Adequate Procedures under the Bribery Act

Opinion has been divided about the Bribery Act since it was passed at the end of the last Parliament.  Almost a year later and little has changed.  At GoodCorporation’s debate on Adequate Procedures, held at the House of Lords on March 16th, businesses were divided both on the workability of the act and on the effectiveness of their own preparations to comply with the new legislation.

Although the Ministry of Justice has stated that the Act should place neither extra cost nor extra burden on business, there are still a number of areas that are causing particular concern, notably managing third parties and associated persons, gifts and hospitality and facilitation payments.  These issues were discussed in turn at GoodCorporation’s debate.

Third Parties and Associated Persons

Although a number of companies felt that they had this area under control, several felt that they would not know for sure if this would be deemed adequate until the Ministry of Justice’s guidance is finally published.

Steps that businesses have taken to manage third parties include conducting regular due diligence on all contractors, subcontractors, suppliers and joint venture partners; including anti-bribery clauses in contracts and identifying areas of high risk.  Some have an Anti-Bribery and Corruption squad whose remit is to monitor distributors and suppliers.

Others were waiting for the guidance before implementing a strategy to manage third parties.  Those who were sceptical of the Act asked what businesses should do when required by foreign governments to work with named suppliers? Some said they would still conduct due diligence and walk away from the contract if they were not happy with what they found, others questioned whether or not this could be reasonably expected.  Some said that companies should be prepared to question whether they really do have to work with a specified third party.

Other questions were asked about how to resource the monitoring of third parties. If the management of a third party changed after due diligence had been done, would the exercise have to be repeated and how many companies could implement this level of monitoring?

In addition to the question of due diligence is the problem of control. How can companies ensure that third parties really will comply with the code of conduct being imposed upon them? Is the Act being implemented too quickly to allow large companies to successfully embed what will be covered by the Act in three months, particularly when this means changing a culturally engrained way of doing business?

It was felt that the answer to this might lie in the good sense of prosecutors, although some found this far from reassuring.  However, it should be remembered that the Act deals with putting procedures in place to prevent corruption.  Some agreed that even though enforcement may not always be possible, taking real steps towards the eradication of corruption should comply with Adequate Procedures and had to be the right thing to do.

Gifts and Hospitality

The discussion moved onto the question of corporate hospitality, which has dominated the headlines in recent weeks.  A show of hands revealed that more companies felt they were prepared for this aspect of the legislation than managing third parties under the new laws.  Large sponsors of major sporting events were awaiting the guidance to be sure what levels of hospitality would be permissible under the Act as part of their sponsorship package.

One company, which claimed to have seen the latest draft of the guidance, confirmed that a lot would be permissible under the new legislation – more than their own policies on gifts and hospitality would currently allow.  Many felt that they already had a stringent gifts and hospitality policy in place and some had added a recording procedure.  Some were strict as far as receiving gifts and entertainment was concerned and would be developing a similar policy to manage what it would be permissible to give.

The pragmatists in the room felt that to fall foul of the law, the gifts and hospitality would need to be both excessively lavish and frequent.  However, it was agreed that there were some grey areas that they hoped would be clarified in the guidance – for example, are employees of State owned companies foreign public officials and in which case should they be exempt from all gifts and hospitality?

Some industries use hospitality to launch a new product and feared that strict limits could hinder a successful launch and so damage business. Greater clarification in the guidance was hoped for here.

Others raised the issue of the rationale behind hospitality arguing that any hospitality was carried out in order to build relationships and therefore influence business.  To ensure that there would be no grey areas, it was felt that a monetary limit would be required so that businesses could be sure that they were acting within the law. However, it was suggested that placing a monetary value on some forms of hospitality could be impossible.

For many, it was clearly a matter of proportionality and in reality, most people have a clear understanding of this.  A good rule of thumb seemed to be that if you had to ask if it was appropriate, it probably wasn’t.

Facilitation Payments

The room was divided on the issue of facilitation payments between those that operate a zero tolerance policy and those that felt it would be impossible for British businesses to compete in certain parts of the world if such payments led to prosecutions.

Companies that take a hard line on facilitation payments claim that once it is established that payments will not be made, they cease to be demanded, arguing that if everyone took this attitude, the problem could be eradicated.  Others claimed that if such payments were prohibited they would simply be hidden.  The cost of auditing facilitation payments is likely to be disproportionate to the payments themselves and therefore it was suggested by some that the guidance should include a ‘de minimis’ provision that would be acceptable under the legislation.

It was also argued that sometimes payments were necessary to ensure personal safety, some businesses felt, therefore, that they could not outlaw such payments if employee wellbeing was likely to be compromised. In addition, the problem of changing cultural attitudes that expect facilitation payments was seen as a hurdle that the Act alone cannot overcome.

Some also felt that unless the FCPA and the Bribery Act were both in step as far as facilitation payments were concerned, there would not be a level playing field on which to compete.

Others also expressed the fear that unless the guidance was very clear, prosecutions under the new Act would still be hard to bring about resulting in minor prosecutions for SMEs, while larger scale corruption remained unchecked.

Finally, the room was reminded that the Act required Adequate not Failsafe Procedures to be put in place.  The MOJ’s guidance is keenly awaited by business and support for the Act is strong.  However, those nervous about the way in which the legislation will be interpreted hope that the guidance will result in far greater clarity to ensure that the Act is both practical and workable.

GoodCorporation offers a range of services to help businesses put adequate procedures in place to prevent corruption.

GoodCorporation Business Ethics Debate March 2011