The UK Bribery Act and companies in the energy sector
Britain's new anti-corruption law, the UK Bribery Act 2010, came into force on 1 July 2011 after a legislative process that was long, complex, and controversial, mainly because of the implementing conditions. Companies in the energy sector, most of which have transnational business activities, are clearly covered under the law. This column will therefore briefly analyse the new set of rules and the scope of the law.
The origins of the UK government's adoption of the UK Bribery Act 2010 lie with the famous corruption case involving Saudi Arabia and the English defence company BAE Systems. The Serious Fraud Office (SFO) had decided to discontinue its investigation of the case for diplomatic reasons, setting off an outcry in British public opinion. It became necessary to reform UK anti-corruption laws, and a new paradigm was instituted through the Bribery Act.
However, once drafted, the new law was also controversial because of its potential to compromise the competitive status of the English market due to its stringent provisions. First, the official prohibition on all facilitation payments (i.e. modest payments customary in certain countries to expedite the performance of routine actions which the proposed recipient has a clear and non-discretionary obligation to perform) could be an obstacle to the satisfactory course of commercial transactions for English companies; as gifts and hospitality were strongly discouraged in light of the strict provision of the Bribery Act, companies that were not subject to the law could reap considerable advantages from that status.
The Bribery Act 2010 includes several crossheadings. The first, "General Bribery Offences", covers Sections 1 to 5 of the law and involves conduct that matches the definition of bribery and therefore constitutes an offence.
Section 1 of the law defines bribery as offers, promises, or financial or any other advantage to induce a person to improperly perform a relevant function or to reward a person for the improper performance of such function or activity. Bribery also involves offering, promising, or granting financial compensation or any other advantage if the person who engages in the conduct knows or believes that the acceptance of the financial compensation or advantage would itself constitute an improper use of another's function or activity.
Section 2 defines the offence committed by a person who accepts a bribe. This offence takes various forms; it is committed where a person requests, accepts, or actually receives financial or other advantages, and where such request, agreement, or acceptance itself constitutes improper performance of a relevant function or activity.
Section 3 defines the functions and activities considered as being susceptible of bribery, to wit: any function of a public nature, any activity connected with a business and any activity performed on behalf of a company or other body of persons. The activities in question may therefore be either public or private.
The fourth section pertains to the concept of improper performance. Performance is improper where a function is performed for purposes that are counter to the principles of good faith or are in breach of what would normally be expected of the person performing the function or activity.
Section 5 pertains specifically to what would normally be expected of a person performing a function. The standard it sets out is what any reasonable person would expect of another who is performing a relevant function or activity. If the person performing the relevant function is not a citizen of the United Kingdom, only a written law applicable to the country where such person is a citizen may be cited in his or her defence. The section then clarifies what is meant by the concept of written law, i.e. any constitution or legislative provision applicable to the country concerned, or any published judicial decision.
The second crossheading deals specifically with the bribery of foreign public officials and contains Section six. The section provides that an offence has been committed wherever a person intends to influence another in the latter's capacity as a foreign public official. The offender must also intend to obtain advantages for his or her business by offering, promising, or giving financial advantages or gifts either directly or through a third party.
Section 6(5) defines the concept of a foreign public official. A public official is someone who holds a legislative, administrative or judicial position in a country or territory outside the United Kingdom, or who works for a public agency or public enterprise of such country or territory, or who holds an official function within a public international organisation.
The third crossheading contains provisions on the failure of commercial organisations to prevent bribery, and covers Sections 7 to 9 of the Bribery Act. This is a new offence which occurs whenever an act of bribery is committed by a person associated with a company - for example, an employee, agent, or even a third party as provided in Section 8. Section 7(2) specifies that it is a defence if the company concerned can demonstrate that it had implemented adequate procedures for preventing an associated person from engaging in bribery.
Crossheading four, covering Sections 10 and 11, is on prosecution and penalties for the offences discussed above. Section 10 requires the consent of the appropriate prosecutor for any prosecution, depending on the offence, and sets out an exhaustive list of such prosecutors. Section 11 lists the penalties applicable to individuals or companies having engaged in bribery. Prison sentences may be for up to 10 years, and there is no upper limit on the fines that may be charged to companies.
Crossheading five, "Other Provisions on Offences", includes Sections 12 to 15 of the law. Section 12 stipulates that for an offence to come within the scope of the law, it must have been committed on the territory of the United Kingdom, or, if committed outside the UK, the offender must have a close connection with the United Kingdom. Specifically, the law applies if the offence was committed by a British citizen, a person usually resident in the United Kingdom, a company with its registered office in the United Kingdom or a Scottish partnership. As explained in Section 13, the accused party may mount a defence by demonstrating that the conduct was necessary for the proper exercise of an intelligence service or the armed forces. Section 14, on the other hand, states that senior officers of a company that has engaged in bribery will also be prosecuted for the offence.
The sixth and last heading of the Bribery Act is for supplementary and final provisions. Section 16 simply provides that the law will also apply to any individuals in public service in the UK, while Section 17 repeals other legislative provisions pertaining to bribery.
On 30 March 2011, the UK government published guidance for certain concepts used in the Bribery Act 2010.
The first significant notion is that of "adequate procedures", in other words all measures that companies conducting business in the United Kingdom must establish in order to comply with the law. Companies that fail to implement such procedures incur criminal liability and risk unlimited fines in the event a person associated with the company engages in a proven instance of bribery.The Bribery Act therefore instituted a new offence: the failure by a legal entity to prevent bribery.
The guidance document indicates that procedures are adequate where they are:
- proportionate to the company's business and risks;
- derived from regular, documented risk assessments;
- combined with verifications of and due diligence on associated persons;
- the subject of internal and external communication;
- monitored and periodically revised;
- visibly supported by top level management, which should explicitly prohibit all forms of bribery.
Guidance is also provided on what "gifts and hospitality" means. Such expenses incurred as part of a business relationship are allowed if the gifts and hospitality in question are reasonable and proportionate, intended to cement the relationship or present products and services.
As for an "associated person", the concept should be understood broadly. However a company may not necessarily be liable under criminal law if the "associated person" is a shareholder or an investment.
The "conduct of business in the UK" is another notion clarified in the guidance document, with details that are important for a better understanding of the extraterritorial scope of the Bribery Act. For example, the mere fact that a company lists securities or has a subsidiary in the UK does not suffice to show that the company "conducts business" on UK territory.
In addition, it must be remembered that this guidance offered by the UK government has no legal status. The true scope of the Bribery Act 2010 will only be genuinely established through the interpretations of UK courts and prosecutors. It is entirely possible that the courts and prosecutors will construe the law more narrowly than the guidance document does, especially in terms of its extraterritorial scope.
The exact scope of the law is unclear, especially for energy sector companies which, due to their multiple offshore activities, are not always in a position to know whether they are subject to this law whose implementing terms diverge depending on the type of structure involved.
For example, if a French company has a branch in the United Kingdom, it is considered as conducting business on British soil. The Bribery Act therefore applies directly to the company, and to all business that the company carries out worldwide. A qualification about the scope may be appropriate here, as it is likely that the SFO will automatically focus on evidence it is able to gather on UK territory. Even though the new UK anti-bribery policy is to prosecute offences committed abroad, the jurisdictional issues that could arise in practice cannot be ignored; prosecution will mostly likely be mainly tied to UK territory, despite the universal scope of the law.
Next, if the company involved is French and has a subsidiary in the United Kingdom, the implementation of the law will depend on how much control the company exerts over that subsidiary. If the French company controls the subsidiary, it will be deemed to conduct business on UK soil.
However if the French company is merely listed on the stock exchange, this does not demonstrate that it conducts any business in the UK.
Last, if a French company canvasses for business or makes deliveries to the United Kingdom, it is unclear whether it would fall within the scope of the law. It is nevertheless possible to imagine the English courts interpreting the law in favour of a defendant, and deciding not to apply the provisions in such situations. For now, we can only wait for case law on the issue to develop.
As UK companies are automatically subject to the new law, those with subsidiaries abroad will have to abide by the new "adequate procedures"; UK parent companies wishing to open subsidiaries abroad will have to adapt their anti-bribery programme so that it extends to their entire group, regardless of the country where subsidiaries are located.
In the end, the UK Bribery Act is controversial above all because it created a new offence for a failure to prevent. Companies now have a duty to prevent bribery by implementing "adequate procedures". Whereas previously, companies accused of corruption could develop various strategies to defend themselves, now there is only one defensive manoeuvre they can use, details for which are in the guidance provided by the UK government.
The new law therefore establishes severe penalties, yet at the same time it is progressive in that it does not rely on punishment alone. English lawmakers clearly wished to encourage prevention and proportional measures to effectively prevent bribery, especially in terms of what demands can be made on companies given their structural differences.
Yet the Bribery Act is open to criticism because it lacks clarity. It is true that the guidance document contains many clarifications, but these do not have the force of law. They are therefore not binding on courts and prosecutors, which have broad discretion to interpret the provisions. This situation is one of considerable legal uncertainty for companies. Companies cannot know with any certainty whether the law applies to them, nor exactly what measures they should establish to protect themselves if they are indeed subject to the law's provisions.
Companies operating in the energy sector, in a business that is diversified and international by definition, therefore do not know for certain at this point whether their procedures will be considered "adequate" by English courts and prosecutors in the event of proceedings for a bribery offence.