The long-awaited Bribery Act is to be implemented this summer amid a storm of controversy. Georgina Stanley and Friederike Heine assess the legislation on every corporate's mind

"Talk of golf days being banned and arrests at Wimbledon – that was all hype," says Barry Vitou, Pinsent Masons partner and co-author of thebriberyact.com, discussing the much-touted anti-corruption legislation that will finally come into effect later this summer.

And the implementation of the Bribery Act has certainly been noticed; arguably not since the Human Rights Act 1998 has a piece of primary legislation with wide implications for companies attracted such sustained political controversy. In the wake of a fierce lobbying campaign from business groups claiming, in one case, that the Act would be like equivalent US legislation "on acid" – leading to extreme claims that even basic corporate hospitality would be banned under the legislation – the Ministry of Justice (MoJ) announced in January that the Act's implementation would be delayed from its target of April 2011.

There was little doubt that the move was a calculated concession from the coalition Government to the business lobby, with Justice Secretary Kenneth Clarke making a number of statements regarding his sympathy with concerns over the Act. However, on 30 March, the MoJ issued guidance on the Act's implementation (which would itself prove controversial) and confirmed the legislation would come into force on 1 July.

While the guidance was seen to have toned down some of the more extreme potential interpretations of the Act, prosecuting authorities will still have plenty to do and companies plenty to worry about, as the Act remains one of the most far-reaching pieces of commercial legislation to have been enacted in the UK in recent years – too far-reaching for some. In recent weeks a prominent newspaper denounced the Act, even after the guidance, as badly-written, a boon to self-serving advisers and a cost British business can ill-afford in a competitive global economy. From this July, UK companies and overseas businesses with some presence in the UK will have to comply with some of the toughest anti-corruption laws in the world. Harsher, even, as critics have wasted no time in pointing out, than the much-feared Foreign Corrupt Practices Act (FCPA) 
in the US.

Set against this, the extent to which the final guidance offers a softer reading than suggested by the Act itself has made some uncomfortable, arguing that the Government has undermined the concept of Parliamentary authority by attempting to rewrite a statute retroactively. However, the consensus view is that the guidance has helped to clarify the core aims and likely enforcement strategies of the Act. Norton Rose partner Jason Moss says: "The legislation is capable of being construed in a way that would make it the toughest in the world but, following the publication of the MoJ's guidance, a big dose of pragmatism says it's in no-one's interest to turn the thumb screws too much."

A long time coming

The media frenzy over the incoming law belies the fact that the legislation has been a long time coming – a very long time. The Act effectively pulls together a patchwork of statutes governing anti-corruption in the UK, where to date bribery has been prosecuted primarily through the Prevention of Corruption Act of 1906; the Public Bodies Corrupt Practices Act of 1889; the Anti-Terrorism, Crime and Security Act of 2001; and the common law bribery offence. Since 2008, the Serious Fraud Office (SFO) has also had powers to obtain civil recovery orders 
under the Proceeds of Crime Act 2002, allowing it to seize property and funds obtained through unlawful conduct.

The combination of outdated laws has resulted in a system that has been criticised by influential bodies such as the Organisation for Economic Co-operation and Development (OECD) for allowing the UK to fall far short of other jurisdictions. As such, bribery-related prosecutions have been few and far between by international standards.

With the plan to update the laws on the agenda for more than 15 years, the UK has been under considerable pressure to act, particularly after having failed to update its laws despite ratifying an OECD convention on combating bribery back in 1998. The bill was finally announced in the dying days of the Labour Government in November 2009, prompted by strong international criticism – including an OECD working group recommendation in October 2008 that the UK introduce legislation to comply with the convention "as a matter of high priority".

As Mayer Brown London litigation partner Andrew Legg comments: "The Act was essential to the UK. Our anti-bribery laws were designed for a different era – they needed updating so that the UK could measure up to current international standards."

The outdated laws, combined with the fact that the SFO only took responsibility for prosecuting such cases around 2003, obviously impacted on prosecutions. The first prosecution brought in the UK against a company for offences of overseas corruption and breaching United Nations sanctions was not until September 2009, when steel bridging company Mabey & Johnson was ordered to pay £6.6m. The same year manufacturing company Innospec pleaded guilty to committing bribery in Indonesia – resulting in a penalty of $12.7m (£7.8m), with the UK co-operating with US Government authorities including the Department of Justice (DoJ) on the case.

Other cases leading to prosecution include this month's £4.8m civil recovery order against DePuy International and, of course, the politically-charged case against BAE Systems, which ultimately saw BAE in 2010 agree to pay the SFO £30m for failing to keep accurate accounting records in relation to activities in Tanzania. The company paid fines to the DoJ of $400m (£245m) under the FCPA.
Controversially, though, the SFO, under then director Robert Wardle (now a consultant with DLA Piper) in 2006 dropped its bribery investigation into BAE in relation to business deals in Saudi Arabia after the Government decided the investigation risked compromising national security. (BAE was alleged to have made illegal payments to senior officials in Saudi Arabia, a key strategic ally of the UK in the Middle East).

The landmark case, which generated roles for firms including Allen & Overy (A&O) and Linklaters, led to BAE introducing significant compliance reforms and, in August 2010, appointing former Herbert Smith senior partner David Gold as an external monitor. The company had already hugely beefed up its anti-corruption procedures after recruiting O2 legal head Philip Bramwell in January 2007 as its new general counsel. BAE is now widely cited as the "gold standard" for anti-bribery measures by private practitioners specialising in the field.

The Act emerges

Against this chequered history, the Bribery Act was intended to be easier to enforce than previous laws. It makes paying or receiving a bribe, bribing a foreign official and failing to prevent bribery at a corporate level criminal offences. Unlike the previous laws, a company can be found guilty because of the actions of senior management or mid-level staff or for failing to stop activities committed by a third party.

Crucially, unlike many other nations' bribery legislation, it applies worldwide, affecting the UK and overseas offices of UK companies as well as overseas companies with some form of presence in the UK. Unlike the FCPA, it also bans facilitation payments made in some jurisdictions to induce officials to perform functions they should be doing anyway.

It is the worldwide application of the Act – including the ban on facilitation payments – that has most upset businesses, prompting complaints that it disadvantages UK companies. Those in the pharmaceutical, defence, energy and construction sectors are among those most affected, but its application crosses all industry sectors. The delay in publishing the final guidance was interpreted as a clear sign that the Government was trying to appease business. Certainly the final guidance offers a softer reading of the Act, prompting some to claim that Clarke has watered down the original beyond recognition. Campaign group Transparency International, for example, denounced the 
guidelines as "deplorable".

Notably, the guidance suggests that it is not enough for a company simply having a UK listing to come under the remit of the Act and reassures that reasonable spending on corporate hospitality is not going to be actionable. The apparent exemption for UK-listed companies with minimal UK operations remains highly controversial – though it will not affect many companies – with some seeing it as the clearest indication of the Government attempting to amend the legislation via departmental guidance. The ban on facilitation payments obviously remains, despite the guidelines and Clarke's comments suggesting that only extreme cases are likely to result in enforcement activity.

Herbert Smith partner Susannah Cogman (pictured) comments: "We had the Act and we had a lot of hysteria in the press. Now that we've got the guidance, we've got hysteria the other way. The guidance does water down the potential scope of the Act in some respects – such as the entertainment of public officials. But overall it's a more realistic view of where the court is likely to come out. There are still some grey areas, but it's what a sensible reading of the Act would have suggested all along."

Said Business School research fellow Liz David-Barrett, who has conducted research on corruption, comments: "There are two gaps. The first is between the Act and the guidance and the second is between the guidance and the signals from Ken Clarke. It's a pity because this would have been a chance for the UK to improve its reputation and do the right thing, and the shilly-shallying over the guidance has weakened that.

"The most worrying thing was the message coming from Ken Clarke – in particular on jurisdiction over foreign companies. The suggestion is that companies which only list here need not worry about committing bribery. He's missed an opportunity to boost the UK's reputation."

Unsurprisingly, since the guidelines have been published, complaints from corporates seem largely to have died down, although partners still report hearing of clients suggesting they will need to close down some overseas subsidiaries because of the ban on facilitation payments.

But – lobbying aside – there is no doubt that the Act has provoked intense interest and concern from businesses, which no amount of guidance can allay. Advisers also warn that companies should not be too complacent based on the guidance as it will be the Act that is enforced by the courts – not the guidance. In particular, they want clarity on what counts as a UK presence, what kind of subsidiaries would come under the remit of the Act and what happens in the case of a joint venture.

DLA's Wardle comments: "The SFO is hoping that most of this will be done through self-reporting, but people won't do it unless they know what the punishment is likely to be. Are the courts prepared to listen to plea agreements or give guidance on sentencing/discounts for co-operation? We also have to encourage people to come forward and blow the whistle more."

Most large corporates are well on the road to ensuring compliance. Some have selected law firms to carry out full audits on their compliance procedures, such as Pfizer, which has instructed DLA Piper to review its processes.

Others, such as Balfour Beatty, which in 2008 became the first major company to be subjected to a civil recovery order under the Proceeds of Crime Act when it agreed to pay £2.25m and allow external monitoring of its compliance systems after admitting inaccurate accounting relating to a construction project in Egypt, have been moving in this direction for years thanks to previous investigations.
Balfour Beatty general counsel Chris Vaughan says: "Overall, we are welcoming the Bribery Act. It is a good piece of legislation and with the publication of the guidelines we are now in a sensible and practical place. It is basically codifying procedures that ethical companies should already have in place, particularly those that comply with the FCPA."

One partner at a top 10 City firm agrees: "Much of this is down to the changing attitude of corporates – they don't want to be committing crimes. This will have spurred them on, but they were doing it already.

"I've been involved with lots of businesses where people have said, 'If we stopped bribes we'd have to close', but the reality is such that people say that, then they sack people committing crimes and the offices continue to flourish. People often think things are more necessary than they are."

Crime pays

Announcing the guidelines, Clarke managed a few digs at the legal profession for stoking fears over the legislation. In a recent interview with the Evening Standard, Clarke said: "Most of these proposals should not make the slightest difference to any reputable company. They won't have to spend millions of pounds on new control systems, which the compliance industry will tell them they need." He moved on to reassure smaller organisations that there was no need to employ external advisers as long as they had assessed the risks in relation to their own business.

While such jibes ignore the fact that it was mainly business groups – and some City editors – that indulged in the more extreme claims regarding the Act, there is no doubt that law firms believe the legislation will be good for business. Since January there have been three senior hires by private practice law firms from the SFO, with SFO fraud group head Kathleen Harris hired by Arnold & Porter, anti-corruption team head Robert Amaee joining Covington & Burling and head of policy Charlie Monteith quitting for White & Case's City arm.

Such moves also reflect a trend, clear for five years now, of City law firms substantially beefing up their regulatory and white-collar crime practices in anticipation of greatly increased enforcement activity from international regulators. In this context, the Bribery Act is only the latest – though most high profile – of a series of legislative developments that have seen UK law firms echo their US counterparts in treating white-collar crime and regulatory as a serious strategic element of their practices.

In an era in which law firms will increasingly want to handle 'bet the company' work, and regulators are taking an even more proactive line in prosecuting companies, the attractions of such work are obvious for advisers. Mandates will range from the small to the extensive, with some partners suggesting that for the largest organisations, the total cost of ensuring compliance – including legal bills – could run into the millions. And that is before any expensive investigations work.

Yet much of the reality of the Bribery Act will not turn on the law itself – as with all anti-corruption laws, the stance and effectiveness of regulators in enforcing it will hugely define its practical implications for business. (The US FCPA was little noticed in the years after its 1977 introduction before a dramatic increase in enforcement activity over the last 10 years.) The Government has already said that it does not foresee a significant increase in the number of prosecutions under the new Act compared with the old.

In fact, some partners suggest there could even be fewer cases. Not only has the SFO's budget been shrinking in recent years (funding for 2010-11 was £39.6m compared with £42.9m the previous year) but the organisation's future is up in the air, with proposals to merge its operations into an Economic Crime Agency (ECA). Further to this, there have been suggestions to split the SFO's work into two – with investigations being dealt with by the ECA while prosecutions would be handled by the Crown Prosecution Service.

It is an idea that both advisers and the SFO believe would be disastrous, as corporates facing investigation would want to speak to the prosecutors throughout the process, but particularly at a time when the legislation is so new that there is not yet any indication from the courts about the size of penalties both with or without co-operation from companies.

SFO general counsel Vivian Robinson QC (pictured) comments: "The future of the SFO lies in the hands of the coalition Government. The matter has been discussed internally and we have come to the conclusion that the label the SFO will come under is irrelevant – the worst thing that could happen to the organisation is if the Government decided to split us into two. This would mean that the investigation of serious fraud and corruption and the actual prosecution of companies and individuals would be executed by two different bodies. This would be extremely counter-productive and would undermine everything we have achieved in recent years."

In the absence of clarity regarding the court's reading of the Act or the future of prosecuting bodies, Robinson argues that having a robust procedure and a willingness to self-report potential problems will be the key issue for businesses wanting to head off potential liabilities.

Yet despite such uncertainties and concerns, the biggest irony of the Bribery Act is that this much-derided legislation has by any yardstick been incredibly successful in policy terms, even before coming into force. If the point of any statute is to change behaviour, the Act has already been highly effective, pushing a swathe of companies to review their standards and usher in anti-corruption measures. It is a stark contrast to much legislation that comes in, with the majority of businesses having little knowledge of it and spotty compliance at best.

The real test, though, is how it will be enforced. Said's David-Barrett adds: "It's a big improvement on the previous 
laws, which weren't enforceable. It's really one of the best anti-bribery laws around, although a lot will depend on the enforcement and that's an unknown quantity, not least because the SFO's future is uncertain."
Vitou adds: "The UK's new laws are very good. The question now is about enforcement and on that the jury's still out. The biggest concern is not about the Bribery Act or the SFO's approach but about the future of the SFO. There have been discussions about splitting investigations and prosecution and that could potentially put us back 30 years."

Unfortunately, discussions of such thorny topics generate rather less headline-friendly material 
than declaring war on box seats 
at Wimbledon.

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The Bribery Act – main provisions at a glance

Definition of bribery – 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.*

The Bribery Act 2010 comes into effect on 1 July 2010 and creates four criminal offences relating to bribery: bribing another; being bribed; bribing a foreign official; and, for commercial organisations, failing to prevent bribery. It marks the first time in the UK that bribery will be a corporate crime, with the company to be held liable both when a senior person within the organisation commits bribery and, under section 7 of the Act, for failing to prevent bribery carried out either by an employee or an agent on its behalf.

Significantly, the Act's jurisdiction covers not only offences committed in the UK, but those committed outside the UK by both businesses that are incorporated or formed in the UK and their subsidiaries. This also extends to the controversial issue of facilitation payments, which are banned for both UK companies and their subsidiaries, despite many businesses claiming they are a necessary fact of operating in some parts of the world. Despite fears to the contrary, corporate hospitality is not generally prohibited.

There is a full defence for corporates as long as they can show they had adequate procedures in place to prevent bribery at the time, with the definition of adequate depending on the size and scope of the business. Prosecutions can be made by the director of public prosecutions and the director of the Serious Fraud Office, who must be satisfied that a conviction is likely. If prosecuted under the Act companies face an unlimited fine, with individuals facing a maximum jail sentence of 10 years.

Guidelines issued late last month (30 March) set out six principles for companies to consider when reviewing their procedures:
1 Proportionality – actions should be proportionate to the risks
2 Top-level commitment to running the business without bribery
3 Risk assessment – companies should think about the bribery risks they face and markets they operate in
4 Due diligence – companies should take steps to know exactly who they are dealing with
5 Communication to staff and agents of policies and procedures
6 Monitoring and review – businesses must continue to monitor processes as risks and the effectiveness of compliance procedures may change over time.

*Ministry of Justice guidance

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Client response – no time to waste

Given that in-house legal teams will be heavily involved in ensuring corporates have adequate procedures in place, it is fair to say that the original draft of the Bribery Act created much unease, with several general counsel at FTSE 100 companies describing it as "gruelling" and "draconian".

Businesses breathed a sigh of relief, however, when separate guidance issued last month by the Ministry of Justice and the Serious Fraud Office (SFO) made it clear that corporate hospitality will generally not be considered as bribery and that for any prosecution case to succeed in court, the SFO would have to prove that the hospitality was intended to "induce improper conduct".

"The revised guidance removes some of the uncertainty around corporate hospitality and appropriately addresses potential liabilities for actions by contractors, suppliers and other third parties," says Centrica Energy general counsel David Isenegger. "Hospitality remains a concern for us. [But] on the whole, we feel that the guidelines are sensible and a lot more measured than the original draft."

Some aspects of the guidance have nonetheless come under scrutiny by in-house counsel – many argue that it still fails to take sufficient account of cultural differences that often come into play when businesses are trading internationally.

"It is important to take into account that pharmaceutical companies, which operate in frontier countries, are often expected by partners to do business according to local customs," comments Pfizer chief compliance and risk officer Douglas Lanker.

"For a company like Pfizer, that will seek to hold itself to 100% compliance, this could mean that we have to forego or lose some business along the way."
Debevoise & Plimpton European litigation chair Lord Goldsmith, who was the Attorney General involved in the 2006 decision to abandon the investigation into BAE System's dealings in Saudi Arabia, agrees. "Clients are worried that they will be subjected to tougher rules than their competitors, but the SFO has been reassuring British companies that there will be a level playing field and that their competitors will be exposed to similar rules."

Another aspect that has come under scrutiny is facilitation or so-called 'grease' payments, which Balfour Beatty's general counsel, Chris Vaughan, describes as the "red herring" of the Act. "The Act looks closely at so-called 'grease payments', which the [US bribery legislation] does not cover. Luckily, we already have appropriate measures in place to prevent these from taking place," he says. "It is about striking a balance – we don't want to paralyse the business by putting countless superfluous measures in place, but we do have to manage risk effectively."

In beefing up their internal procedures to deal with the Act, many companies are putting in place processes to allow staff to confidentially report suspected misconduct. Many firms are also reviewing their broader codes of conduct and ethical handbooks.

Yet despite the controversies that surround the Act, there is also considerable support from general counsel for its ethical aims. Likewise, the dramatic expansion in anti-bribery activity from US prosecutors in recent years mean many large companies operating in risky sectors have already put in place robust procedures. "The [Bribery] Act simply codifies procedures that ethical companies should already have in place," argues Vaughan.

Pfizer's Lanker agrees that the impact of the US legislation will make it much easier to comply with the UK Act, citing the large number of pharmaceutical companies that have made disclosures about improper conduct or have been investigated by US prosecutors. Lanker says companies that are compliant with the US Foreign Corrupt Practices Act are "already in a phenomenal position" to comply with the Bribery Act. Pfizer recently instructed DLA Piper to run "compliance diagnostics" for the company across its major jurisdictions, interviewing the company's major suppliers and coming back with any major problems. It also regularly reviews regulatory filings made by other pharmaceutical companies to make sure its procedures reflect best practice.

Centrica's Isenegger agrees that most companies with solid ethical standards and procedures should be compliant with the Act, arguing that "sunshine is the best disinfectant".

One change that is expected to directly affect law firms is that many companies are assessing their suppliers, including major law firms, for bribery risk. Pfizer, for example, expects to formalise an agreement with its law firms this year that they are compliant with anti-bribery laws. As such, there is also expected to be a closer watch on links between law firms and general counsel, with Barclays asking its panel firms to submit details of their corporate hospitality spending as part of its adviser review.

If tracking all this seems a chore for compliance officers or general counsel, a number of major companies – among them Centrica, Apple, British Airways, Visa, Deloitte, Barclays, Anheuser-Busch InBev and Citibank – either have already, or are looking to, appoint specific bribery compliance officers.

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Bribery law – an international comparison

The UK Bribery Act means UK and overseas companies will have to meet some of the harshest anti-corruption rules in the world; however, those companies that have already been complying with the US equivalent – the Foreign Corrupt Practices Act (FCPA) – should be well prepared.

What sets apart the FCPA and the Bribery Act from almost all other international corruption laws is the extraterritoriality of the laws – allowing both domestic and international organisations to be prosecuted for actions taking place globally. Besides the FCPA and the Bribery Act, the German public prosecutor, the Staatsanwaltschaft, is the only other authority with some ability to prosecute extraterritorially.

"Companies that already have strong FCPA-compliant measures in place are in a good position when it comes to the UK Act," says Pfizer chief compliance and risk officer Douglas Lanker. "However, what people will have to consider when the Bribery Act is implemented is the concept of a 'universal jurisdiction' – no matter where [it happens], improper conduct can be prosecuted and the UK will presumably be working with overseas prosecuting authorities to make it happen."

The leading international prosecuting authorities already have a track record for working together on large prosecutions. This includes not only the US Department of Justice (DoJ), the Securities and Exchange Commission (SEC) and the Serious Fraud Office (SFO), but also authorities in Germany, Switzerland, Spain, Austria, France, the Isle of Man, Jersey, Cyprus and the British Virgin Islands.

Notably, the SEC and Germany's Staatsanwaltschaft worked together for years on one of the worst ever corporate corruption scandals involving Siemens, with the German conglomerate ultimately agreeing a record $1.34bn (£820m) settlement after being prosecuted under the FCPA.

German and US investigators combed through Siemens' company records to find evidence of more than $1bn (£612m) in bribes paid to governments around the world in order to win lucrative infrastructure contracts to secure the December 2008 settlement.

And statistics show that the number of FCPA-related investigations has more than doubled over the past decade. Between 1977 and 1997, only 33 individuals were named in enforcement actions and investigations relating to the FCPA, while more than 70 individuals were targeted the following decade, over, including 26 in 2008 alone. 

"Not only is the US Government working with other jurisdictions on cross-border investigations, it has also been increasing its use of the FCPA to target individuals and companies accused of bribery of foreign officials," comments King & Spalding London employment partner Pulina Whitaker, who advises on FCPA investigations.

"It's big money for the DoJ," she adds. "The US Government has stacked up on resources in recent years in order to improve and build out its prosecuting capability."

Recent cases prosecuted under the FCPA have included Japanese construction company JGC Corporation's $219m (£134m) settlement with the DoJ, as well as US giant Johnson & Johnson's $70m (£43m) fine last month after disclosing past overseas bribery offences. Meanwhile Halliburton and former subsidiary Kellogg Brown & Root Inc paid a combined $579m (£354m) in 2009 to settle DoJ and SEC charges relating to bribing Nigerian government officials.

While much is going to come down to enforcement, where the UK authorities have fewer resources than the US DoJ, in some respects the Bribery Act goes further even than the FCPA. Notable differences include the FCPA covering only the bribery of a foreign official, rather than to any person; no outright ban for facilitation payments under the FCPA, with the UK laws also including the offence of being bribed rather than simply paying a bribe.

"Once it is implemented, the Bribery Act will be the only act with the same jurisdictional reach as the FCPA," comments Lord Goldsmith. "It is a standard-setting piece of legislation, and I would not be surprised if other countries endeavoured to draft a similar set of laws in the near future."

For more, see War on Wimbledon – the much-derided Bribery Act is a resounding success.

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