5 December 2011

The Bribery Act 2010: How are CI organisations affected? [Jersey regulatory matters, Guernsey regulatory matters, Financial Crime / Terrorist Financing, Crime (AML/CFT) regulatory updates, Bribery & Corruption]

The Bribery Act 2010: How are CI organisations affected? – Organisations in the Channel Islands which have any business connection with the UK will need to consider whether that connection might amount to a ‘demonstrable business presence’. If so, that organisation would be well advised to establish UK compliant anti-bribery policies and procedures and start with some training.

WHY?

The Act has already kicked into action –

an Administrative Clerk at Redbridge Magistrate’s Court in London is the first person to be prosecuted under the Act, following allegations of misconduct during his employment. It is alleged that he promised an individual, summonsed for a motoring offence, that he could influence the course of criminal proceedings in exchange for £500. This first prosecution is a timely reminder to all organisations of the importance of ensuring that they have appropriate procedures in place to prevent bribery.

Summary of matters 

The UK Bribery Act 2011 (the “Act”) which came into force on 1 July 2011, does not just apply to UK corporations and UK residents, it consolidates existing legislation and also creates new offences covering bribery in the United Kingdom and overseas. Offshore businesses and entities cannot afford to ignore the Act given the close ties that many such businesses have with the UK.

The Act provides a modern legal framework to combat bribery in the UK and internationally, however, it also impacts upon Jersey and Guernsey businesses. In addition to the offences of offering and accepting bribes, the Act imposes a positive obligation on organisations to take steps to prevent bribery.

The new offence applies to any ‘relevant commercial organisation’ which fails to prevent ‘associated persons’ from committing bribery.

Under the Act, bribery offences which are committed outside the UK may be prosecuted in the UK if the person offering or accepting the bribe has a ‘close connection’ to the United Kingdom. A ‘close connection’ includes being a British citizen, British Overseas Territories Citizen or a British National, which means that many individuals resident in Jersey or Guernsey are subject to the Act as well as the equivalent Laws in each Island.

The definition of a ‘relevant commercial organisation’ includes companies and partnerships registered in the UK, however, it also includes non-UK (i.e. Jersey and Guernsey) companies and partnerships which carry on a business, or part of a business, in any part of the UK. An ‘associated person’ is someone who performs services for that organisation whether as employee, agent or subsidiary and is thus a wide definition.

The phrase, ‘part of a business’, is not defined in the Act, however, guidance issued by the Ministry of Justice recommends a common sense approach and indicates that organisations that do not have a ‘demonstrable business presence’ in the UK will not be caught. Consideration needs to be given to the following structures as they may be affected by the Act:

• UK subsidiary
• UK listing
• Administration of UK entities
• Portfolio companies
• UK property

The UK Bribery Act – Implications For Offshore Businesses –

There are four offences in the Act:

1. the general offences of paying a bribe (Section 1) and
2. receiving a bribe (Section 2);
3. the bribery of foreign officials (Section 6), and
4. the failure of commercial organisations to prevent bribery (section 7).

The corporate offence represents the most significant departure from the old law on bribery and will place the onus on commercial organisations to ensure that their anti-corruption procedures are robust.

Extra-territorial Application

There are two key features that offshore commercial organisations (including both corporate and partnerships) and individuals need to consider:

1. “Connected persons” (see below) can be prosecuted in the UK for offences committed anywhere in the world.

Commercial organisations which carry out part of their business in the UK can be prosecuted for Section 7 offences (see below) committed anywhere in the world.

It is therefore possible for both individuals and commercial entities based offshore and who carry out any amount of business in the UK, no matter how small, to be prosecuted under the Act.

Failure of Commercial Organisations to Prevent Bribery

The effect of the Section 7 offence is to place a burden on businesses to ensure that their anticorruption procedures are sufficiently robust to stop any employees, agents or other third parties acting on behalf of the business from committing bribery. An offence will be committed where:

1. a person associated with a relevant commercial organisation (which includes not only employees, but agents and external third parties) bribes another person (i.e. commits one of the offences in the Act) intending to obtain or retain a business advantage; and
2. the organisation cannot show that it had adequate procedures in place to prevent bribes being paid.
3. Section 7 provides that it is a defence for an organisation to provide that it had adequate procedures in place to prevent persons associated with it from undertaking bribery.

Who May be Caught by the Act?

Offshore commercial organisations which may be caught by the Act include: offshore companies or partnerships with activities and/or subsidiaries in the UK. Companies or partnerships which fall into one these categories should consider putting into place anti-bribery procedures, so they can avail themselves of the Section 7 defence if needed. Where companies or partnerships believe that there is a real risk of being caught by the provisions of the Act, they should consider seeking both legal and tax advice, with a view to altering their legal and operational structure to protect the rest of the group from the activities of the UK operation.

Penalties

The penalties can be severe. The Act raises the previous maximum jail term for bribery by an individual from seven years to ten years. A corporate vehicle or partnership convicted of failing to prevent bribery under section 7 could receive an unlimited fine.

There may of course also be damaging collateral consequences such as disqualification of directors. The Guidance The Ministry of Justice has published guidance on what is considered to be “adequate procedures” to prevent bribery at (www.justice.gov.uk/guidance/docs/bribery-act-2010-guidance.pdf ).

Whether an organisation has “adequate procedures” in place will be a question for the courts to decide and for the corporate vehicle/partnership to prove that it has such procedures in place.

The guidance sets out the following six principles around which procedures should be based:

Proportionate procedures: procedures adopted by a commercial organisation are proportionate to the bribery risks it faces, taking into account the nature, scale and complexity of its activities. The procedures should be clear, practical, accessible, effectively implemented and enforced.

Top-level commitment: top-level management, such as the board of directors or owners, are committed to foster a culture in which bribery is considered unacceptable. This should be communicated both internally and externally.

1. Risk assessment: the commercial organisation periodically assesses the nature and extent of its exposure to potential internal and external risks of exposure to bribery (i.e., country risk, sectorial risk). The risk assessment should consider the nature of the business, its size, structure, and location.
2. Due diligence: the commercial organisation undertakes due diligence on the individuals and entities who perform services on behalf of the company. Employees are considered as “persons associated” with the company and therefore the company should also conduct due diligence on its employees.
   Communication (including training): anti-bribery policies and procedures are embedded, communicated and understood throughout the organisation. Training is proportionate to the risks faced.
3. Monitoring and review: the commercial organisation monitors and review its antibribery procedures in order to ensure that it adapts to changes that the business may face.

Clearly, the Act puts pressure on all offshore organisations doing business in the UK, to ensure that they have appropriate anti-corruption policies and procedures in place to avoid prosecution under the Act.

The Justice Secretary Kenneth Clarke has tried to reassure companies that the Act will be enforced with common sense, but it is clear that this approach will only apply to those organisations who have taken the Act seriously and have reviewed and amended their contracts and policies accordingly.