3 March 2010

Freshfields advises corporates to plan ahead for UK Bribery Bill

Bill could become the UK’s answer to US FCPA

The Bribery Bill, which was introduced into the House of Lords on 19 November 2009 and receives its second hearing in the House of Commons today, is set to place the burden of proof on to companies to show they have adequate procedures in place to prevent bribery and corruption practices.

The Bill applies internationally and aims to replace existing law with two new general bribery offences (aimed at conduct of the payer and conduct of the recipient) and the offence of bribing a foreign public official.

Most significantly, it introduces a new corporate offence of failing to prevent bribery. A company may be prosecuted if a person performing services on its behalf commits an act of bribery and it will be a defence for the company to show it had adequate procedures. The government is committed to publishing guidance on what this entails before the corporate offence becomes law.

The Bill was introduced to criminalise foreign bribery in order to comply with the 1997 OECD Convention on the Bribery of Foreign Public Officials. It will also raise the maximum jail term for bribery from seven years to 10 years and a company convicted of " failing to prevent bribery" would face an unlimited fine.

According to international law firm Freshfields Bruckhaus Deringer the UK Bill has the potential of becoming a powerful weapon against global corruption alongside the FCPA (Foreign Corrupt Practices Act) – the US law designed to crack down on the bribery of foreign officials and improve transparency of corporate accounting.

Commenting on the Bill, Raj Parker, a partner in Freshfields’ global investigations practice said, ‘One of the most important aspects of the Bribery Bill will be to bring openness and honesty to international transactions. Companies who ignore corruption in their activities abroad, who fail to put systems and controls in place to prevent it and change their culture to a zero tolerance policy towards corruption could face hefty criminal penalties.’

'The Bill could prove the UK’s own answer to the FCPA which in the US has, over the last three years, been successful in prosecuting over 50 companies and in imposing fines over $1.5 billion. Already, in this year alone, fines and amounts set aside by companies to settle bribery charges with the Securities and Exchange Commission (SEC) and the Department of Justice (DoJ) amount to $1.1bn, nearly all of which relates to European headquartered companies,’ he said.

‘The FCPA is a piece of legislation with sharp teeth that can bite on a global basis and the UK Bribery Bill has the potential of becoming something similar,’ says Parker.

In anticipation of the Act becoming law Freshfields advises corporates to plan ahead and specifically review the following issues:

· Does the organisation have operations in jurisdictions that are perceived to have a high risk of corruption?

· Does the business routinely make payments to third parties, or use third parties to conduct or assist with business?

· Does the business have dealings with ‘public officials’ or government bodies?

· Does the business make facilitation payments?

· How confident is the organisation of the integrity of its payment systems and controls, and are they subject to regular scrutiny?

· Are there systems and controls in place around company expenses?

· Does your business have a gift policy?

· Are you confident that management and staff are adequately equipped to be able to identify potential bribery and corruption risks?

· Does the business offer specific training and guidance on corruption risks?

· Who has oversight; and do they have sufficient management information?

Potential ‘red flags’ that corporates should be alert to are:

· Payments to third parties where there are no obvious or discernable service

· Payments to third parties not otherwise involved in transactions

· Client requests to use certain third parties/agents unknown to the business

· Requests for payments to be made offshore/in jurisdictions other than those where service is provided

· Requests to keep matters confidential/opaque

· Relying too heavily on the fact that agents/third parties are known to/used by other blue chip organisations

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