Why foreign companies need to prepare for the UK Bribery Act Transparency International Belgium Roger Best 3 March 2011

Why do foreign companies need to be concerned by the UK Bribery Act? It creates a new corporate crime of failing to prevent bribery The new corporate crime applies to all companies carrying on business in the UK in respect of activity throughout the world There is a defence if the company can prove it had “adequate procedures” designed to prevent bribery UK prosecutors and regulators have recently become more aggressive in prosecuting corporations for bribery and have announced their intention to prosecute foreign companies Because the UK Bribery Act is broader in scope than the US Foreign Corrupt Practices Act anti bribery and corruption programmes may need to be updated Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011

Bribery and corruption – the current position in the UK Very old and inadequate legislation dating from 1889 onwards Amended in 2002 to have extraterritorial effect Historically a poor record of enforcement, especially in relation to offences by corporates In January 2009, the UK’s Financial Services Authority fined Aon £5.2 million for failings in its systems and controls to prevent bribery In the last two years, the Serious Fraud Office (“SFO”) have obtained significant fines through settlements (e.g. £6.5 million, Mabey & Johnson) but the courts have said fines should match those in the US. The Bribery Act 2010 will be brought into force in spring/summer 2011 replacing existing corruption law and opening the door for the aggressive criminal enforcement action against UK and overseas corporates involved in bribery Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011

The new Bribery Act offences Active Bribery – Section 1 Passive Bribery – Section 2 Bribery of Foreign Public Officials – Section 6 Failure of Commercial Organisations to prevent Bribery – Section 7 Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011

Cases 1 and 2: Active Bribery Case 1: offering, promising or giving an advantage to another person, with the intention of inducing or rewarding improper performance Case 2: offering, promising or giving an advantage to another person knowing or believing that the acceptance of the advantage would itself “constitute the improper performance of a relevant function or activity” Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011

Cases 3-6: Passive Bribery Case 3: requesting or accepting an advantage with the intention of performing a relevant function improperly Case 4: requesting or receiving an advantage where that conduct in itself constitutes improper performance of a relevant function Case 5: requesting or receiving an advantage as a reward for improper performance of a relevant function Case 6: improper performance of a relevant function in anticipation of an advantage Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011

Improper performance of a relevant function or activity A relevant function or activity is one which: Is of a public nature, connected with a business, performed in the course of employment or on behalf of a body of persons; and The person performing it is in a position of trust or is expected to perform it in good faith or impartiality Improper performance is: Breach of the relevant expectation (e.g. Breach of good faith or trust) by reference to the expectations of a reasonable person in the UK (overseas, local custom or practice is to be disregarded unless permitted or require under “written law”) Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011

Bribery of Foreign Public Officials Active bribery offence in relation to foreign public officials has wider application than the general offence The offence occurs when there is a bribe intended to influence a foreign public official to obtain or retain business or an advantage in the conduct of business (there is no requirement of inducing or rewarding improper performance) Wide but uncertain definition of “foreign public official” extends to officials of international organisations Includes those who hold “legislative, administrative or judicial position of any kind”; or Exercise a public function of a country or territory (or subdivision); or Is an official or agent of a public international organisation Advantages permitted to be received by “written law” are permissible Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011

Territorial application of substantive offences These offences apply if any act or omission forming part of the offence takes place in the UK The offences do not apply to acts outside the UK unless committed by: British Citizens/Citizens of overseas territories; UK residents; UK incorporated businesses The Act does not apply to non-UK subsidiaries of UK businesses, but other offences (e.g. Conspiracy) may be relevant Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011

Failure by commercial organisations to prevent bribery The corporate offence occurs where an employee or an “associated person” bribes in connection with the company’s business It is a strict liability offence that is subject to a defence that the company has adequate systems and controls to prevent the bribery “Associated Person” means any person who performs services for or on behalf of the company (there is concern about the scope of the “associated person” link in relation to joint ventures and consortia) The new offence applies to UK corporates and foreign companies carrying on any part of their business in the UK irrespective of where in the world the employee or “associated person” bribes Guidance on procedures to prevent bribery is to be published by the Government in [March] 2011 (section 9). The Ministry of Justice published a consultation paper on 14 September 2010 Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011

Who are the “associated persons” who need to be prevented from bribing in connection with your business? Persons who perform services for or on behalf of the company. Employees are presumed to be associated persons Other examples include agents and subsidiaries Others providing services for or on behalf of C could include: Consultants Joint venture partners Members of consortia Franchisees Business partners that do not perform services are not associated persons (e.g. investee companies, borrowers, purchasers and suppliers of goods and assets). Why foreign companies need to prepare for the UK Bribery Act – 3 March

Business Relationships Why foreign companies need to prepare for the UK Bribery Act – 3 March Company’s customers and clients (may be subject to AML KYC) Performers of services for or on behalf of Company (agents, consultants, outsourced service providers) Other Third Parties (suppliers of goods, remitters of payments)

Draft guidance from the Ministry of Justice Six Principles for Bribery Prevention: Risk assessment Top level commitment Due diligence Clear, practical and accessible policies and procedures Effective implementation Monitoring and review Includes case studies and further information about the Act Status of Guidance Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011

Other risks Particular risks Entertainment and hospitality Corrupt service providers Winning public sector business Acquisitions of emerging market companies Other Consequences of involvement in bribery EU wide public procurement bars Long term money laundering issues Civil claims and contracts may be avoided Directors’ exposure to action for breach of duty Reputational risk and massive costs arise from enforcement actions Creates difficulties on exiting the investment (particularly if US buyers) Credit implications – ratings may be impacted Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011

Bribery Act -v- US Foreign Corrupt Practices Act Why foreign companies need to prepare for the UK Bribery Act – 3 March 2011 Bribery ActFCPA Extra-territorialUK residents and legal persons, Corporate offence applies to all companies carrying on business in the UK US residents and legal persons and US issuers Non-US persons where US connection or affect Private SectorYesSeparate law Facilitation Payments Not permittedException for small scale payments Third PartiesYes, if “associated persons”Yes, if knowing disregard Books and Records No – but separate false accounting charge Yes for US companies and US issuers Compliance Program Yes, for adequate procedures defence Yes, for mitigation under Criminal Sentencing Guidelines

Speaker contact details: Roger Best +44 (0) Clifford Chance, 10 Upper Bank Street, London, E14 5JJ © Clifford Chance LLP 2010 Clifford Chance LLP is a limited liability partnership registered in England and Wales under number OC Registered office: 10 Upper Bank Street, London, E14 5JJ We use the word 'partner' to refer to a member of Clifford Chance LLP, or an employee or consultant with equivalent standing and qualifications UK/