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Event 23 May. 2023
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Fernando Tupa Publishes Book on Forum-Specific Consent to International Arbitration in Investment Agreements
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Russia Sanctions at the First Anniversary: An Overview of Current Sanctions in the US, UK, and EU and How Global Companies Can Navigate Evolving and Conflicting Sanctions Regimes
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The EU Adopts the “Maintenance and Alignment” Sanctions Package
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Publications April 2011
On 30 March 2011, the UK Ministry of Justice published final guidance (the 'Guidance') on the adequate procedures for commercial organisations to have in place as a statutory defence in the event of prosecution under the Bribery Act 2010 (the 'Act') for failing to prevent bribery by their associated persons. The Act will enter into force on 1 July 2011.
The new Guidance has revised all of the adequate procedures from the draft guidance published in September 2010, which was criticised as unworkable, inhibitive of customary business practices and detrimental to the competitiveness of UK companies. The Ministry has addressed concerns raised by the business community over the ambiguous and potentially far-reaching nature of certain provisions of the Act, namely, regarding corporate hospitality, facilitation payments, suppliers and joint ventures, and foreign companies accessing the UK capital markets.
The Guidance reiterates the importance to businesses of 'reasonable and proportionate' hospitality and promotional expenditures designed for improving corporate image, marketing products and services, or developing public relations, and adds that such expenditures are not intended to be criminalised by the Act. Reasonableness is determined within the context of the organisation's size and nature of business and the customary practices of its industry.
Lavish or extravagant expenditures lacking in business purpose or to unnecessary or out-of-the-way locales are likely to raise an inference of intention to improperly influence foreign public officials. Accordingly, whilst it would be acceptable for a health care provider to furnish ordinary travel and accommodation to a foreign public official to visit one of its hospitals, a five-star holiday to the same official that is unrelated to a demonstration of the organisation's services would be suspect. The Guidance provides additional examples of reasonable travel expenditures for foreign public officials. One of these is for flights and accommodation to visit distant mining operations to demonstrate a UK organisation's safety standards. Another is for flights, hotels, fine dining and sporting event tickets for a foreign official and his or her partner to visit New York as the most convenient location for meetings with senior executives of a UK organisation, although this would be called into question if the executives had visited the official's country with all the relevant documentation enabling such a meeting to occur the previous week.
Facilitation payments are illegal under the Act. The Guidance contains no specific defences for making facilitation payments, unlike the Foreign Corrupt Practices Act, which has a narrowly construed exception for such payments. Duress is a factor to take into account when considering prosecutions for making facilitation payments, as it provides a common law defence in the UK.
The Guidance further clarifies the definition of 'associated persons' in the context of the corporate offence of failure to prevent bribery, with respect to suppliers and joint ventures.
Whilst mere sellers of goods are not to be considered 'associated persons' for purposes of the corporate offence of failure to prevent bribery, suppliers of services that are within the organisation's control are likely to be included. Indirect suppliers who perform services along a supply chain without any contractual relationship with the organisation are not likely to be associated persons.
The Guidance makes a distinction between the treatment of joint ventures that operate as separate legal entities and those which arise through contractual arrangements. Separate entities are not presumed to be associated with their members, and therefore bribes paid by such entities will not necessarily give rise to liability for a member's failure to prevent them, absent a showing that the venture was performing services for the member and the bribe was paid with an intent to benefit that member. The analysis is different for contractual joint ventures, where an examination of the level of control of the members over the activities of the venture is appropriate. In such case, a member could be liable for failing to prevent a bribe made by the joint venture in the performance of services for that member.
Liability for Companies Carrying on a Business or Part of a Business in the UK
A non-UK organisation can be prosecuted for failing to prevent bribery by its associated persons, if the organisation 'carries on a business, or part of a business' in the UK. The Guidance indicates that this phrase does not necessarily include having either securities admitted to trading on the London Stock Exchange or holdings in a UK subsidiary. The Ministry advocates a 'common sense' approach to this issue and the requirement of a 'demonstrable business presence' in the UK. As for all other offences under the Act, the Serious Fraud Office and the Director of Public Prosecutions will determine whether to prosecute by considering the public interest and likelihood of a conviction.
In determining whether a foreign organisation has carried on business in the UK under the Act, courts could look to the definition of 'overseas person' in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, which provides that a person is overseas if he does not offer or conduct regulated activities 'from a permanent place of business maintained by him in the United Kingdom'.
Principles to Inform the Adequate Procedures
In addition to the above, the Guidance sets forth six revised principles to inform the adequate procedures which commercial organisations should have in place to prevent bribery by their associated persons.
Principle One: Proportionate Procedures
The organisation's procedures for the prevention of bribery should be proportionate to the risks it faces in light of its activities. Such procedures should be reasonable and practical in achieving anti-bribery policy objectives across all functions.
Principle Two: Top-Level Commitment
The top-level management of an organisation must be committed to preventing bribery by associated persons. Commitment to a 'zero-tolerance' policy should be communicated internally and externally.
Principle Three: Risk Assessment
Organisations should perform periodic, informed and documented assessments of the nature and extent of the bribery risks to which they are exposed. These assessments will depend upon the organisation's size and structure, and the nature, scale and location of its activities.
Principle Four: Due Diligence
Due diligence should be applied to associated persons under a risk-based approach that adequately informs the application of proportionate measures designed to prevent such persons from committing acts of bribery on the organisation's behalf. Thorough due diligence should be continuing and appraisals should be performed after formation of the relationship.
Principle Five: Communication (Including Training)
Bribery prevention policies and procedures are to be embedded and understood throughout an organisation through communication, including training which should be continuous, and regularly monitored and evaluated.
Principle Six: Monitoring and Review
Organisations should monitor and review their bribery prevention procedures and make improvements where necessary.
Curtis, Mallet-Prevost, Colt & Mosle LLP is a leading international law firm. Headquartered in New York, Curtis has 13 offices in the United States, Mexico, Europe, the Middle East and Centtral Asia. Curtis represents a wide range of clients, including multinational corporations and financial institutions, governments and state-owned companies, money managers, sovereign wealth funds, family-owned businesses, individuals and entrepreneurs.
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Valarie A. Hing