One of the more noticeable changes in the UK Bribery Act
Guidance released last month and the Consultative Guidance, released last
September, is found in the Six Principles of an Adequate Procedures compliance
program. The Consultative Guidance listed Risk Assessment as Principle 1.
However, in the recent final Guidance, Risk Assessment has moved to
Principle 3 and the new Principle 1 is Proportionate Procedures, which is
defined as follows:
A commercial organisation's procedures to
prevent bribery by persons associated with it are proportionate to the bribery
risks it faces and to the nature, scale and complexity of the commercial
organisation's activities. They are also clear, practical, accessible,
effectively implemented and enforced.
Adequate bribery prevention procedures ought to be
proportionate to the bribery risks that a company faces and a company still
must assess these risks so an initial assessment of risk across the company is,
therefore, a necessary first step. However, proportionality is overlaid above
and across all the remaining Principles so if a company has a low risk profile,
it may not need as robust an anti-bribery compliance program as a company with
a higher risk profile.
The Guidance makes clear that although the level of risk
will be linked to the size of the company, and the nature and complexity of its
business, size will not be the only determining factor. Small businesses can
face quite significant risks and will need more extensive procedures than other
businesses facing limited risks. However, small businesses are unlikely to need
procedures that are as extensive as those of a large multi-national company.
The level of risk that companies face will also vary with
the type and nature of the third parties it may have business relationships
with. For example, a company that properly assesses that there is no risk of
bribery on the part of one of its associated persons will, accordingly, require
nothing in the way of procedures to prevent bribery in the context of that
relationship. By the same token the bribery risks associated with reliance on a
third party agent representing a company in negotiations with foreign public
officials may be assessed as significant and, accordingly, requires much more
in the way of procedures to mitigate those risks. Businesses are likely to need
to select procedures to cover a broad range of risks but any consideration by a
court in an individual case of the adequacy of procedures is likely necessarily
to focus on those procedures designed to prevent bribery on the part of the
associated person committing the offence in question.
So what does this mean in practice? Since Proportionate
Procedures is Principle 1, it takes precedence over all others. I recently
attended a conference by Hanson Wade where one of the speakers discussed this
concept of proportionality. Based upon his remarks and the text of the
Guidance, I have created the following chart to provide some interpretation of
what this may mean in practice for various sales models that a company may have
Company Sales Focus
Level One DD
Level Two DD
Foreign Law Firm Review
Level 3 DD
Foreign Business Partner Training
Significant UK Company
The left hand column lists the type of business which may
be subject to the Bribery Act. The categories across the top are the types of
risk tools a company can use to manage its risks.
Many have decried the final Guidance as a cave-in by the
UK Ministry of Justice, to UK business interests, to soften, if not gut, the
Bribery Act. However, we believe that this Principle of Proportionate
Procedures inserts a component of reasonableness due to the fact that what may
be appropriate a world-wide multi-national company is not necessarily needed
for a UK company selling primary, if not exclusively, in the UK or even in the
If you are in San Diego, the World Check FCPA Tour will
be in your city this week. Please come out and here about the most current
FCPA best practices.
Wednesday, May 4 from 8-10 AM PDT at San
Diego Marriott Del Mar: Santa Fe Ballroom, in San Diego, CA. For information
and registration details click here.
My colleague Howard Sklar had an interesting idea. It was
that he and I do a video chat each week on the past week's stories from the
world of compliance. We have begun this journey and the results are "This
Week in FCPA"; which can be found here.
Every week, Howard and I will get together and talk about
the week's events in FCPA. This week, we talk about the UK Bribery Act, and how
companies should react; we discuss the Johnson & Johnson deferred
prosecution agreement and J&J's added undertakings; and we discuss the recent
challenges to the idea that state-owned entities can be foreign officials. We
also talk about what contract provisions should be in every contract, and
whether audit rights are a good thing or not.
Visit the FCPA Compliance and Ethics Blog,
hosted by Thomas Fox, for more commentary on FCPA compliance, indemnities and
other forms of risk management for a worldwide energy practice, tax issues
faced by multi-national US companies, insurance coverage issues and protection
of trade secrets.
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© Thomas R. Fox, 2011
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