What Corporations Need To Know About Bribery and Corruption
The FIFA scandal, currently dominating the media this week, seems to keep growing by the day. On Friday, FIFA admitted to paying the Football Association of Ireland €5million (£3.6m) to prevent them from taking legal action after Thierry Henry’s infamous handball cost the Republic a place in the 2010 World Cup finals. This come on top of allegations of financial misconduct and money laundering used in connection with Russia and Qatar respectively being awared the 2018 and 2022 Football World Cups.
With US and Swiss officials promising to unearth more incidences of bribery and corruption within the embattled organisation, it seems pertinent to highlight the laws surrounding these areas, so that those at the helm of domestic and multi-national corporations are aware of the steps they need to take to ensure their organisations do not end up in the newspapers for all the wrong reasons.
This blog will discuss the points corporate bodies need to be aware of in key legislation such as the UK Bribery Act 2010 and the US Foreign Corrupt Practices Act 1977 (the FCPA), the role of the Financial Conduct Authority (FCA) and the Serious Fraud Office (SFO) in investigating cases of bribery and corruption in corporate organisations and the use of Deferred Prosecutions.
The Bribery Act 2010
The Bribery Act 2010 came into force on 1st July 2011. It applies to any business that is incorporated or trades in the UK. It covers bribery committed by an organisation, or on its behalf, anywhere in the world. The Act has been called one of the world’s toughest anti-corruption laws. Bribery offences committed by individuals now carry a penalty of up to 10 years’ imprisonment, an unlimited fine and confiscation of assets.
The Ministry of Justice defines bribery as “Very generally, [bribery] is defined as giving someone a financial or other advantage to encourage that person to perform their functions or activities improperly or to reward that person for having already done so.”
Back in 2011, it was section 7 of this Act which sent shivers down the corporate worlds’ collective spine. The first part of this section states that:
“ 7 Failure of commercial organisations to prevent bribery
(1) A relevant commercial organisation (“C”) is guilty of an offence under this section if a person (“A”) associated with C bribes another person intending—
(a) to obtain or retain business for C, or
(b )to obtain or retain an advantage in the conduct of business for C.
(2)But it is a defence for C to prove that C had in place adequate procedures designed to prevent persons associated with C from undertaking such conduct.”.
This effectively means that a corporation can be prosecuted under the Bribery Act 2010 if an offence under the Act is committed and the organisation fails to show it had satisfactory policies and procedures in place designed to prevent bribery and corruption from occurring.
Much has been made of the fact that up until December 2014, there had been no successful prosecutions under the Bribery Act 2010. Questions were asked as to how serious the Conservative Government was about enforcing the Act, especially given that it has repeatedly slashed the budget of the SFO since the Act came into force in 2011. The SFO is under pressure to bring a prosecution under section 7 so clarification can be given on the liability of a corporation for an ‘associated persons’ conduct, and what amounts to ‘adequate procedures’.
The SFO states that another reason for the lack of prosecutions is the time it takes to investigate such cases. In the case of FIFA, those in the know say the surprise is not that the organisation has committed alleged offences of bribery and corruption, it is that the US and Swiss authorities have finally clamped down on it. The investigation into FIFA has been going on for many years, and it is only now arrests are being made by the US Department of Justice.
This leads us to the second major piece of worldwide legislation governing bribery and corruption that corporations need to be aware of; the US Foreign Corrupt Practices Act 1977.
US Foreign Corrupt Practices Act 1977
Prior to the UK Bribery Act 2010, the dominating piece of legislation governing bribery and corruption was the US Foreign Corrupt Practices Act (FCPA) 1977. Because the FCPA has been in force much longer than the Bribery Act, most organisations who could be affected by it have policies and procedures in place to ensure they stay compliant with its regulations.
Like the Bribery Act 2010, the FCPA has extra-territorial jurisdiction and all UK companies who trade or procure stock from overseas need to be aware of it. For offences committed under the FCPA an individual can be fined up to US$250,000 per violation and may also be given up to five years imprisonment. A company guilty under the FCPA is liable for a fine of up to US$2,000,000 per violation.
There are some key differences between the two pieces of legislation, highlighted in the table below:
|Bribery Act – UK legislation||FCPA – US legislation|
|Scope||The Bribery Act covers both the giving and receiving of bribes||The FCPA only covers instances where a bribe is given|
|Liability||Section 7 of the Bribery Act creates a strict liability corporate offence for failure to prevent subject to being able to establish that a company has “adequate procedures” in place to prevent bribery and corruption within its business||Under the FCPA, a company subject to US jurisdiction can be held vicariously liable for acts of its employees and agents|
|Intent||There is no requirement for intent with regards to the bribing of a public official under the Bribery Act 2010; however, intent is required for general bribery offences||The FCPA requires the prosecution to prove the person offering the bribe did so with ‘corrupt’ intent|
There have been many famous prosecutions under the FCPA. The case involving BAE Systems in 2010 resulted in a fine of US$400 million, one of the biggest criminal fines given since the U.S. Department of Justice began to strictly enforce ethical international business practices. BAE Systems was charged with a number of FCPA and other violations, including falsification of the company’s FCPA compliance program, impairing and impeding U.S. lawful function in order to defraud the nation, and violations of the Arms Export Control Act (AECA) and International Traffic in Arms Regulations (ITAR).
However, this penalty amounted to small change when compared with the fine given to the German engineering group Siemens. The company was charged with paying US$16 million to the President of Argentina to secure a contract for making Argentinean identity cards (the contract was worth US$1billion). After an investigation, the company was accused of paying US$100 million worth of bribes to government officials, and was required to pay $US1.6 billion worth of fines in the US and Germany.
In order to stay clear of any implications under the UK Bribery Act or the FCPA, organisations need to assess their risk of being involved in international bribery and corruption, especially if they are conducting business in countries such as Mexico, China, India and Brazil, which are known to expose companies to a high risk of corruption. Organisations should also ensure they roll out compliance programs to all employees and any third parties who are conducting business activities on its behalf. Finally, it is vital that those at the helm of a corporation ensure due diligence is conducted on all third parties it deals with in the course of business, both domestically and internationally.
In the UK, the SFO handles enforcing the law relating to domestic and overseas corruption and the Bribery Act 2010.
Since its inception, the SFO has faced criticism for shying away from taking any serious action in respect of pending investigations. While it could be defended that the UK Bribery Act is a relatively young piece of legislation to enforce, or that the SFO prefers to limit its purview to the UK, it should be noted, especially from the comparison table above, that the UK Bribery Act gives the SFO a wide range of powers.
However, in the current FIFA scandal, while their US and Swiss counterparts (to a lesser extent) have begun arresting suspected officials, the SFO have claimed that they “continue [to] actively assess material in its possession and has made plain that it stands ready to assist continuing international criminal investigations”.
The reality of the situation is that in its current state the SFO is ill-equipped to investigate a FIFA-sized scandal, in terms of both resources and experience, and therefore prefers to focus its anti-corruption efforts within the UK jurisdiction.
In contrast to the SFO’s scope, the FCA do not enforce the Bribery Act 2010. Rather, they can take action when authorised firms (those firms that fall under section 19 of the Financial Services & Markets Act 2000 (FSMA)) fail to take action to prevent bribery and corruption. Therefore, they do not need to wait for an act of bribery to take place; they can take action against an organisation that does not have sufficient anti-bribery and anti-corruption policies and procedures in place.
The FCA provides guidance on how to ensure FSMA-authorised firms can avoid bribery and corruption offences taking place within their organisation.
Deferred Prosecution Agreements
In early 2014, legislation introduced Deferred Prosecution Agreements (DPAs) into UK law. These have been used in the US for many years and allow a company to avoid prosecution if it agrees to fulfil certain conditions set out by the prosecutor. These conditions may include:
• Paying financial penalties
• Compensating victims
• Introducing (or improving) a corporate compliance programme
• Giving enforcement officers and monitors access to the company
• Providing full cooperation to the prosecutor in any related investigations
If the company complies with all the conditions set out in the DPA, then upon its expiry, the prosecutor will drop all criminal charges against the company.
At the time of writing, there had not been any cases of a DPA being used in the UK. However, negotiations for a DPA are ongoing in some high-profile cases.
The SFO have said publicly that the key factor for them in determining whether or not to begin negotiations for a DPA is co-operation. Therefore, corporations and their advisers will need to make a strategic decision very early on as to whether they see a DPA as an attractive and achievable outcome. If they do, then they will need to take steps to satisfy the SFO that they are co-operating by, for instance, waiving privilege over interview notes or, as it is understood has occurred in some cases, allowing the SFO to take the first account from key witnesses.
As we have seen with FIFA, once allegations of bribery and corruption come to light, they can devastate the reputation of an organisation, well before the first criminal charges are laid.
Although it requires an initial investment of both money and time, having a clear compliance policies and procedures in place which cover all employees and thrid parties, can save a company, its directors and its shareholders millions of pounds in the long-term.
To find out more about how Saracens Solicitors can advise you on complying with bribery and corruption matters, please call our London office on 020 3588 3500.
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