UK Bribery Bill: The long arm of the Crown

In fact, the scope of the Bill is wide enough to apply to companies with any kind of footprint in the UK – even a basic representative office.

Bribery of a foreign official
The Bill's new offence of bribing a foreign public official was drawn up based on the OECD's Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. During an early stage of debate, the Bill's sponsor Lord Bach explained that it has already been possible to convict individuals in the UK for this kind of offence, giving the example of a managing director who was found guilty of bribing a Ugandan Government official. However, Lord Bach went on to say the government recognised “… that a bespoke offence would further underline this country's commitment to international efforts to stamp out the particularly insidious practice of bribing foreign public officials, not least because of the devastating impact that such practices can have in developing countries.”

Clause 6(1) of the current draft Bill reads:

A person (“P”) who bribes a foreign public official (“F”) is guilty of an offence if P's intention is to influence F in F's capacity as a foreign public official.

A “foreign public official” is later defined (in clause 6(5)) as an individual who either holds a legislative, administrative or judicial position of any kind in a country or territory outside the UK; exercises a public function for or on behalf of a country or territory outside the UK or for any public agency or public enterprise of that country or territory; or who is an official or agent of a “public international organisation” – an organisation whose members are either countries or territories; governments of countries or territories; other public international organisations; or a mixture of these things. The prevalence of state-owned enterprises in China means that many business partners, clients or suppliers of foreign companies may fall within this definition.

A long-running source of worry for many foreign companies operating in China is how to deal with the culture of gift-giving and entertainment. Significantly, and perhaps unfortunately, the draft Bill includes no exceptions for facilitation payments or reasonable hospitality.

“The government considers that facilitation payments are a matter for prosecutorial discretion and companies are at risk of prosecution if they make such payments,” says McDonald. “The position on entertainment is different in that modest and routine entertainment is unlikely to be an issue. Where, however, the entertainment is intended to induce or reward someone for acting improperly, then it will also be a matter for prosecutorial discretion.”

Companies will be generally unable to use the defence that they believed the local law permitted a payment. For this kind of defence to apply, local written law must expressly permit or require an official to be influenced by a payment. This is very unlikely in a country, such as China, where the government is intent on showing it is reducing corruption and is making very public examples of those that stray. In 2009, for example, investigations were begun into the former vice-chairman of China Mobile and the former general manager of China National Nuclear Corporation. Meanwhile, the former chairman of Sinopec was found guilty of taking huge bribes, and sentenced to death with a two-year reprieve.

Failure of prevention
Elsewhere, the draft Bill lays out the offence of “failure to prevent bribery” (clause 7). McDonald says this provision will present a real issue for UK companies in terms of doing business in China, as it will possibly extend to a company's employees, agents and subsidiaries.

“Also depending on the circumstances, this offence may also extend to the conduct of UK-Sino joint ventures,” he says.

There is still debate as to whether this offence will be one of negligence or strict liability. If it turns out to be the latter, then no proof of intention or negligence will be required in order to convict. A company will simply be liable where a person performing services on behalf of a commercial organisation bribes another individual or company intending to obtain or retain business or advantage in the conduct of the business of the organisation.

A company wanting to defend itself against such a charge will need to prove that it had in place “adequate procedures” to prevent persons associated with it from engaging in bribery.

“Unfortunately, no-one knows yet what an adequate policy is,” says Taylor Wessing dispute resolution partner David de Ferrars.

The government has made it clear that one size will not fit all when drawing up a policy, and has also promised to issue guidelines on the matter before the law comes into force. McDonald says, however, that these will only be general in nature. What is clear is that based on international practices it is likely that the question of whether or not a company had adequate procedures in place will be related to factors such as its size, operations and the particular risks presented by its operating environment. Many companies have no policy at all; they will certainly face the threat of prosecution if it is established that someone performing services for them paid a bribe intending to benefit the company. Other businesses may have a policy which is outdated or incomplete.

“UK companies … and businesses conducting business in the UK should therefore review what legal compliance systems they currently have in place for their businesses in China before the Bill becomes law,” suggests McDonald. “If a company finds that it has gaps in its systems, then this is the time to deal with those issues.”

It is also vital that a policy is actually implemented once written.

“It's no good if you just put it in the employee handbook and then put it in the bottom drawer and forget about it,” de Ferrars says.

Companies will need to be aware of the level of risk in the jurisdiction in which they are operating, and construct their policy accordingly. For those countries where the risk of bribery is higher – and this includes China – businesses will need to demonstrate that they have understood the risks and then implemented appropriate procedures to deal with them. This also applies to companies which may be moving into China for the first time. De Ferrars suggests that companies should be taking steps now to ensure they understand potential risk.

“What I recommend companies at the least think of doing is obtaining advice from their lawyers as to what are the red flags – the areas that are likely to give cause for concern when the legislation is implemented,” he says

Specialists say that any anti-bribery policy which companies eventually draw up will need to be very broad, addressing extremes ranging from banning the payment of bribes to public officials to obtain contracts, through to what constitutes an appropriate entertainment expense.

“The policy will also need to address the keeping of appropriate business records in relation to such matters,” says Taylor Wessing in a recent client alert.

A PricewaterhouseCoopers white paper on the draft Bribery Bill notes that companies which are already used to complying with the US Foreign Corrupt Practices Act should feel less of a burden from the UK's new law; but those companies will still need to review their policies and fill in any gaps.

Challenges and benefits
The UK has taken a long time to get to the stage of implementing such wide-ranging statutory regulations on bribery, following considerable criticism from local and overseas bodies. Specialists are divided on the effectiveness and proportionality of the Bill as it stands now. But whatever changes are made between now and the law's implementation, companies are undoubtedly facing new challenges. Some may respond negatively, seeing the new legislation as an unacceptable burden.

“I can understand that initial reaction, but you have to look at the wider picture,” says de Ferrars. “We are now operating in a global economy. Corruption is a problem internationally – more in some states than others – and that has to be addressed.”

The new Bill will certainly go a long way toward doing this. But until guidelines are issued and English case law creates suitable precedent, uncertainty will remain the unwelcome partner of foreign investors in China.