has created many confusions and uncertainties among businesses in relation to its application and to what extent is corporate hospitality considered a bribe. However, due to the lack of trialled cases, the extent of it will depend on the results of future prosecutions. Nonetheless, the Ministry of justice assured that “Bona fide expenditure which seeks to improve the image of a companies is recognised as an established and important part of doing business and it is not the intention of the Act to criminalise such behaviour”
Penalties and Debarment
Under the Bribery Act, those who fail to comply with the new provisions will face significant sanctions including a maximum of 10 years’ imprisonment (currently 7 years in the UK) as well as potentially unlimited monetary fines. In contrast, the maximum sentence under the FCPA is 5-years of imprisonment and fines of up to US$2million or twice the gross pecuniary gain or loss. Hence, the measures taken by the UK is harsher than that of USA. Additionally, ‘potentially unlimited’ fines represent uncertainties for corporations who violated the anti-bribery provisions as they may be subjected to extremely high fines in order to deter others, and may result in a heavy burden for SMEs with limited resources. This has caused significant concern about the court’s approach towards the penalty. The Confederation of British Industry stated that the fine should be assessed in a way that is proportionate and based on the turnover of the business such that SMEs are not unfairly penalised (Wee, 2014).
Furthermore, corporation who violates s.7 of the Bribery Act risks being barred from tendering for government contracts in accordance with the Public Contracts Regulations 2006. It is argued that this may potentially alienate future investors and may affect businesses which survive on public sector procurement work as the criminal conviction may affect their reputation (Breslin et al.,2010). Furthermore, it was also argued that debarment would be contrary to SFO’s intention to encourage companies to self-report bribery as the likelihood that a company would self-report bribery is reduced if there is the potential that it may be barred.
The Bribery Act is a major reform for the UK’s anti-bribery laws. It introduces harsher penalties for those who violate the Act, has a wider extraterritorial applicability, and places an obligation on corporations to monitor their employees and to implement policies prohibiting corrupt conduct. Most importantly, it simplifies and consolidates UK’s statutory and common law bribery offences.
Even though it is often accused of being harmful towards UK companies, it is unlikely that the tougher stance taken by the UK on bribery will have an adverse effect on the global competitiveness of UK companies than that already taken by the FCPA. Furthermore, UK’s tough stance against this issue send a clear message to the rest of the world that any form of bribery and corruption will not be tolerated, reinforcing the integrity and positive image of the UK market. However, even though the Bribery Act 2010 have enormous potential, its practical effects have yet to be exemplified due to the limited cases trialled under it. Moreover, there are still many uncertainties within the new Act that needs to be clarified. Nonetheless, this new tougher anti-bribery regime reflects UK’s commitment to fortify existing laws to meet international standards and ensure Britain’s engagement in the international fight against bribery
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Tesco Supermarkets Ltd v Nattrass  Appeal Cases 153
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