Foreign Corrupt Practices Act (FCPA) Alert
September 20, 2010
Authors:
Matt T. Morley
matt.morley@klgates.com
+1.202.778.9850
Robert V. Hadley
robert.hadley@klgates.com
+44.(0)20.7360.8166
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.
UK Bribery Act 2010:
Authorities Provide Preliminary Guidance on
“Adequate Procedures” for Avoiding Liability
Companies doing business in the United Kingdom will face strict liability for bribes
made on their behalf when the new Bribery Act 2010 comes into force in April 2011.
Companies can avoid such liability by implementing “adequate procedures” to
prevent bribery, and the UK’s Ministry of Justice has now issued proposed Guidance
as to the nature of such measures.
The proposed Guidance is consistent with current “best practices” for anticorruption
compliance programs, but policies based on the US Foreign Corrupt Practices Act
(FCPA) are likely to require some adjustments to meet these standards. Companies
wishing to take advantage of the protection afforded against criminal exposure by
establishing "adequate procedures" now have a good indication of what UK
authorities will expect, and can begin now to evaluate their existing anticorruption
compliance programs against the draft Guidance.
Like the FCPA, the UK’s Bribery Act prohibits corrupt payments made anywhere in
the world, regardless of whether any misconduct occurred in the UK or involved a
UK citizen. But the Bribery Act differs from the FCPA in several important
respects.
•
Companies will incur strict criminal liability for the “failure to prevent bribery,”
without regard to whether anyone in the company had knowledge of the bribe.
•
The Act prohibits commercial bribery between private parties, as well as
improper payments to foreign government officials.
•
The Act makes no exception for small facilitating payments made to obtain
routine government services.
While these new risks are significant, the Act also enables companies to avoid
liability by showing that they had “adequate procedures” to prevent improper
payments from occurring. The Act does not define this term, but the UK’s Ministry
of Justice has now provided a first look as to its expectations in this regard, issuing a
draft of its proposed Guidance for public comment on September 14, 2010.
Although the UK authorities may revise the Guidance in response to public comment
(the comment period ends on November 8, 2010), it should be anticipated that the
final Guidance, to be issued in early 2011, will be substantially like that contained in
the proposal.
The Six Principles
The draft Guidance notes that whether any specific procedures to prevent bribery
will be considered to have been “adequate” is that “can only be resolved by the
courts taking into account the particular facts and circumstances of the case.”
Foreign Corrupt Practices Act (FCPA) Alert
Thus, the draft Guidance takes the form of six
broadly-worded principles, along with commentary
elaborating the thinking behind them. The draft
Guidance contemplates that companies will tailor
their policies and procedures in light of the nature of
their businesses and their assessment of the specific
risks that they face.
Briefly, these principles are as follows:
1. Risk Assessment. Companies are expected to
identify and evaluate the risks that their
employees or others acting on their behalf will
pay a bribe, and to use this knowledge as a basis
for developing appropriate measures to reduce
those risks. This assessment should take into
account the nature of the company’s business,
including the sectors and markets in which it
operates, and should be revisited as the
company’s business changes, expands or
develops.
2. Top Level Commitment. Senior management
should establish a culture in which bribery is
never acceptable. The company’s policy against
bribery must be clearly communicated to all
levels of management, the workforce and any
relevant external actors. A senior officer should
be designated to oversee the company’s
antibribery efforts, and its response to any
incidents of bribery that occur.
3. Due Diligence. Companies need to know who
they are doing business with, and assure
themselves that business relationships are
“transparent and ethical.” This requires
appropriate efforts to identify and address the
risks of bribery in these relationships,
particularly those with its agents, intermediaries,
and business partners.
4. Clear, Practical and Accessible Policies and
Procedures. The company’s policies and
procedures to prevent bribery should be known
to all relevant personnel, and clear guidance
should be provided as to how to follow them,
such as how to properly provide gifts,
entertainment and charitable contributions.
5. Effective implementation. Simply having a
“paper program” is not sufficient. Compliance
must be assured through appropriate internal
controls, and responsibility for implementation
of the program should be clearly assigned.
6. Monitoring and Review. Companies must
undertake efforts to monitor compliance with
their antibribery measures, and follow up on
issues as they arise. This generally requires
financial monitoring and internal audit
procedures, as well as internal reporting
mechanisms (“hotlines”) for employees and
others to report concerns about potential policy
violations.
Adjusting FCPA Compliance
Programs
In our previous alert (June 2010), we noted that
existing compliance programs tailored to the FCPA
may not translate into “adequate procedures” for the
purposes of the Bribery Act. In addition to the fact
that the Bribery Act covers bribery of private
persons in addition to foreign public officials, we
noted issues relating to the FCPA's exceptions for
corporate hospitality and facilitation payments. The
draft Guidance further addresses these issues, but
does not establish any kind of “safe harbor.”
Hospitality and Promotional Expenditures
There has been considerable concern that what
would be seen by most businesses as legitimate
corporate hospitality or entertainment expenses
might violate the Act, particularly with regard to
foreign public officials. The Act flatly prohibits
providing or offering any financial or other benefit
to a foreign public official intended to influence the
official in his or her role as an official and to obtain
or retain an advantage in business, and unlike the
FCPA, makes no exception for modest expenditures
in this regard.
The draft Guidance indicates that reasonable and
proportionate hospitality is unlikely to be
considered bribery of a foreign public official under
the Act – but that the greater the expenditure
provided, the greater the inference will be that it is
intended to influence the official, and thus to fall
within the offence. The draft Guidance indicates
that, in some circumstances, the payment of travel
or accommodation costs for a foreign public official
may not amount to a "financial or other advantage"
to the relevant official, as it is a cost that would
September 20, 2010
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Foreign Corrupt Practices Act (FCPA) Alert
otherwise have been borne by the relevant foreign
government rather than the official himself.
individuals involved are told that their behaviour is
not to be tolerated.
Conclusion
Facilitation Payments
The draft Guidance confirms that the Act prohibits
all facilitation payments. Thus, if a company is
prosecuted in connection with such payments, it
should be expected that its procedures will not be
considered “adequate” if its policy permits such
payments, even if it is primarily a US company
subject to the FCPA.
At the same time, the Director of the Serious Fraud
Office has stated that it is highly unlikely that a
single incident of a facilitation payment being made
will lead to the company being prosecuted, if the
payment is discovered by internal procedures and
The Bribery Act will apply to any company with a
business presence in the UK, and the determination
of UK authorities to pursue violations of the Act
should not be doubted. The Act provides
companies with the opportunity to avoid liability
under the Act by developing “adequate procedures”
to prevent bribery, as outlined in the proposed
Guidance. Antibribery policies based on the US
FCPA are likely to require some adjustments in
order to provide that protection, and businesses with
such policies in place should review them against
the new UK standards.
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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.
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September 20, 2010
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