Newsletter - May 2010

Welcome to the latest edition of the Anti-Fraud Network newsletter.

An Overview of the UK’s New Bribery Act

Author: Nick Burkill

The United Kingdom has long been criticised by the international community for the antiquated state of its anti-corruption legislation, which dates back to 1889. Equally criticised has been the poor record of its enforcement.

On 18 November 2009, a Bill intended to address those criticisms and make enforcement easier was included in the Queen’s Speech. That Bill received Royal Assent on 8 April 2010 and was enacted on 9 April as part of the Parliamentary wash-up period ahead of May’s general election. The Bribery Act 2010 covers offences of bribing, receiving a bribe and bribing a foreign public official. Most importantly, however it also introduces a new corporate offence for organisations that fail to have adequate procedures in place to prevent bribery in connection with its business, and a new offence for senior company officers of consenting to or conniving in the payment of a bribe.

Corporate offences are relevant to entities undertaking all or part of their business in the UK, whether incorporated there or not. The Act covers acts of bribery committed within the United Kingdom, or committed elsewhere by a person with a close connection to the UK. A UK national, for example, employed by a foreign company with business only abroad will still be subject to prosecution under the Act.

In light of both this and other national enforcement developments, those undertaking business in the UK must look very carefully at the way they operate to ensure that they minimise the risk of committing an offence and maximise the chance of using the defence available to corporates of having adequate procedures in place to prevent bribery.

Section 1: Bribing Another Person

The Section 1 offence is committed if the briber directly or indirectly offers, promises or gives an advantage (financial or otherwise) to another, and either:

Intends that advantage to induce a person to perform a relevant function/activity improperly, or to reward a person for the improper performance of such a function/activity; or
Knows or believes that the acceptance of the advantage would itself constitute the improper performance of a relevant function/activity.

Making a “pure” facilitation payment (a benefit provided so that an official performs his duty, permitted by some legislation including the Foreign Corrupt Practices Act) does not involve the commission of the first alternative offence by the payer, but the second is likely to apply to a payment in the UK. Making facilitation payments is an offence under Section 6, which covers bribery of foreign public officials.

The definition of a function or activity used in this offence is set out in Section 3 and is also used in the Section 2 offences relating to being bribed.

Section 2: Accepting a Bribe

The Section 2 offence is committed by a person that accepts a bribe in any of the following four cases. An offence is committed if

A person requests, agrees to receive, or accepts an advantage (financial or otherwise) with the intention that a relevant function/activity should be performed improperly in consequence, whether performed by that person or another.
A person requests, agrees to receive, or accepts an advantage (financial or otherwise) as a reward for the improper performance of a relevant function/activity by that person or another.
In anticipation or in consequence of a person requesting, agreeing to receive, or accepting an advantage (financial or otherwise), that person or another at that person’s request performs a relevant function/activity improperly by or with their assent or acquiescence.
A person’s request, agreement to receive, or acceptance of an advantage (financial or otherwise) itself constitutes the improper performance of a relevant function/activity by that person.

In all cases, the request, agreement or acceptance may be direct or indirect. It does not matter if the person (or the other person) knows or believes that the performance of the relevant function or activity is improper.

Section 13: Relevant Function or Activity for Section 1 and 2 Offences

The person performing the function/activity must be

Expected to perform it in good faith; or
Expected to perform it impartially; or
Is in a position of trust by virtue of performing the function/activity.

Furthermore, the relevant function/activity must be any

Function of a public nature; or
Activity connected with a business, trade or profession; or
Activity performed in the course of a person’s employment; or
Activity performed by or on behalf of a corporate or unincorporated body of persons.

The function or activity need not have any connection with the United Kingdom, and may be carried out outside the UK. The Act therefore does not distinguish in this regard between bribery of a public official or of an employee of a private organisation. There is however a separate offence of bribing foreign public officials, addressed below.

Section 4: Meaning of “Improper Performance” of a Relevant Function or Activity

For the purposes of the Act, a function or activity:

Is performed improperly if it is performed in breach of a relevant expectation; and
If there is a failure to perform the function/activity and that failure is itself a breach of a relevant expectation.

In this case, “relevant expectation” means the expectation of good faith or impartiality; or (in the case of the person in a position of trust by virtue of the performance of the function/activity) any expectation as to the manner in which, or the reasons for which, the function or activity will be performed that arises from the position of trust. The relevant expectation is that of a reasonable person.

Section 6: Bribery of Foreign Public Officials

The Section 6 offence is committed when a person bribes a foreign public official with the intention of

Influencing the performance of the foreign public official’s function, including both their use of those powers and their omission to exercise those powers.
Obtaining or retaining business, or an advantage in the conduct of business.

To count as bribery:

The person must offer directly or indirectly, promise or give advantage (financial or otherwise) to the foreign public official or, at their request or with their assent/acquiescence, give advantage to another foreign public.
The advantage must not be legitimate under the law of the foreign public official’s jurisdiction or applicable to their public international organisation.

This prohibits the payment of facilitation payments. The position of the Serious Fraud Office (SFO)—the lead prosecution agency for offences under the new Act—is that small, one-off facilitation payments, including such payments made by coercion, are unlikely to be prosecuted. However, a pattern of such payments would. On the other hand, the SFO is also reported as saying that the transfer of part of a subsidiary to a foreign President fulfilling that country’s requirements, would not lead to prosecution. Clearly, there are uncertainties as to the exercise of the discretion whether or not to prosecute that will remain the risk of the companies and individuals subject to the Act.

Section 12: Territorial Application of Section 1, 2 and 6 Offences

The offences are subject to an English court’s jurisdiction if

Any act or omission forming part of the offence takes place in England, Wales or Northern Ireland.
Although no act or omission takes place in England, Wales or Northern Ireland, if it had, or if the person has a close connection with the UK, it would have formed part of the offence.

A person with a “close connection” to the UK includes a British citizen, an individual ordinarily resident in the UK, and a body incorporated under the law of any part of the UK. A separate regime exists for the Section 7 corporate offence of failure to prevent bribery.

Section 14: Responsibility of Senior Officers of Corporates

Where a corporate entity commits a Section 1, 2 or 6 offence with the consent or connivance of a senior officer or other person purporting to act in that capacity, both the person and the corporate entity are guilty of the offence, subject to their connection to the UK.

Section 7: Failure of Commercial Organisations to Prevent Bribery

This new offence is of very broad application and is the main way that the Act seeks to change corporate behaviour. The bottom line is that a relevant company will commit this offence if a bribe is paid in connection with its business unless it had adequate procedures to prevent payment of the bribe.

A “relevant commercial organisation” includes bodies incorporated in England and Wales and Northern Ireland and bodies that undertake all or part of their business there, wherever incorporated. A key issue for resolution is whether the courts will take a strict or broad approach to a company doing part of its business in the UK. Will a group’s activity be sufficient to give the UK jurisdiction, or must it be a specific subsidiary?

An offence is committed by the organisation if a person such as an employee, agent or subsidiary who performs services for or on behalf of the organisation bribes another person by the commission of a Section 1 or 6 offence, whether or not that person is prosecuted for it, and

It is intended to obtain or retain business; or
It is intended to obtain or retain an advantage in the conduct of their business.

The only defence to this offence under the Act is if the company can prove it had adequate procedures in place to prevent those employees, agents or subsidiaries carrying out such conduct. Recommended procedures will be covered in guidance yet to be published by The Secretary of State. Companies need to make sure that they have in place adequate procedures before this offence comes into force – expected to be in the late summer – if they wish to have this defence available to them.

Other Provisions

Consent to prosecute is required by senior officers, which include the Director of Public Prosecutions and the Director of the Serious Fraud Office, but not the Attorney-General.

Individuals convicted of offences under Sections 1, 2 or 6 are liable to up to 10 years’ imprisonment and an unlimited fine.

Organisations are liable to an unlimited fine, including if prosecuted for offences under Section 7.

There are exceptions for the intelligence services, law enforcement agencies and armed forces on active service.

Context

New law is of little relevance if it is not enforced. However, the UK authorities have sought to improve their enforcement record in the last year and have a number of scalps to show for their new approach. Importantly, the emphasis is now on self-reporting and the benefits of doing so, and on risks of not doing so. That said, the penalties achieved in the UK are small compared to those in the US, which may in turn provide motivation for the UK authorities to seek to increase the penalties in the United Kingdom.

Nick Burkill is Co-head of Advocacy in the London office of Dorsey and Whitney, and is ranked as one of the top commercial and fraud litigators in the UK. He has extensive experience in domestic and international disputes concerning fraud and corruption. He also provides a wide range of clients with advice on strategic litigation/dispute resolution, professional negligence and shareholder employee/corporate governance claims. Nick is an accredited mediator, solicitor advocate and a regular speaker and commentator.

Contact Details:
Tel: + 44 (0)20 7826 4583
Email: burkill.nick@dorsey.com

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News

Bafin “Special Probe” of UBS Over Possible AML Regulation Breaches
Germany’s financial regulator, Bafin, has announced that it has launched an investigation into potential breaches of anti-money laundering regulations. The investigation was opened as a result of accusations made by a UBS client, Peter S, that the bank had helped him to evade taxes. UBS has confirmed, “Bafin has initiated a special probe in connection with the allegations raised by Peter S… UBS also initiated an internal investigation into the incident.”

Swiss authorities have revealed that 2009 was a record year for suspicious financial dealings. The country’s Money Laundering Reporting Officer received 896 reports, totalling US$2.1 billion in value, a 5.3 % increase on 2008.

Spanish Politicians in “Cash for Contracts” Scandal
A Spanish judge has released documents that allegedly show leaders of Spain’s opposition Popular Party accepted bribes in return for handing out contracts to companies. So far, 70 people, some with links to the Valencian regional government, have been implicated. They include treasurer Luis Bárcenas, who is accused of accepting Euros 1,353,000 in bribes. At the time of going to press, however he had not been suspended from any official role.

UK Whistleblower Jailed
A UK whistleblower has been given a 12 months prison sentence despite both prosecution and defence recommending a suspended sentence. Robert Dougall, a former executive at DePuy International, a subsidiary of Johnson & Johnson, pleaded guilty to involvement in making bribes of £4.5 million. The sentence raises questions about the treatment of whistleblowers and whether this is likely to deter them from coming forward. “I accept the public policy consideration,” said Mr Justice Bean. “But it does not justify a suspended sentence in a case where corruption was systemic and long term and involved several million pounds in corrupt payments.”

Transparency International Integrity Awards
Transparency International, the global civil society organisation leading the fight against corruption, has extended to 30 June 2010 the deadline for nominations for its Integrity Awards 2009. Launched in 2000, the awards recognise individuals or organisations whose unfaltering courage and determination are making a distinct difference in curbing corruption around the world from Africa and Asia, Europe, Latin America, and the Middle East. Past winners include public prosecutors, investigative journalists, government officials and civil society leaders. The 2009-2010 Integrity Awards winners will be honoured during a ceremony at the 14th International Anti-Corruption Conference (IACC), in Bangkok, Thailand from 10-13 November. For more information, go to www.transparency.org/integrityawards.

HP Dawn Raid Over Russian Bribe Allegations
Hewlett-Packard is at the centre of a multi-national investigation to ascertain whether HP executives paid bribes to with a contract in Russia. The company is facing allegations that employees paid approximately Euros 8 million to Russia’s prosecutor general. The United States’ Securities & Exchange Commission is investigating possible breaches of the Foreign Corrupt Practices Act alongside investigations being undertaken by German and Russian authorities.

Israel’s former Prime Minister in “Real Estate Scandal of the Century”
Ehud Olmert, former Prime Minister of Israel, ex-Mayor of Jerusalem and Time magazine’s “most able politician in Israel” in May 2006, has been named in media reports as a key suspect in what has been dubbed by the press as the “real estate scandal of the century”. Mr Olmert stated in a television interview that “no one ever offered me a bribe, and I never took one.” The press has reported that Mr Olmert is suspected of having accepted a bribe of nearly US$1 million in connection with the Holyland complex. In December 2009, Mr Olmert pleaded not guilty to charges of corruption related to three other, separate cases. He resigned in 2008 after police recommended his indictment.

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