Reflections on the UK Bribery Act seven years on
Following the appearance of RPC's Sam Tate at the annual IBA conference earlier this month, where he joined a panel of experts discussing Corruption and Corrupt Contracts, here are our reflections on how the Bribery Act has changed the landscape of bribery offences and corporate criminal liability, first published by the IBA earlier this year and now updated.
The United Kingdom Bribery Act 2010 (the ‘Bribery Act’) came into force on 1 July 2011 and updated the UK law on bribery, which had remained largely untouched for nearly a century, putting in place (arguably) some of the toughest anti-bribery legislation in the world. It initially raised serious concerns for businesses operating in the UK and internationally – some of which considered that it bordered on imposing anti-competitive measures.
The Bribery Act has now been in place for seven years and this article considers its impact and future treatment in light of its upcoming review by the House of Lords (the second chamber of the UK Parliament) later this year and the arrival of a new Director at the UK Serious Fraud Office (SFO), Lisa Osofsky.
Key elements of the Bribery Act
When introduced, the Bribery Act retained the pre-existing offences of offering and accepting bribes, as expected. However, it also created new offences and in particular significantly extended the scope and territorial reach of corruption related corporate criminal liability outside the UK, as follows:
- a new bribery offence was created where a commercial organisation fails to prevent bribery that takes place for its advantage. The only defence that can be raised is for the relevant entity to demonstrate that it had adequate procedures in place to prevent bribery at the time that bribery occurred; and
- as regards the new corporate offence, a commercial organisation with just a "part of its business" in the UK will be in breach of the Act if bribery occurs anywhere in the world. As a result, in theory a French entity with a sales office in Cardiff could be prosecuted for paying bribes in Indonesia where no part of the bribery occurred in the UK.
What impact has the Bribery Act had?
Following its introduction, companies operating in the UK were effectively required to put in place policies and procedures to prevent bribery taking place. In addition, as the general mood towards corruption hardened in recent years, not only companies but entire industries are seeking to develop cohesive and practical anti-bribery practices to reduce their bribery risk. For example, many contracts with suppliers/third parties now contain standard requirements requiring adherence with the Bribery Act and equivalent legislation around the world to diminish bribery throughout the supply chain and third party management software is increasingly common. In addition, we are seeing increased cooperation between regulators in different jurisdictions, sharing information and working together to hold firms to account across borders.
Enforcement in the UK began on a small scale: the first conviction under the Bribery Act in 2011 involved a magistrates’ clerk accepting £500 not to record a parking offence. The SFO, which is the main prosecutor of large scale Bribery Act offences, achieved its first conviction under the Bribery Act in December 2014 against individuals for making and accepting bribes in relation to the sale of biofuel investment products.
The first conviction of a corporate entity for the new offence of failing to prevent bribery (in the United Arab Emirates and elsewhere) was made in December 2015 against Sweett Group Plc, which had pleaded guilty. Since 2015, significant penalties have been levied on entities for failing to prevent bribery, peaking in January 2017 with a fine of over £500m imposed on Rolls Royce for misconduct spanning over 30 years in numerous jurisdictions (not all involving the Bribery Act 2010).
However, the rising use of deferred prosecution agreements (DPAs) by companies accused of offences under the Bribery Act has had a sizeable impact on the manner in which investigations have been conducted by the SFO. To date, there has been only one contested prosecution by a corporate entity (referred to below), meaning that there is limited judicial guidance on how the offence is to be interpreted and/or defended, leaving many companies reliant on external experts and law firms.
Deferred prosecution agreements
Introduced in the UK in February 2014, a DPA is a discretionary agreement that may be entered into between a prosecutor and an organisation, which allows prosecution of an offence to be suspended for a finite period. At the end of that period, if the organisation has cooperated with the SFO and met certain conditions, the offence will then not be prosecuted at all. Typically, conditions include a combination of financial sanctions, implementing enhanced compliance procedures and providing ongoing cooperation (e.g., regarding the prosecution of individuals) and they may also include the imposition of a monitor to test compliance with DPA conditions and report to the SFO.
DPAs are, therefore, a relatively new concept in the UK, having been adopted from the United States where they have existed for much longer and are used extensively. So far, only four DPAs have been entered into in the UK regarding investigations under the Bribery Act. Contrast this with the US where over 400 having been entered into in the last two decades.
DPAs must be approved by the court before they can be entered into. The requirement for judicial approval in the UK holds the SFO to a high standard to demonstrate why prosecution is not appropriate in the relevant case. The crucial elements for companies to obtain a DPA are: (a) demonstrating cooperation with the SFO that goes beyond expectations; and (b) some element of self-reporting.
Sweett Group, which was prosecuted for comparatively limited bribery offences, was not offered a DPA in large part because it refused to cooperate with the SFO. However, Rolls Royce, whose case involved allegations of extensive, multi-jurisdictional and systemic acts of bribery, was offered a DPA by the SFO. This received much criticism as it was considered that Rolls Royce would be a prime target for prosecution due to the severity of the issues involved. However, its unwavering cooperation with the SFO and willingness to put things right persuaded the court that a DPA would be appropriate.
Similarly, an entity so far referred to only as ‘XYZ Limited’ due to ongoing connected criminal proceedings, entered into a DPA with the SFO in 2016, following self-reporting of widespread misconduct. The misconduct related to the systematic offer and payment of bribes to secure contracts in foreign jurisdictions. Again, a DPA was offered due to the firm’s exemplary cooperation with the SFO. Lord Leveson, the judge approving the DPA, stated that the outcome provided an example of the value of self-reporting, co-operation, and the introduction of appropriate compliance mechanisms.
In 2017, Ben Morgan, the then head of Anti-Corruption at the SFO, commented that DPAs would become the ‘new normal’ for those entities that behave responsibly. The incentive for firms is that it is the route most likely to avoid the collateral damage that potentially follows a bribery conviction – namely, reputational damage, job cuts, debarment from public tendering and even the winding up of the company.
The defence of ‘adequate procedures’
Despite this increasing use of DPAs in the UK, some companies may still have an appetite to fight a prosecution. So far, only one company, Skansen Interiors Limited (Skansen), has contested a charge of failing to prevent bribery by employing the defence of having ‘adequate procedures’ in place to prevent bribery. This is the first case that has provided any guidance on what this defence entails.
Skansen, a small firm employing 30 people, self-reported instances of bribery regarding payments made by one of its directors to obtain a lucrative contract. However, Skansen was not willing to accept that it had committed an offence itself in this regard and argued that it had adequate procedures in place to prevent the bribery, despite it taking place. In particular, Skansen argued that:
- it operated out of one open-plan office, it was not an international organisation and, therefore, did not need sophisticated anti‑bribery policies;
- it was common sense that employees should not make/accept bribes and its policies stated that employees should approach dealings with third parties in an ethical, open and honest manner; and
- it identified the largest of the bribe payments before it was made and stopped the payment from being made, demonstrating that its systems were sufficient to detect bribery and stop it.
However, the jury, who heard the case in March 2018, nonetheless found that it did not have adequate procedures in place. Therefore, this case provides helpful guidance as to what will not be considered to be adequate but no real guidance as to what would be enough. However, this case of a small UK-based company may be of little relevance to the large, complex international corporations that are so often in the SFO’s sights. Therefore, firms of all sizes with operations in the UK remain anxious for more concrete guidance as to the procedures they should have in place to avoid the same fate as Skansen.
The Future of the Bribery Act
The House of Lords review
The UK House of Lords announced earlier this year that it was forming a select committee to consider the Bribery Act. In May 2018, the Chairman of the Committee, Lord Saville of Newdigate, stated that ‘the Committee will examine the effectiveness of the Act, whether there has been stricter prosecution of corrupt conduct, a higher conviction rate, and a reduction in such conduct’. The announcement also noted that there is ongoing confusion and uncertainty about the requirements of the Act, amongst small to medium sized enterprises (SMEs) in particular, and the need for clarity going forward.
The Committee published a call for evidence in June 2018 and evidence sessions began in July 2018. The Committee’s report, which is expected in 2019, is keenly anticipated by legal practitioners and industry alike.
Changes at the SFO
Lisa Osofsky, a former prosecutor at the FBI, took over as Director of the SFO in September 2018. Lisa Osofsky's inaugural speech as Director of the SFO provided some insights into her approach to the role and highlighted in particular her intended focus on developing closer cooperation between the SFO and other bribery prosecutors across the globe. However, it remains to be seen exactly what impact Ms Osofsky's appointment will have as she puts her own stamp on the enforcement of the Bribery Act in the years to come.
Expansion of corporate accountability for other economic crime
For the past few years, the UK Government has considered whether an equivalent offence to the offence for corporate entities of failing to prevent bribery should be introduced regarding other economic crimes as well. A similar offence was implemented in September 2017 for entities that fail to prevent tax evasion and/or the facilitation of tax evasion by a person associated with them (under the Criminal Finances Act 2017). However, no further expansion into other areas of economic crime, such as fraud and false accounting, has yet been attempted.
This potential new offence for corporates would relate to economic crimes perpetrated by employees or others representing the organisation, which is currently governed by the common law rule known as the ‘identification doctrine’. This doctrine requires prosecutors to prove that those individuals constituting ‘the directing mind and will’ of the company knew about, condoned or played a part in wrongdoing in order to secure a conviction. In reality, it is rare for there to be sufficient evidence that ‘the directing mind and will’ of large, sophisticated organisations was involved in the wrongdoing.
The pressure for change came to a head in 2015 when UK authorities were unable to bring charges against banks in the UK for The London Inter-bank Offered Rate manipulation as they failed to prove that anyone sufficiently senior was involved in the wrongdoing. David Cameron announced proposals for a consultation in 2016 on expanding the law in this area, which closed in March 2017, yet little has happened since. However, in March 2018, the Solicitor General Robert Buckland called for a new law to facilitate the creation of a new corporate offence of failing to prevent economic crime. Time will tell whether this comes to fruition.
The Bribery Act has pioneered a new path for corporate accountability in the UK and this may well expand into other areas of economic crime. However, despite being in force for over seven years, further clarity regarding the Bribery Act is still needed. Questions of particular pertinence include:
- What role should DPAs play in Bribery Act investigations, and are all companies on a level playing field when it comes to avoiding prosecution?
- Is self-reporting an attractive option for companies?
- What do ‘adequate procedures’ actually constitute and how high is the bar to prove their existence?
In the meantime, businesses operating in the UK and those working with them outside the UK need to be alive to the real risk of prosecution under the Bribery Act.
Thanks also to Richard Burger, an alumnus of RPC, for co-authoring the article.