International Legal Affairs: Volume 3, Number 2
Recently, there has been a lot of press regarding the U.S. Foreign Corrupt Practice Act (FCPA). Readers active within the small arms industry will recall the 2010 arrests of 21 individuals for allegedly violating the FCPA. Enacted in 1977, the FCPA was enacted to prevent corporate bribery of foreign officials. Recognizing that bribery is a well accepted business technique on some areas of the world; the FCPA was the only type of law of its kind for a number of years. This has recently changed with the enactment of the 2010 U.K. Bribery Act. Individuals and companies conducting international business should be aware that an increasing number of countries are focusing on corruption at all levels, regardless of whether it occurs within the public or private sphere. The U.K. Bribery Act 2010 (Bribery Act) brings the threat of enforcement and reach of anti-corruption laws to a new level. Unlike the FCPA, the scope of the Bribery Act is much greater, with potentially broader ramifications than its U.S. counterpart.
At the most basic level, the Bribery Act applies to U.K. based companies, whether operating within the U.K., or abroad. The Act also has the potential to ensnare non-U.K. based companies conducting business in the U.K. Unlike the FCPA, the Act applies to individuals (whether U.K. citizens, or foreigners) and companies (whether U.K. based or foreign based) that conduct “business, or part of a business, in any part of the United Kingdom.” The term “business” is not defined, and could potentially be applied with a very broad stroke to those companies with the most limited involvement within the U.K.
Similar to the FCPA, the Act includes an extraterritorial jurisdiction clause, allowing the Act to apply outside of the territorial boundaries of the U.K. Taking the ramifications of extraterritorial jurisdiction one step further, it is possible that no part of the offence need take place within the U.K., as long as there is some nexus to the United Kingdom.
Prohibited activities under the Act include any acts undertaken for “financial or other advantage,” or to secure or induce “improper performance.” There are four categories of offenses:
1) To give, promise or offer a bribe;
2) To agree to receive or accept a bribe;
3) To bribe a foreign public official; and
4) Failure by a corporation to prevent an act of bribery.
While seemingly simple in concept, the details of the Act are important, and may make effective compliance with the Act’s requirements a little harder. Unlike the FCPA, the Act does not require a mens rea intent to bribe. In layman’s terms, the Act does not require knowledge or a specific intent to bribe, and creates strict liability to those alleged of violating the Act. More importantly, under the Act, a business may be liable when the company fails to identify and stop a bribe by an “associated person.” Clearly, the Act was intended to apply to employees, agents, subsidiary companies, and others who perform on behalf of the company.
Under the Act, the term “associated person” is broadly defined as a person who performs services on behalf of the business, and need not commit the act within the U.K. Remember – only a nexus to the U.K. is required. Associated persons need not have any connection to the U.K. nor is there any explicit requirement under the Bribery Act that any formal contractual relationship exist between an associated person and an organization. The strict liability provision of the Act makes the scope of the offence, and the possibilities of prosecution, far broader than that of the FCPA.
Differences Between the FCPA and the UKBA
The FCPA prohibits the bribery of foreign officials, and does not apply to bribes that may occur within the private sector. Under the Act, bribes paid in both the public and private sector are criminalized.
Currently, the FCPA allows businesses to claim exemptions for reasonable business expenses expended in the pursuit of foreign business. As noted in prior articles, a U.S. based company may pay for the travel of a foreign dignitary if the travel is related to a business transaction. As a result, a plant visit would be acceptable, while an expense paid trip to Disneyland may not be acceptable. Unlike the FCPA, the Act does not have a reciprocal exemption for U.K. based individuals and companies.
Similarly, the FCPA permits facilitation payments to government officials intended to expedite non-discretionary governmental actions. Under the FCPA, payments made to expedite or secure performance of routine, non-discretionary governmental actions are permitted. In many parts of the world, a small gratuity must be paid for the issuance of a business permit, for the installation of telephone or electric service, and for other minor acts and transactions that must be performed by a government employee in a timely manner. Under the Act, such payments are not exempt, and are not allowed, and are subject to criminal prosecution.
Finally, the penalties under the Act are much greater than the maximum penalties under the FCPA. Under the FCPA, companies are subject to a maximum fine of $2 million per offense. The maximum fine to an individual under the FCPA varies due to the role of the individual, but in general terms, the maximum fine is $250,000 per offense, or up to twice the amount of the gain received due to the bribery. Under the Act, there is unlimited financial liability to companies and individuals. A maximum 10 year prison term per offense applies to individuals under the Act.
On January 31, 2011, the UK Ministry of Justice announced that implementation of the Act would be delayed. Implementation of the Act was originally planned for October 2010, but has been delayed three times, pending action from the U.K. government.
Prior to implementation, the U.K. government is required to publish the guidance on “adequate procedures” before the Act can be enforced. The Serious Fraud Office, the enforcement authority tasked with enforcing the Act has been tasked with formulating guidance on how to comply with the Act. It is reported that delay of implementation is due in part to the complexity of formulating adequate guidance.
Those who conduct business, are considering business in the U.K., or have even the most remote connection to the U.K. must be aware of the provisions of the Act. Forewarned is forearmed, and given the strict compliance with the provisions of the Act, one cannot be too careful in ensuring that the Act is not violated. Additional information on the Act may be found at the U.K. Serious Crimes Office website, located at http://www.sfo.gov.uk/.