The publicly voiced reaction from British businesses to the UK's Bribery Act may have been muted unlike what may have been the case if the coalition government suddenly raised corporate tax rate by, say, 10 per cent. But that is not to say some vehement sentiments against the Act were not aired, albeit privately.
The Act, according to its sceptics, would impede the prospects of British businesses in competitive projects where offering ‘sweeteners' are a way of life to win contracts. "In certain parts of the world there are certain practices that need to be followed for the bids to be taken seriously and these fall well short of offering outright bribes to win a contract," said a project manager with a UK based firm.
"The Act now draws a line under all such practices and that may not be such a good thing for British businesses."
Anyway, these businesses do not have much time to adapt to the new way. The Act comes into effect July 1 after the final guidelines were published in late March. And it must be said the Act leaves little room for misrepresentation on what it entails.
Right to pursue
Any act of commission done by UK companies, its employees — and even joint venture partners — that could be regarded as a direct or indirect attempt to influence decisions would come under the purview of the Act. And where such instances occur, the authorities have the rights to pursue legal action in UK courts.
But do concerns that the timing of the Act considerably weakens British business interests — more so at a time when the UK economy is still some way off from a full recovery — hold up?
"The UK was under significant international pressure, including from the US and the OECD (Organisation for Economic Co-operation and Development), resulting from its failure to pass new laws to replace the existing regime which was agreed by all to be inadequate," said Barry Vitou, partner at the London based law firm of Pinsent Masons.
"Against this backdrop, the UK had little choice in updating a rag-bag of existing laws, some of which are over 100 years old."
There's some history here. For the last 30 years and some, there has been a perceptible move to enact tough laws — and sanctions — against corporate graft practices.
The UK has been a signatory to the OECD's Anti-Bribery Convention for some 15 years now. (The Convention now has 38 signatories.) Further delay on the part of the UK government in enacting a full Act could have led to the blacklisting of UK companies.
The US already has its version in the form of the Foreign Corrupt Practices Act (FCPA), while the likes of Germany, Italy, France, South Africa and Japan have their own or "actively" planning to do so.
Given these realities, the UK government had little or no leeway to act on the anti-bribery regulations, though the guidelines issued in March are considerably diluted from what was originally conceived. This resulted from the uniformly negative feedback provided by businesses sounded out on the earlier version.
With the Act now a reality, it does not necessarily mean UK businesses will now be less effective in competing for international projects.
Simon Charlton, managing director for forensic and dispute services at Deloitte Corporate Fin-ance Ltd., certainly does not believe the Act will be an impediment. "Large international companies with existing exposure to the US and other countries are already required to comply with legislation that prohibits bribery, for instance, the FCPA which (until now) has set a fairly high benchmark.
"Whilst historically, the absence of applicable legislation or lack of pursuit of potential offences by a number of countries has contributed to what may be considered uncompetitive markets (particularly in emerging and typically less developed markets such as countries in the Middle East), more recently a number of key countries have sought to improve their domestic and international anti-bribery standards.
"In considering whether a local or accepted custom in say the Middle East would fall foul of the UK Bribery Act, it clearly states that any local jur-isdictional custom or practise be disregarded ‘...unless it is permitted or required by the written law applicable to the country or territory concerned…'."
As said before, the Act and its statutes are as explicit as it gets on what cannot be done. But there are still areas that sport a shade of grey.
Influence peddling through cash is obviously out as are expensive gifts. But would a British company offering tickets to a high-profile event fall foul of the Act?
"The UK Ministry of Justice has confirmed that it does not intend for "reasonable and proportionate hospitality" or similar business expenditure to be caught by the Act," said Charlton.
"However, the Act itself does not provide any definition of what may be considered acceptable."
The UK Government itself has sought to clarify what could be appropriate once the Act is effected.
Tickets to events can be acceptable, but flying the beneficiary of the ticket to the event itself — and in first-class — will not fly with the Act's enforcers.
"It is pleasing to see a considered approach to the principle of corporate hospitality and promotional gifts," said Nathan Hones, general manager at the UK architectural firm Stride Treglown Ltd.'s Abu Dhabi office.
"These are an integral part of most legitimate businesses marketing campaigns and advertising collateral. It will be interesting, however, to see how the interpretation of "reasonable and proportionate" hospitality or one's view of overly "lavish" client entertainment plays out through the courts.
"These are subjective concepts where one person's opinion of proportionate or lavish, especially when applied to some high net worth clients, will inevitably vary from another person's opinion."
Indeed, the actual interpretation of the Act would be left to the UK courts to decide as and when breaches are taken up before it. But just don't expect it to be a smooth run.
"Like all new laws, it will be further developed by the courts as they interpret it when prosecutions are brought and defences mounted," said Vitou.
"I expect to see some more clarity emerging as the law becomes more established around what in practice will be regarded as adequate procedures to prevent bribery, again, as cases are brought.
"Enforcement is tough and the collection of evidence overseas for a UK prosecution is difficult. It is anticipated organisations will self report to the authorities as there are positive obligations (failing which an offence is committed) on companies and their senior officers to report wrongdoing, if they discover it, in certain circumstances."
For those businesses that do not do so voluntarily, they always run the risk of being caught out by other quarters.
"Whistle-blowing will be important and the US whistle-blowing legislation — in particular with the passage of the recent Dodd Frank Act — where informers can receive a bounty of between 10-30 per cent of a penalty over $1 million are further incentives, particularly when penalties can run into the hundreds of millions of dollars," said Vitou.
"In addition to information UK authorities detect, the US Department of Justice has in the last two to three years provided increasing amounts of information to the UK authorities which has formed the basis of investigation and prosecutions."
That and now with the Bribery Act itself means British businesses are entering a brave new world in which corporate malfeasance has no place to hide.
"In an increasingly competitive market it could be argued that the ability of UK companies to compete globally will be enhanced by improving international anti-bribery standards," Charlton says.
UK bribery act
Four key offences:
- A general offence covering the offer, promise of giving of a bribe (known as active bribery).
- A general offence covering requesting, agreeing to receive or acceptance of a bribe (passive bribery).
- A discrete offence of bribing a foreign public official to obtain or retain business.
- An offence of failure by a commercial organisation to prevent bribery by persons acting on its behalf (the corporate offence).
"The corporate offence is restricted to instances of active bribery on the part of the person acting on behalf of a commercial organisation with the intention to obtain or retain business," said Simon Charlton of Deloitte Corporate Finance Ltd.
"The offence is a strict liability offence, the only defence of which is for a commercial organisation on behalf of which the bribe has been paid to show that it has adequate procedures in place to prevent bribery despite this instance.
"A person acting on behalf of a commercial organisation has a wide definition and may include employees, joint venture partners as well as parties providing services on their behalf."
A level playing field
If anyone thought that the UK Bribery Act applied only to British businesses, look at the fine print again.
"The Act applies to any business which can be said to be carrying on part of a business in the UK and so will catch businesses that are not of UK origin," said Barry Vitou of Pinsent Masons.
"The recently published guidance states that in order for the new law to catch an organisation, it will need to have a demonstrable business presence in the UK.
"I anticipate that there will be development of the law when it comes to assessing the application to overseas companies, and also to those third-parties for whose conduct companies are criminally responsible for under the Bribery Act.
"While the guidance makes clear the government's intention would not catch businesses whose only connection is a London Stock Exchange listing, it is known the Serious Fraud Office (SFO) takes a very broad view of what constitutes carrying on business in the UK and the government has made clear it will be for the courts to decide.
"It is known the SFO will seek to enforce the law against overseas companies who unfairly compete against UK companies using bribery and will seek to use the Bribery Act to prosecute them."
In other words, the Act - which comes into effect on July 1 — does create a level playing field.
But what it will not be doing is pursue malpractices that may have been conducted before that date.
Even then, the Act's executive powers are quite wide.
"Whilst it remains to be seen how effective the legislation will be, on paper the intention of the UK's Ministry of Justice appears to be to robustly pursue offences… both domestically and internationally," said Simon Charlton of Deloitte Corporate Finance Ltd..
"The fact that it goes further than the US's Foreign Corrupt Practices Act in its intended application and has penalties more severe highlights the intent of the UK here."
What firms can do
While laws of the land that expressly tamp down on instances of businesses buying favours are always welcome, companies could do their own part.
"The laws are only a starting point; more and more companies are recognising that not bribing to win business is actually a good business practice as it forces them to compete on the true merits of their products as opposed to being able to ‘buy' business through bribes," said Alex Brigham, executive director of The Ethisphere Institute, a US-based organisation which brings out annual rankings of the world's most ethical companies.
"This in turn makes sure that the companies continue to invest in such things as innovative features, better quality, and lower prices. A good example is the German corporation Siemens.
"Several years ago Siemens was caught and fined $1.6 billion for running an institutional network around the world which routinely bribed foreign governments to win business. After being caught, the company rooted out corruption and now competes just on the merits of its products and doesn't just ‘buy' deals.
"As a result, the corporation is better disciplined and now achieving record profits."
The rankings of the ‘World's Most Ethical Companies' recognise how these entities strive stronger than others to avoid breaking the law; try to have a culture where employees are encouraged to ‘do the right thing' and are not afraid to raise a concern if they feel someone might be doing something unethical in business; and when these companies find that someone has broken the law or acted unethically, they take quick action to reprimand the employee and fix processes to make sure that such violations don't occur again.