Prosecution and Adequate Procedures

Now that the Ministry of Justice has published its guidance on the Bribery Act, the new legislation will be coming into force at the beginning of July. GoodCorporation invited business leaders to debate the impact of the new Act at the House of Lords.

The debate began with a reminder of the existing legislation of corporate criminal liability that remains unchanged despite the passing of the Bribery Act. What the new legislation means however, is that the senior leadership team, or the ‘operating mind’ as it was called, can no longer claim a lack of knowledge, turning a blind eye if wrong-doing has been committed within its organisation. Ensuring that Adequate Procedures are in place will provide Boards with knowledge upon which they must act.

Prosecution

Comparing prosecutions under the Bribery Act and the FCPA, we were told that the FCPA draws an inference based on probability, prosecuting those that should have known if illegal acts were being committed by the organisation.  The Department of Justice has a zealous approach to prosecution it was said and consequently there is a strong culture of self-reporting.

To avoid prosecution in the UK, companies must ensure that they know what is going on and that they are seen to be taking steps to prevent corruption from happening and certainly from recurring. If a Board is aware of corruption and does nothing its executives will be guilty under the Act.

The aim of the Act, it was said, is not to prosecute the ethical, but rather to catch those who continue to pay bribes and operate a tick-box approach to prevention.  Ten years ago, officers faced a ’policing’ stand-off with businesses, but increased regulation in a number of areas has lead to a culture change and an increase in the reporting of wrong-doing.

What the Act is likely to mean in terms of prosecutions is that although only one or two more prosecutions are likely to reach the courts each year, there may be 10-15 more cases investigated by the Serious Fraud Office.  Consequently businesses will really need to ensure that their defence of Adequate Procedures is properly in place.  The attitude of the company regarding genuine efforts to avoid and prevent corruption will be critical to prosecutorial decision-making it was said.  One danger of this, however, could be that the emphasis moves towards Adequate Procedures systems, rather than really stamping out corruption.

The Guidance

When asked for views on the government’s guidance on the Act, the majority view was that it lacked the clarity that business had hoped for.  Facilitation payments, joint venture partnerships, agents and intermediaries and corporate hospitality were still areas of considerable concern.

Facilitation Payments

While some argued that the guidance on facilitation payments should be simple: don’t do it, others felt that it was not as easy as it might seem and called for specific guidance on how the demand for payment could be eradicated and how to refuse payment without damaging business interests.  It was suggested that things were changing, that businesses should refuse to pay, or work collectively to say ‘No’ and that this had proved to be an effective strategy in various parts of the world.

It was also suggested that the demand for bribery is changing, as more countries want to be party to the OECD’s Anti-Bribery Convention.  It was even felt that the UK’s tougher line on facilitation payments may even challenge the FCPA line, although the UK will have to demonstrate that it has the same zeal to enforce for this to come into effect.

Conflicting views were expressed regarding the recording of facilitation payments with some arguing that companies must record to know what’s happening in order to eliminate it and others saying it could be potentially risky to do so.

Venture Partners, Intermediaries and Agents

Managing the activities of joint venture partners, agents and intermediaries is considered one of the greatest challenges under the Act, particularly for global enterprises working in some of the world’s most difficult environments.  If all joint venture partners are not covered by the legislation then how can you make them abide by your rules?  Businesses were hoping that the guidance would be specific about the likelihood of prosecution under these circumstances and are seeking greater clarification. Ensuring that systems are in place to prevent corruption will be crucial.

Consequently, it will become increasingly important for companies to undertake risk assessments and due diligence to ensure that they really know who they are doing business with and importantly, how they are being paid. Businesses must ensure that they always know who is acting on their behalf, even in complicated transactions involving third parties.

Corporate Hospitality

While much has been written in the press regarding the potential for business lunches to lead to a court case, it was become clear that hospitality will not trigger the offence as long as it is reasonable.  Despite the headlines, it would seem that most companies have a real grasp of this and many already have strict policies in place to assess and manage these activities.

Adequate Procedures

The challenge of developing effective procedures that apply to all parts of the business in all jurisdictions was discussed.  Some felt that a ‘one size fits all’ policy might not prove adequate across the business as a whole. Others felt that it was easier to impose the same rules throughout an organisation, including third parties, based on common principles of sound business ethics that are easily understood. This approach, it was suggested, would be easier to roll out across the whole organisation. Others felt that training should be directed at those who were most at risk from corruption to ensure that everything had been done to guarantee that the messages had been received and understood.

The debate revealed that UK based companies are preparing seriously for life under the Bribery Act.  It was said that if British companies become a benchmark for clarity and ethical leadership it will be good for business and good for the UK.  We have the opportunity now to raise the bar and set the tone globally for demand and expectation in terms of business behaviour.

GoodCorporation Business Ethics Debate May 2011