Enclosed below is a full speech by Vivian Robinson QC , Partner at McGuire Woods London LPC at a Seminar on Corporate Governance: Corrupt Practices held on 2nd December 2014
Presentation by Vivian Robinson QC
From time to time a country creates a piece of legislation which has a reach and implications extending far beyond its own boundaries.
I anticipate that that many of you present here today are well aware of the existence of the UK Bribery Act, which is just such a piece of legislation and which became law in the UK in July 2011.
Some of you may have come to this seminar seriously wondering why corporate bodies here in Malaysia need to have any real concerns in relation to their activities outside the UK. I will be seeking to provide a number or reasons why you should have such concerns.
Bribery has become a very high priority on the international agenda.
It was famously described by former UN Secretary General Kofi Annan as ‘an insidious plague that has a wide range of corrosive effects on society’.
It was at one point estimated by the World Bank that $1 trillion in bribes were being paid each year out of a world economy of some $30 trillion.
It is not surprising, therefore, that organisations such as the Organisation for Economic Co-operation and Development and Transparency International have been campaigning hard for all countries to recognise their responsibilities in this area and to introduce effective legislation to meet the bribery threat on both the domestic and the international fronts.
You may be surprised to hear that there was serious and sustained criticism by a number of organisations regarding the UK’s earlier existing bribery laws. Eventually, and in response to this criticism, our law was drastically revised and was in due course embodied in the UK Bribery Act of 2010 [‘UKBA’]
It is a small statute in terms of its provisions, only 20 sections covered in less than twenty pages.
But its potential international impact is enormous. It has been described as the toughest piece of bribery law in the world, tougher even than its US equivalent, the Foreign Corrupt Practices (FCPA), which has been in force since the mid-1970s.
And the provision in this Act which is most responsible for this draconian description is the one which has created a new corporate offence and which appears to have no equivalent in any other jurisdiction.
Before considering this provision, let me make a few observations about the General Bribery Offences embodied in this Act.
GENERAL BRIBERY OFFENCES UNDER THE UKBA
The UKBA came into force on 1 July 2011 and its provisions are not retrospective.
The Act creates 3 General Offences, which I can summarise in this way:
It is an offence to offer, give or receive any financial or other advantage intended to induce the improper performance of a relevant function or activity (sections 1 &2)
It is an offence to give any financial or other advantage to a Foreign Public Official intending to influence that person and intending to obtain or retain business or an advantage in the conduct of business (section 6)
There is nothing particularly significant about these fundamental provisions and many countries have similar pieces of legislation.
But what marks this Act out is that it creates an offence for which only a commercial organisation may be liable.
FAILURE OF COMMERCIAL ORGANISATIONS TO PREVENT BRIBERY (section 7)
A relevant commercial organisation is guilty of an offence if a person associated with the organisation bribes another person with the intention of obtaining or retaining business (or an advantage in the conduct of business) for the organisation.
This immediately raises two questions of definition:
‘Relevant Commercial Organisation’
This is defined in the Act as a corporate body or partnership, wherever in the world incorporated or formed, which carries on a business or part of a business in the UK.
The UKBA does not define the term ‘carries on a business’ but in most cases the question may be determined by adopting a common sense approach.
One question has already given rise to debate, namely whether a non-UK parent company having a UK subsidiary may be deemed to be carrying on a business in the UK through the activities of its subsidiary.
Our law is clear that the mere fact of having a UK subsidiary will not automatically render the non-UK parent liable to the Act, since a subsidiary may act independently of its parent.
This is known as the ‘corporate veil’ principle. However, this veil may be pierced, depending on the particular facts of a case.
Overseas parents companies need to be careful here, because the facts may indicate, and I suspect in most cases will show, that in reality the parent is carrying on its business in the UK through the activities there of its subsidiary, so as to render the parent potentially liable under section 7 of the UKBA.
Assuming that the organisation is a ‘relevant’ one for the purpose of the UKBA, the second question of definition arises:
Person associated with the organisation
Here the UKBA does give some help by defining an ‘associated person’ as one who ‘performs services’ for or on behalf of the organisation (section 8).
And by way of example, it cites an organisation’s employees, agents and subsidiaries as being capable of implicating it in this respect.
But the net spreads far wider than this. It will embrace an organisation’s agents, contractors, suppliers, distributors and professional advisers and may even extend to its joint venture partners.
In short, the expression ‘associated person’ will be capable of application to the whole range of persons connected with it who might be capable of committing bribery on its behalf.
So, pausing for a moment, it may reasonably be said that this corporate provision has a wide range both in terms of the organisations which may be affected by it and with regard to the persons who might be capable of implicating the organisation by committing bribery on its behalf.
Territorial Application of the Corporate Offence
The acts of bribery by an associated person intending to benefit the organisation may be committed anywhere in the world.
The ‘absolute’ nature of the offence
For an organisation to be liable there is no requirement that anyone at a senior level within the company should have participated in it, consented to it, condoned it or even known about it.
The ‘Adequate Procedures’ Defence
There is effectively only one defence open to an organisation where a prosecutor can show that an associated person has committed bribery with the requisite intention.
This defence will apply if the organisation is able to demonstrate that when the bribery occurred, it had in place ‘adequate procedures designed to prevent associated persons undertaking such activity.
Whether the procedures which an organisation had in place at the relevant time were ‘adequate’ would be a question of fact to be determined by the tribunal concerned.
Every case is different and there can be no ‘one size fits all’ formula for determining this question.
In attempting to assist the business community, the UK Ministry of Justice has published guidance on procedures which companies might put in place to prevent bribery by associated persons.
This guidance is not binding, is intended to be flexible and is based upon six principles:
The Six Principles for Bribery Prevention
- Proportionate procedures
- Top Level Commitment
- Risk assessment
- Due diligence
- Communication (including training)
- Monitoring and review
The UKBA provides for the prosecution of offences under the Act by three agencies, namely the Director of Public Prosecutions, the Serious Fraud Office (SFO) and the Director of Revenue and Customs Prosecutions.
It is, however, generally recognised that the SFO will shoulder the principle burden with regard to cases of serious corporate corruption.
Options available to the Enforcement Authorities
In determining what course of action to take in any given case, the SFO will do so against the background that the UKBA is intended to target those companies which either deliberately used bribery to gain a competitive advantage or which had displayed a negligent disregard for having in place proper anti-bribery policies and procedures.
The SFO follows a two stage test procedure, known as ‘The Full Code Test’:
The evidential test: namely, whether there is sufficient evidence as to provide a realistic prospect of conviction by a court
The public interest test: namely, whether the facts and circumstances of the case are such that it is in the public interest for proceedings to be brought.
Only if the answer to both of these questions is in the affirmative, would a prosecution be likely to follow.
If both tests are not satisfied, then the SFO has a number of options:
(1) It may decide to take no further action
(2) It may invite a company to negotiate a Deferred Prosecution
(3) It may seek a Civil Recovery Order
Deferred Prosecution Agreement
This is an important facility which became available in the UK in February 2014.
It is based upon a model which has been in force for some time in the US and is widely used there in such cases.
It is an agreement which is reached under judicial supervision between the prosecutor and the organisation concerned and which allows a prosecution to be suspended for a defined period, provided the organisation meets a number of specified conditions.
The conditions will almost certainly involve the payment of a significant financial penalty and may also involve disgorgement of profits, compensation for victims, payment of costs co-operation in any prosecution of individuals, implementation of a compliance programme and appointment of a monitor
If the agreement is complied with, that will be the end of the matter.
If the agreement is breached, it may be terminated and the proceedings may be re-opened.
An important part of this procedure is that it is fully transparent and under the scrutiny of the court from the outset.
The advantage of such a course for a corporate is the avoidance of the cost and inconvenience of a criminal trial and the stigma of a possible criminal conviction.
The attractiveness for the prosecutor is the conservation of its resources and the ability to extract a significant financial penalty without the inconvenience of a full-scale trial.
Civil Recovery Order
This is not a criminal remedy. It is a civil order obtained in the High Court under the Proceeds of Crime Act, whereby a prosecutor is allowed to recover property which is or represents property obtained through ‘unlawful conduct’.
Such orders will involve a financial penalty reflecting the sums received from the conduct and may also include other conditions, such as an agreed programme of culture change and training and the appointment of a monitor.
This option is likely to be exercised only occasionally by the SFO and chiefly in cases which may pose potential evidential problems.
Matters influencing the exercise of Prosecutorial Discretion
The SFO has an unfettered discretion in determining how it will proceed in any given case.
Three things are likely to have an important bearing on how that discretion is exercised:
A major factor will be whether a company has itself reported discovered bribery to the authorities.
This has become a difficult area for companies and their advisers.
There is an increasing likelihood that serious cases of corruption may come to the attention of the SFO through whistle-blowers and information-sharing between the various enforcement agencies both domestically and internationally.
If this should happen, there is likely to be a negative impact upon a company which has failed to report the matter itself.
On the other hand, companies have no guarantee that a self-report will save them from an eventual prosecution.
The furthest the SFO is prepared to go is to say that while a self-report can never be a guarantee that a prosecution will not follow, it will be regarded as a ‘public interest factor’ tending against prosecution’.
Adequacy of Policies and Procedures
The SFO would be favourably influenced by evidence that an organisation had devised a system which responsibly addressed the question of bribery prevention.
They would also look to see what steps had been taken to improve that system, following the discovery of the particular unlawful conduct.
Co-operation with the Authorities
The SFO will expect ‘unequivocal co-operation’ from the corporate in its investigation of the matter concerned and this might include co-operation in the prosecution of individuals
AREAS OF SPECIAL CORPORATE CONCERN
Since the implementation of the UKBA, companies have been raising concerns with regard to two particular areas:
These are usually small payments requested by minor Foreign Public Officials to expedite or secure the performance of some routine action (e.g. to obtain official documents or to receive services).
This is a potentially difficult area for companies subject to the UKBA, because these payments are deemed to be bribes and therefore unlawful.
This contrasts with the position in the United States where there is a limited degree of toleration of such payments.
The SFO has made clear that it is ready to take ‘effective action’ against the use of facilitation payments, regardless of where they are requested.
It has further indicated that prosecution in such cases would depend upon (a) whether it was a serious or complex case falling within its remit, and (b) whether, by applying the Full Code Test, there was an offender that should be prosecuted.
This may cause special difficulty for corporates which operate in those parts of the world where requests for such payments are endemic.
On the one hand, the only safe option is for a company simply to refuse to pay them and accept the problems which this may entail.
On the other hand, it may be possible to argue that the ‘public interest’ factor in the Full Code Test should tend against a prosecution when any or all of the following matters are present:
(i) efforts had been made to avoid making such payments, and
(ii) there had been total transparency by the company
There is nothing in the UKBA which specifically touches upon this subject.
However, in published guidance the UK Government has made it clear that nothing in the UKBA is intended to criminalise bona fide hospitality or other business expenditure which seeks to improve the image of an entity, to better present products and services, or to establish cordial relations.
It is recognised that these things are an established and important part of doing business.
There is, however, a need for caution in this area. Business entities need to be careful to ensure that there is nothing about the circumstances which may give rise to an inference that the real purpose behind the expenditure in question was to influence the recipient to secure business or a business advantage such as would constitute a bribe under the UKBA.
Two things are crucial in this regard: first, that the expenditure should be proportionate and secondly, that it should be transparently recorded.
LIABILITY OF SENIOR OFFICERS
The UKBA makes special provision for the liability of senior officers in a company, where it can be shown that the company has committed one of the general offences provided for in the Act.
Any senior officer (meaning a director, manager, secretary or other similar officer) of the body corporate who can be shown to have consented to or connived in the offence will be likewise guilty of the same offence, provided the senior officer had a ‘close connection’ with the UK (which will include a foreign citizen ‘ordinarily resident’ in the UK).
A corporate entity convicted on indictment of a general bribery offence under sections 1, 2 or 6 of the Act is liable to an unlimited fine.
A corporate entity convicted under section 7 of Failing to Prevent Bribery faces the prospect of
(a) an unlimited fine
(b) considerable legal costs
(c) debarment from public contractual work within the EU
(d) civil litigation.
An individual convicted of any of the General Offences will be liable to imprisonment for up to ten years or to an unlimited fine or to both.
Malaysian companies with a business ‘footprint’ in the UK or with subsidiaries which operate in the UK are potentially exposed to the corporate offence in the UKBA, if someone associated with the company or its subsidiary commits bribery anywhere in the world, intending to obtain or retain business or an advantage in the conduct of business for the company or its subsidiary.
A token of appreciation from Tan Sri James Foong (right) to Vivian Robinson, at the end of the speech.