02/17/2011

Corporate Finance Alert: UK Bribery Act 2010

In the near future, companies transacting business in the United Kingdom (UK) will need to comply with the UK Bribery Act 2010 (the UKBA). The purpose of the UKBA is to facilitate the prosecution of bribery offenses in the UK and abroad. U.S. companies with offshore operations are already subject to the requirements of the Foreign Corrupt Practices Act (FCPA), which bans bribing foreign officials and requires public companies to maintain books and records in reasonable detail to accurately reflect corporate financial transactions. The UKBA is much broader than the FCPA. Therefore, even those companies with the most elaborate FCPA compliance programs will need to institute more extensive measures to insure compliance with the UKBA. This article highlights the most significant differences between the FCPA and the UKBA.

Bribing Non-Governmental Actors is an Offense Under the UKBA
Unlike the FCPA, which only prohibits bribes directed at foreign government officials, the UKBA prohibits bribing any person, whether or not that person is a government official. In other words, payments or gifts to influence a representative of a business organization is also a violation of the UKBA. The UKBA prohibits offering, promising or giving a financial or other advantage to any person, intending that the advantage induce or reward the person to act in a way contrary to their duty. The UKBA also prohibits offering, promising, or giving an advantage knowing or believing that acceptance would constitute improper performance. A person is liable when performing the prohibited acts directly or through a third party.
Persons Receiving Bribes are Liable Under the UKBA
The UKBA makes it a criminal offense to receive or agree to receive a bribe. The person need not actually receive a financial or other advantage, but merely requesting or agreeing to receive the payment will subject one to liability under the UKBA.
The UKBA Offers No Exception for "Facilitation Payments"
Unlike the FCPA, the UKBA offers no exception for payments made to facilitate a lower level foreign official's "performance of routine government's actions." The UKBA bans persons from bribing foreign public officials by offering, promising, or giving any financial or other advantage to such officials. Payments made to government officials to speed up the processing of work orders or provision of phone service will subject companies to liability under the UKBA, even though they are permitted under the FCPA.
Companies Who Fail to Prevent Bribery Commit an Offense Under the UKBA
The UKBA makes it an offense for a company who fails to prevent persons associated with it from committing bribery to obtain or retain business for the company. The UKBA provides a defense where a company proves it had "adequate procedures" designed to prevent the bribery. The Secretary of State has set out six guiding principles for companies to consider in establishing adequate controls:

- Risk Assessment – awareness of bribery risks in company's sector and market;
- Top Level Commitment – establishing a culture in which bribery is unacceptable;
- Due Diligence – awareness of business partners; awareness of why, when and to whom you are releasing funds and seeking reciprocal anti-bribery agreements and being in a position to feel confident that business relationships are transparent and ethical;
- Clear, Practical and Accessible Policies and Procedures –applying them to all employees and business partners and covering all relevant risks, such as political and charitable contributions, gifts and hospitality, promotional expenses, and responding to demands for facilitation or when an allegation of bribery comes to light;
- Effective Implementation –going beyond "paper compliance" to embedding anti-bribery in the company's internal controls, recruitment and remuneration policies, operations, communications and training on practical business issues; and
- Monitoring and Review –auditing and financial controls that are sensitive to bribery and are transparent.

The UKBA's extraterritorial application subjects persons to liability whether or not the bribery occurs in the UK. All that is required is a "close connection" with the UK, which may include British citizenship or formation of a subsidiary under the laws of the UK. Similarly, organizations may be prosecuted under the UKBA for failing to prevent bribery even if their acts or omissions take place outside of the UK. So long as the organization "carries on a business" in the UK, it is subject to liability under the UKBA. The threshold for carrying on business is very low and, according to the General Counsel of the Serious Fraud Office of the UK, it may include a retailer with nothing more than a web presence in the UK.

In light of the broad extraterritorial reach of the UKBA, companies with even remote connections to the UK will need to revisit and revise their FCPA compliance programs to ensure that they are rigorous enough to ensure "adequate procedures" are in place to prevent bribery. Companies failing to make the necessary changes risk prosecution and substantial fines. Those individuals convicted under the UKBA face imprisonment for up to 10 years.

For more information on this alert or the UKBA, contact Russ Berland or any of our Governance, Risk & Compliance attorneys.