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Eversheds' China in focus e-briefing - The Bribery Act 2010 and its international impact

  • China

    30-11-2010

    After years of criticism for anti-bribery laws regarded as too weak to tackle cross-border corruption, the United Kingdom has positioned itself as an international frontrunner in clamping down on bribery and corruption with the introduction of the Bribery Act 2010.

    The Bribery Act comes into force in April 2011 and introduces one of the strictest anti-bribery regimes in the world. As it applies in part to non-UK businesses and has extra-territorial reach, its impact is far reaching.

    The Bribery Act is wider than the US Foreign Corrupt Practices Act of 1977 as it covers commercial-to-commercial transactions as well as transactions with foreign public officials or entities, and prohibits facilitation payments.

    The Bribery Act applies to businesses that have entities in the UK or do part of their business in the UK. An international company could therefore be prosecuted in the UK for corrupt acts it commits in Asia, simply because it does part of its business in the UK. As such, the Bribery Act will affect any Chinese company that acquires a business that is based in the UK or which has a footprint within the UK.

    As the penalties in the Bribery Act include unlimited fines and debarment from entering into public contracts in Europe, this is a piece of legislation businesses need to understand.

    Four new offences

    The Bribery Act creates four new offences:

    Active bribery, which entails the giving, offering or promising of a bribe intending to induce the recipient to act improperly. A bribe can take the form of cash but also hospitality, gifts and other “advantages”.

    Passive bribery, which is the requesting, accepting or agreeing to receive a payment or “advantage” in return for improper conduct.

    Bribery of a Foreign Public Official (FPO). This has a wide definition and extends to those in a legislative, judicial or administrative capacity regardless of whether they were appointed or elected, as well as anyone who performs a public function or is an official of a public international organization. The offence, however, applies only to active bribery (the giving, offering or promising of an advantage). This means that if an FPO were to accept the bribe, he or she would not be culpable under this part of the Bribery Act.

    Failure of a commercial organization to prevent bribery, meaning that if a company fails to prevent an “Associated Person” (such as an employee, agent, subsidiary or intermediary) from paying a bribe for its benefit, an offence is committed. It is irrelevant that the company was unaware of the bribe being paid. Controversially, this offence does not include any notion of improper conduct. It simply requires a payment or other advantage offered for the winning or retention of business. There is a limited defence of “adequate procedures” which is discussed below.

    The first three of the four offences listed above affect UK-incorporated businesses, their employees and agents, and covers offences committed both inside and outside the UK. The fourth offence applies to UK companies and overseas companies which carry on a business, or part of a business, in the UK. It could, therefore have a direct impact on a Chinese company.

    “Adequate procedures” defence

    The corporate offence of “failure to prevent bribery” imposes a burden on companies to comply with its provisions, but allows for a defence in circumstances where the company can show it had “adequate procedures” in place to minimize the risk of bribery.

    The Bribery Act does not define “adequate procedures” but the UK Ministry of Justice has published draft guidelines as part of its consultation process. It will publish the finalised version in January 2011.

    From the draft guidance, it is clear that the guidelines are principle based and it will be therefore up to the company to decide how it implements an appropriate anti-corruption programme. The six principles contained in the guidance, and to which the company will need to build its anti-corruption programme around are:

    Risk assessment: a company must regularly and comprehensively assess the nature and extent of the risks relating to bribery to which it is exposed;

    Top level commitment: the Board of a company must establish a culture within the company in which bribery is never acceptable and take steps to ensure that the organisation's policy to operate without bribery is clearly communicated to all levels of management, the workforce and any relevant external third parties;

    Due diligence: the company must have due diligence policies and procedures which cover all parties to a business relationship, including the company's supply chain, agents and intermediaries, all forms of joint venture and similar relationships and all markets in which it does business;

    Clear, practical and accessible policies and procedures: these include policies on political and charitable donations, gifts and entertainments, advice on relevant laws and regulations and be linked to a whistle blowing policy;

    Effective implementation: the company must effectively embed the policies within the organisation. This is not a simple tick box approach;

    Monitoring and review: there must be monitoring and review mechanisms to ensure compliance with relevant policies and procedures and identify any issues as they arise. The company must implement changes where appropriate.

    Understanding corruption risk

    Any Chinese company that acquires a business which is either based in the UK or does part of its business in the UK will need to ensure that this company complies with the Bribery Act and that it has “adequate procedures” in place. Due diligence on any target company will need to cover any corruption risk, as historic and on-going acts of bribery could be the subject matter of both an investigation and a prosecution.

    By acquiring a company that commits acts of bribery, the Chinese company will expose itself to potential criminal liability. Under the provisions of the Bribery Act, a non-UK company can be prosecuted where a subsidiary commits acts of bribery on its behalf. It would then itself need to rely upon the defence of “adequate procedures”.

    Chinese companies that operate in Europe are going to need to consider what anti-corruption procedures they have in place and how they can ensure they meet the requirements of the “adequate procedures” defence. Without such procedures they could be exposed to criminal liability.

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