THE BRIBERY ACT - A DETAILED ANALYSIS

The Bribery Act became law on 1 July 2011. The legislation applies to all companies, partnerships and individuals based in the UK, as well as foreign companies and individuals doing business in the UK. The legislation makes it absolutely clear that commercial organisations are responsible for 'policing' not only their own garden, but even the remotest areas of their operations to ensure that nothing illegal is taking place, including the third parties with whom they do business. This represents a step change in the level of risk assessment and control.

Penalties under the new Act include the possibility of jail for directors and unlimited fines for organisations. On top of that would be legal costs, not to mention incalculable reputational damage associated with a high profile prosecution.

The Act defines new criminal offences:

• offering, paying, requesting or receiving a bribe;
• bribing a foreign public official;
• a corporate offence of failing to prevent bribery being undertaken on its behalf.

There is a defence to the corporate offence of failing to prevent bribery if an organisation can show that the directors have put in "adequate procedures" to prevent bribery. There is a degree of flexibility in what "adequate procedures" actually means. Organisations must take a risk based approach and their procedures should be proportionate to the risk posed.

Given the growing regulatory pressures on all businesses, boards could be forgiven for viewing the Bribery Act as an additional burden. In fact, it could be a blessing in disguise. The Act provides clarity. Previously the limits of the law were not always clear and that in itself represented a risk. Under the Bribery Act, companies should know exactly where they stand. Perhaps more importantly, the Act may have a beneficial effect on the way UK companies run their affairs and transact with third parties. In forcing companies to examine all areas of their operations, the Act will provide managers with a more accurate view of how business is conducted and risk managed. That will, in turn, lead to far greater operational effectiveness.

The Act has the potential to force businesses into reviewing their relationships with third parties and establish a new basis for co-operation and trust. This could be achieved through new contracts, a jointly agreed approach to risk management and controls and potentially the adoption of a common moral culture.

There may also be financial benefits. The immediate impact of the Act is almost certainly increased spending on compliance, but longer term, an enhanced understanding of operations could provide an opportunity to take cost out of the business. What's more, a proactive approach to risk control is good for corporate reputation. That in turn provides a competitive edge. The Bribery Act may impel UK companies to take a far more robust approach to internal and third party risk and in the long term this should be a good thing.

What steps should be considered to minimise exposure?

• Leadership from the top, taking on board responsibility for the design of an anti-bribery and corruption programme and instilling a culture in which corruption is eradicated. Appointment of a compliance officer will reinforce the importance of a corporate anti-corruption compliance programme within the organisation. Board agendas should include consideration of bribery issues.
• A clear and uunambiguous code of conduct giving clear guidance on gifts and entertainment, charitable and political contributions and reimbursement of travel expenses as well as the treatment of illegal payments such as facilitation payments.
• Effective risk assessment and risk management including consideration of the countries where the business is operating, the types of transactions being undertaken by the business, as well as other potential high-risk issues. Adoption of appropriate risk management strategies, which are business specific and take account of key relationships with employees, third parties acting on behalf of the business and business partners.
• Due diligence of business partners and other strategic partners covering examination of their compliance policies and procedures. Where necessary the right to audit accounts and transactions undertaken by business partners should be included in contract terms.
• Financial controls and audit testing should be considered when entering high risk markets or where potential risks have been identified following audit reviews. Internal audit testing of all business locations should include testing of high-risk areas, including cash handling, customs compliance, transactions with third party agents and use of consultants. Audit reports should be reviewed to test the effectiveness of current controls.
• Monitoring of practices in high risk countries e.g. where governments own or control manufacturing facilities or where there are known corrupt practices within specific industries operating in particular countries. Information is freely available from reputable government sources identifying high-risk countries and sectors e.g. Business Anti-Corruption Portal at http://www.business-anti-corruption.com/.
• Implementation of an effective contract review procedure to ensure that payment terms are properly scrutinised and the use of particular types of agreements are reviewed, e.g. consultancy agreements, agreements with sales agents and agreements with lobbyists. Review key contracts and incorporate necessary amendments to contract terms. In particular, consider including: a right of audit of anticorruption procedures of business partners, a right to terminate a contract in the event of suspected corrupt activity, appropriate warranties and indemnities, obligations for partners to immediately report any corrupt activity of which they become aware and obligations on business partners to comply with your own code of conduct and anticorruption compliance procedures, if appropriate.
• All payment terms should be justifiable on an arms length basis. Ensure payments are not made in cash and are made in the countries where business takes place. All payment terms should be agreed and properly recorded.
• Mechanisms should be put in place to encourage staff to seek guidance on potentially illegal transactions and report suspected breaches of anticorruption policies. Such mechanisms should be highlighted in training given to employees. Review standard wording of employment contracts and amend to ensure that the company's position is protected in the event of an employee breaching the Bribery Act.

Don't wait until the Bribery Act becomes a problem for your business. Make sure you put adequate procedures in place now.