On March 30, 2011, the U.K. Ministry of Justice released
its long-awaited Guidance with respect to The Bribery Act of
2010, detailing the Act's scope and jurisdictional applicability. The
Guidance, which can be found here,
has quickly been criticized
in some quarters for "watering down" the Act, particularly with respect to
the jurisdictional scope of the Act's commercial bribery provisions. The
Serious Fraud Office's prosecution guidance, also released on March 30, 2011,
can be found here.
From the time the Act received Royal Assent, one of its
features that has been the focus of particular concern has been Section 7 of
the Act. Section 7 creates a new offense which can be committed by commercial
organizations that fail to prevent persons associated with them from committing
bribery on their behalf. Commentators have
been concerned that this provision seemingly would subject any firm --even
non-U.K. companies that have operations in the U.K. - to liability under the
Act for violative conduct taking place any where in the world.
The newly-issued Guidance proposes a "common sense"
approach to the question of applicability of this provision to firms organized
outside the United Kingdom. While noting that ultimately the courts will
determine whether or not a firm has a sufficient U.K. presence to warrant the
Act's application, the document goes on to say that the Act would not apply to
firms that "do not have a demonstrable business presence" in the U.K.
As an example of the kinds of activities that would not
be sufficient to constitute the carrying on of business in the U.K., the
document states that "the mere fact that a company's securities have been
admitted to the U.K. Listing Authority and therefore admitted to trading on the
London Stock Exchange" is not sufficient "to qualify that company as carrying
on a business or part of a business in the U.K.
The document further specifies that merely "having a U.K.
subsidiary will not, in itself, mean that a parent company is carrying on a
business in the U.K.," as "a subsidiary may act independently of its parent or
other group companies."
The primary thrust of the Guidance document is to
identify procedures that companies can put in place to take advantage of the
defense available under the Act, which provides that a firm cannot be held
liable under the Act if it has adequate procedures in place to prevent persons
associate with it from bribing.
The document describes a principles based rather
than a rules based framework, built around six guiding principles. The six
principles are: proportionate procedures; top-level commitment; risk
assessment; due diligence; communication; and monitoring and review.
The document also provides clarification about hospitality,
stating that "bona fide hospitality and promotional expenditures"
are an "an established and important part of doing business" adding that "it is
not the intention of the Act to criminalize such behavior." The document
specifically cites as example of such payments that would not typically run
afoul of the Act's provisions as "the provision of airport to hotel transfer
services to facilitate an on-site visit or dining and tickets to an event."
Introductory comments in the document from the Secretary of the State for
Justice Kenneth Clarke
add that "no one wants to stop firms from getting to know their clients by
taking them to events like Wimbledon or the Grand Prix."
The Act will now come in to force on July 1, 2011. The
provisions in the Guidance document have been welcomed by some commentators, who
note that the proportionate approach reflect in the document should be
"good for business." At the same time other commentators have criticized
the guidance as having introduced "loopholes." Others have criticized
the government for "watering down" the Act's provisions.
My own view is that while the Guidance has provided some
clarification, it has not provided absolute clarity either, and the lack of
clarity remains a concern. The examples given about what kind of activity would
not be sufficient to support liability under the Act are helpful as far as they
go, particularly that merely having a U.K. listing or a U.K. sub is not enough
to support liability against a listed firm or the sub's parent. Those
activities are not sufficient, but what level of activity is sufficient?
The clarification that the government will be pragmatic
and that the government will be guided by principles of proportionality is
reassuring. However, the government's Guidance document does not by any means
put to rest all concerns. The upcoming applicability of the Bribery Act should
remain an issue of focus and concern for companies with a business presence in
the U.K I worry about the first non-U.K. company whose activities will become
the test case under the Act.
other items of interest from the world of directors & officers liability,
with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.
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