Linklaters

Following much publicised delay, the Ministry of Justice has today published its guidance about procedures commercial organisations can put in place to prevent persons associated with them (employees, associated companies, contractors and so on) from committing bribery. The controversial UK Bribery Act 2010 will now come into force on 1 July 2011. Businesses have a three month period in which to ensure their policies comply with the guidance.

The overriding principle is that businesses should adopt a risk-based, proportionate approach. Where the risk of corruption faced by a business is minimal, there is no expectation from the Government that complex procedures will need to be put in place. The guidance confirms that the question of whether the procedures adopted were adequate in the circumstances can only be resolved by the courts, taking into account the facts and matters of the case.

The Act criminalises the failure by any commercial organisation to prevent bribery for its benefit by its associated persons. In relation to this the guidance is that:

• a non-UK company would need a "demonstrable business presence" to qualify as carrying on business in the UK. A non-UK company whose only connection with the UK was a listing of securities would not satisfy this test and would not be caught by the offence. This should be of some comfort to non-UK issuers who have GDRs or other securities listed on a London exchange;
• having a UK subsidiary would not, in itself, mean that a non-UK parent company is carrying on business in the UK, since a subsidiary may act independently of its parent or other group companies;
• the fact that an organisation benefits indirectly from a bribe paid by an associated person will be unlikely, in itself, to trigger the offence;
• parent companies may not automatically be liable for bribes made by employees of subsidiaries and a bribe paid by an agent of a joint venture company will not trigger liability for the members of the joint venture in the absence of intention to obtain or retain business or an advantage in the conduct of business for the parent company or members of the joint venture company;
• control over the payer of a bribe will be a key issue in contractual joint ventures; and
• an organisation probably need not look beyond its contractual counter-parties (in a supply or sub-contracting chain) when assessing bribery risks. Furthermore, a mere supplier of goods is unlikely to be performing services for the organisation and its conduct is unlikely to trigger the Act.

While emphasising that facilitation payments remain illegal under the Act, the guidance acknowledges that their total eradication is a long term objective requiring a sustained commitment to the rule of law in those countries where the practice is most prevalent. Ultimately, whether facilitation payments are prosecuted will come down to prosecutorial discretion, but prosecution appears unlikely in the routine case and it is of some reassurance that organisations will not be expected to stamp out facilitation payments globally overnight.

The guidance recognises that promotional and hospitality expenditure plays an important role in commercial relations, both in the private and the public sphere. Bona fide, reasonable and proportionate corporate hospitality and promotional expenditure is perfectly legitimate under the Act. So, for example, the guidance notes that it should not be objectionable to provide routine business courtesies, transportation for public officials to visit remote operations, or overseas travel for foreign public officials to meet senior executives if that is the most expedient/convenient means of meeting. In the latter case, arranging hospitality such as fine dining and attendance at a sports match should also be acceptable. However, the greater and more lavish the hospitality or gift, the greater is the inference that it was intended to influence.

The guidance is to be welcomed in providing much needed clarification on specific issues which have been raising particular concerns amongst businesses. The Act has not been watered down, but the Government has listened to business concerns and attempted to provide guidance that acknowledges commercial reality while maintaining a strict line against corruption practices generally.

"The guidance provides a welcome dose of common sense. The Act is not intended to subvert normal business interaction and this is now much clearer. The focus on proportionate compliance procedures may help save costs for some businesses and foreign companies will be assured that they will not fall within the clutches of the UK regulator unless they have a demonstrable business presence."

For further information or to speak to Satindar Dogra about our response to the Bribery Act guidance please contact Rupert Winlaw on +44 20 7456 3219.