When it was introduced in 2010, a lot was written about how the UK’s Bribery Act (the “Bribery Act”) was going to make an impact on how business is done around the world, particularly with comments that it is tougher than the equivalent legislation in the USA, the ForeignCorrupt Practices Act (the “FCPA”). The relative lack of high-profile prosecutions in the UK in respect of foreign corruption in the five years since then may have led people to think that the Bribery Act was just an exercise in political posturing and that there was no appetite to enforce it in relation to business in countries and markets where corruption is seen,however reluctantly, as the reality of how successful business is done.
The reality is that the investigation and prosecution of major cases of foreign corruption takes time, and so the absence of reports of high-profile enforcement of the Bribery Actshould not be taken as a sign that British prosecutors are notserious about enforcing the regulation. This is demonstrated by the first reported case of enforcement of the Bribery Act in respect of foreign corruption at the end of 2015. What is particularly interesting for businesses in Romania is that the case involved the new offence of failing to prevent bribery by associates.
The laws of many countries make it a criminal offence to give, receive or offer bribes, including by the use of an agent or intermediary. What is different about the Bribery Act is that it places the onus on the company to prove that it has acted responsibly in taking steps to prevent bribery,not just by their own employees but also by their business partners. This means that any business in Romania which works with a partner,customer, client or supplier which has business in the UK can be affected by the Bribery Act.
Whilst the consequences of bribery and corruption taking place in Romania are unlikely to lead to the prosecution of the Romanian business in the UK if it does not itself do business in the UK, the partner, customer or supplier of the Romanian business can be prosecuted if they do business in the UK. If the foreign business partners wish to reduce or avoid the risk of prosecution in the UK, they will require the Romanian businesses which they work with to work to the same standards of anti-bribery and corruption practices which the foreign business partner observes.
Doing business in the UK
The Bribery Act makes it an automatic offence for a “relevant commercial organisation” to fail to prevent “bribery” by an “associated person” intending to obtain or retain business, or an advantage in business, for the “relevant commercial organisation”. These include:
– companies incorporated and partnerships formed inany part of the UK; and
– any corporate body or partnership, wherever incorporated or formed, which carries on business, or part of a business, in any part of the UK.
To be clear – this legislation recognises that it is impractical and unfair to force British companies to “play by the rules”, if their foreign competitors are able to use bribery and corruption to win business because their local legislation – or enforcement – is less strict. What non-British companies do is therefore likely to be very interesting for British prosecutors.
The UK cannot require that someone who has not broken British law to be extradited from a foreign country, but the Bribery Act however exploits a fact of modern global business life: many businesses are international and many– if not most – international businesses will have some sort of business in the UK. British prosecutors can therefore go after entities which have some sort of business activity in the UK.
There is some jurisprudence from the UK courts about which foreign entities carry on a business – or a part of a business – in any part of the UK. In one case, the taking of a stand at a trade exhibition in the UK for nine days by a German company was decided to be carrying on business in the UK. In another case the use of a rented liaison or representative office in the
City of London was held to give a foreign bank a place of business in the UK, even though the banking transactions were done elsewhere.
Even if a Romanian business does neither of these things, the nature of business nowadays means that it may still carry on business – or a part of a business – in any part of the UK. The two cases mentioned earlier were decided in 1902 and 1985 respectively. The internet and electronic communications – and Romania’s accession to the EU – have changed business immensely. For example:
– A Romanian company may have a business selling Romanian wine to customers in the UK.
– A Romanian law firm may have a UK law firm as its client.
– A Romanian bank may keep part of its capital in accounts with banks in the City of London.
– Romanian hotels and resorts may sell holidays to (orthrough) holiday companies or travel agencies in the UK.
– Romanian shops may purchase stock for sale in Romania from manufacturers in the UK.
As yet there is little jurisprudence about how the UK prosecutors and courts will interpret the Bribery Act on this point, but given the apparent intention of the Act to apply to foreign businesses as well as British ones, it is prudent to consider that the Bribery Act 2010 will apply to Romanian companies in the situations which I have described. Even if they may not appear to have assets in the UK, all of these situations involve payments from or to the UK – which can potentially be vulnerable to enforcement in the UK.
If a Romanian business does not itself carry on a business, or part of a business, in the UK, is it “associated” with a business which does do so (and is therefore a “relevant commercial organisation”)?
“Associated persons” can be natural or legal persons. They may be employees, agents or subsidiaries of the “relevant commercial
organisation”, but this definition is not exhaustive.The essential test is that the “associated person” performs services for, or on behalf of, the “relevant commercial organisation”. The precise capacity in which it does so does not matter. So, to return to the last set of hypothetical examples, a Romanian law firm which is acting as local correspondent for an international law firm based in London is certainly “associated” with the international law firm (which is itself a “relevant commercial organisation”).
Similarly, the Romanian hotels and resorts will be associated with the foreign holiday company: if people in the UK book holidays with the foreign holiday company, the Romanian hotels and resorts will perform servicesfor the foreign holiday company by accommodating their customers.
Other examples: the only reported case so far of enforcement of the Bribery Act for failing to prevent foreign bribery involved two sister banks working on the issue of bonds for a foreign government. The UK bank was actively involved in the work and took part of the fee (but all of the penalty).Obviously its sister bank (in the foreign country where the bribery took place) was performing services for the UK bank and the matter bought in business for the UK bank. Clearly the UK bank was a “relevant commercial organisation” and its sister bank in the foreign country was its “associated person”.
The position of a parent company with a presence in the UK needs to be considered, where a subsidiary (or an employee or agent of the subsidiary) engages in bribery in Romania.
Even if it does not trade itself, the business of the holding company is to carry on business and make profit through its trading subsidiaries (whether direct or indirect). The Bribery Act does not say that the business (or part of the business) which is in the UK must be the same as the business in which the bribery takes place. The object of the subsidiary businesses is to make profit for their ultimate shareholder,the holding company, so it would be illogical to say that bribery intended to win business for a local trading subsidiary is not intended to obtain an advantage in the conduct of the holding company’s business (which is to make profit from its holdings in the subsidiary companies).
Further, the holding company is in a position to determine the policy and ethics of its trading subsidiaries – and the policy of the Bribery Act appears to be to affect how business is donein places outside the UK.
There is therefore a cogent argument that bribery in Romania by, or on behalf of, a Romanian subsidiary will have potential consequences for its holding company, even if the holding company takes no active part in the business in which the bribery occurs. Depending on the circumstances, other group companies may also be involved.
Consequences of bribery for “associated persons”
Even if a Romanian entity which is not a “relevant commercial organisation” cannot itself be prosecuted in the UK, this is not the end of the story. A “relevant commercial organisation” will have failed to prevent bribery by the Romanian entity as its “associated person”. This means that the “relevant commercial organisation” will be liable to unlimited fines in the UK, as well as orders for the disgorgement of profits made from the bribery.
A commercial relationship between a Romanian and a foreign entity which leads to the foreign entity being prosecuted and fined for failing to prevent bribery in Romania is not likely to have a long and prosperous future. It may indeed result in the Romanian entity being sued by the foreign entity for civil damages,particularly if the contract between them included an anti-corruption clause. If the bribery is by a subsidiary, penalties imposed on the parent holding company will hit the group as a whole – and will also be unlikely to help the careers of the managers of the Romanian subsidiary.
There are therefore many reasons why bribery can have very adverse consequences for Romanian entities, even if they cannot be prosecuted themselves in the UK under the Bribery Act.
In this article, I have talked about “bribery”, which is a British legal concept. It would make this article unacceptably long to go into the details, but essentially British standards of behaviour are relevant – not local custom and practice. There may also be differences between the approaches of the Bribery Act and of the FCPA. For example, facilitation payments are illegal under the Bribery Act – unlike the position under the FCPA.
It should not therefore be assumed that a compliance programme which is designed to comply with the FCPA will also cover all of the risks under the Bribery Act.
Defence to the crime of failing to prevent bribery by an “associate”
There is a defence to the charge of failing to prevent bribery by an associated person.This requires the “relevant commercial entity” to prove that it had in place “adequate procedures” designed to prevent bribery. In practice, thisislikely to mean that the “relevant commercial person” must ensure that its “associated persons” operate the same standards of anti-bribery and ethics that it does.
The UK Ministry of Justice has issued the following guidelines about what“adequate procedures” are:
– Proportionate procedures
– Top-level commitment
– Risk assessment
– Due diligence
– Communication (including training)
– Monitoring and review
It is important to note that organisations which use the common solution of centrally organised e-learning and internet tests should not assume that they are safe. In the first case of enforcement ofthe Bribery Actin respect of a failure to prevent bribery by a foreign “associate”, the ethics and compliance programme at the UK bank mentioned earlier failed to prevent the payment of a $6,000,000 bribe. Despite the extensive (and, I suspect, expensive) training courseslisted in the case documents and the various observations that these followed standard practice in the industry, the British prosecutor concluded that the bank had failed to demonstrate an anti-corruption culture and that its procedures designed to prevent the commission of bribery offences were inadequate.
Whatever these training and compliance measures cost that bank, the penalties imposed on it were certainly expensive. Businesses would therefore be prudent to re-examine their compliance programmes,for themselves and for their “associates”, in the light of the comments of the court and of the British prosecutors in this case.