Foreign Corrupt Practices Act (FCPA)
Legal Insight
June 2010
Authors:
UK Bribery Act 2010:
Matt T. Morley
Companies doing business in the UK face strict
liability for corrupt payments, but effective
compliance measures can negate liability.
matt.morley@klgates.com
+1.202.778.9850
Robert V. Hadley
robert.hadley@klgates.com
+44.(0)20.7360.8166
Laura Atherton
laura.atherton@klgates.com
+44.(0)20.7360.8322
K&L Gates includes lawyers practicing out
of 36 offices located in North America,
Europe, Asia and the Middle East, and
represents numerous GLOBAL 500,
FORTUNE 100, and FTSE 100
corporations, in addition to growth and
middle market companies, entrepreneurs,
capital market participants and public
sector entities. For more information,
visit www.klgates.com.
Companies doing business internationally are likely to be familiar with the
requirements of the Foreign Corrupt Practices Act (FCPA), which prohibits corrupt
payments to foreign government officials. Later this year, companies doing business
in the United Kingdom will become subject to its new and expanded Bribery Act,
which is in several ways broader than the FCPA. Although the Act imposes strict
criminal liability on companies for improper payments made on their behalf, it also
enables companies with effective corporate compliance procedures to avoid that
liability. Companies doing business in the UK should re-evaluate their existing
FCPA compliance efforts, both to take into account the Act’s broader scope, and to
seize this opportunity to insulate themselves from liability under the Act.
The Bribery Act 2010 provides for civil and criminal penalties even greater than
those that may be imposed by US authorities under the FCPA. In addition to
unlimited fines and longer jail terms, UK and other European Union authorities will
have less flexibility than their US counterparts in determining whether to disqualify
violators from participation in public procurement contracts. Businesses found to
have violated the Act will be automatically debarred from obtaining public contracts
from government entities within the EU, with UK guidance stating that exceptions
should be permitted only in the most serious circumstances, such as a national
emergency.
For non-UK companies and individuals, several components of the Act are
particularly significant.
•
Extraterritorial jurisdiction. The Act provides for new and very expansive
jurisdiction over companies doing business in the UK. Of course, British
companies and citizens are subject to the Act, which applies to their conduct
anywhere in the world, even with regard to improper payments having no other
connection to the UK. So too is any individual who is ordinarily resident in the
UK, whatever his or her nationality or citizenship. Non-UK companies doing
business in the UK can be prosecuted for bribery undertaken on their behalf
without regard to where it occurs. Other non-UK persons can be liable under the
Act, where a portion of the violation occurs in the UK.
•
Strict corporate liability for failure to prevent corrupt payments. Under the
Act’s new offence of “failure to prevent” bribery, companies subject to the
Bribery Act will be strictly liable for bribes given or offered on their behalf, by
any person, acting anywhere in the world, and without regard to whether anyone
in the company had knowledge of the bribe.
Foreign Corrupt Practices Act (FCPA) Legal Insight
Note that this applies not only to the corruption
of foreign public officials, but also commercial
bribery between private parties. With the
elimination of the need to establish a company’s
“knowledge” to prove a violation of the Bribery
Act, UK authorities will find it easier to prove
criminal cases against companies than under
prior law, and easier than under the
corresponding FCPA requirements imposed on
their US counterparts at the Department of
Justice and the Securities and Exchange
Commission.
•
“Adequate” compliance procedures provide a
defence against liability. For many companies
involved in international commerce, the Bribery
Act’s strict corporate liability provisions will
increase the level of risk they already face with
regard to improper payments overseas. At the
same time, however, the Act provides these
companies with the means to protect against
these risks by adopting effective compliance
procedures. The Bribery Act provides a
complete defence to “failure to prevent” liability
where a company can establish that it had
“adequate procedures” to prevent corrupt
payments from occurring. Under US law,
companies are not required to have an FCPA
compliance program, although there are strong
incentives to have one, including official
policies stating that companies with effective
programs may be subject to less severe
sanctions and, in some cases, may not be
charged at all. By making compliance
procedures a formal defence against liability, the
Bribery Act creates a compelling reason for
companies to ensure that they have effective
compliance mechanisms to prevent improper
payments.
o
The Act does not specify what will
constitute “adequate procedures,” but
instead requires the UK Minister of Justice
to publish guidance on the issue. This
guidance is expected shortly, and should be
central to any re-evaluation of existing
FCPA compliance measures. In order to
permit companies an opportunity to
implement these “adequate procedures,” the
Act’s provisions on “failure to prevent
bribery” will not come into effect until 90
days after the publication of such guidance.
Adjusting FCPA compliance programs. While
the guidance on adequate procedures is likely to be
very similar to guidance provided by US authorities
and developed through 30 years of experience under
the FCPA, existing compliance programs tailored to
the FCPA may not necessarily translate into
“adequate procedures” for the purpose of the
Bribery Act, if only because the Act prohibits some
forms of conduct not covered by the FCPA. Among
the key differences between the two laws that may
warrant changes in compliance policies are the
following.
•
Facilitation payments are not permitted under
the Bribery Act, even though they are allowed
by the FCPA under very narrow circumstances.
Some US companies already prohibit such
payments altogether, while others have not done
so. Although such payments violated UK law
even prior to the new Act, the Act’s expanded
jurisdiction provisions will make this
prohibition relevant to many non-UK
companies.
•
Gifts and entertainment. The Bribery Act
makes no exception for even modest corporate
hospitality expenditures, which are permitted
under the FCPA. UK authorities have said that
they do not intend to penalise “legitimate and
proportionate use of corporate hospitality,” and
that companies should “rely on prosecutors to
differentiate between legitimate and illegitimate
corporate hospitality.” At the same time, they
warned that they will not countenance the use
of “lavish corporate hospitality” as a “bribe to
secure advantages.”
•
Commercial bribery. As noted previously, the
Act prohibits bribery between private parties as
well as the bribery of foreign public officials,
and companies subject to the Act’s jurisdiction
may be prosecuted by UK authorities for such
payments made on their behalf, no matter where
in the world they occur. The FCPA prohibits
only improper payments relating to foreign
government officials.
June 2010 2
Foreign Corrupt Practices Act (FCPA) Legal Insight
These developments lead to a clear conclusion.
Companies with business in the UK face sharply
increased risks of prosecution and conviction for the
conduct of their employees and agents overseas
unless they have developed and implemented welldesigned and effective compliance procedures.
Close consideration should be given to the UK
Government’s forthcoming guidance on “adequate
procedures,” when it emerges, but it is not too soon
for companies to review their corruption risks and
current compliance programs in light of the UK’s
new Bribery Act.
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June 2010 3