karanovic/nikolic / UK Bribery Act 2010 Zagreb 19/03/2013 Patrick David Callinan

karanovic/nikolic  Spirit of the Bribery Act 2010  Awareness of how the law applies to you  A culture of doing things the right way  A common sense approach  ‘Not to bring the full force of the criminal law to bear upon well run organisations that experience an isolated incident of bribery on their behalf’ 2 Workshop: UK Bribery Act 2010

karanovic/nikolic  Initial key points to note  The Act deals only with bribery – not other forms of white collar crime  Applies to private sector and public sector bribes  Your organisation may be liable for failing to prevent a person from bribing on your behalf, but only if that person performs services for your business  There is a full defence if you can show that you had adequate procedures in place to prevent bribery  Hospitality is not prohibited by the Act  Facilitation payments are prohibited under the Act 3 Workshop: UK Bribery Act 2010

karanovic/nikolic  We’ll be looking at: 1. Brief introduction to the law past and the present 2. Since the Act’s introduction has anything actually happened? 3. Summary of the Act and its relevance to business people in Croatia 4. ‘Adequate procedures’ and what this means 5. Enforcement, penalties and other consequences of non compliance 6. Practical Examples 4 Workshop: UK Bribery Act 2010

karanovic/nikolic  Brief introduction to the law past and present  Bribery and corruption was contained within a piecemeal framework including: — Public Bodies Corrupt Practices Act 1889 — Prevention of Corruption Act 1906 — Bribery itself was essentially a common law offence — Note: Common law offences are offences that exist as a result of legal developments arising from case law 5 Workshop: UK Bribery Act 2010

karanovic/nikolic  Bribery Act finally introduced 1 July 2011  Following much pressure from the OECD and the international community  Antiquated legislation was swept away  Simplified structure and broad jurisdictional scope  Addition of a new corporate offence for failure to prevent bribery 6 Workshop: UK Bribery Act 2010  Brief introduction to the relevant law past and present

karanovic/nikolic  The Act, a year and a half later……  The UK Serious Fraud Office (SFO) is yet to take enforcement action under the Act  Hardly a surprise for those familiar with the demands of an investigation into complex economic crime  The Bribery Act is not retrospective. It is a criminal statute and criminal statutes are not retrospective  Heavy commitment of resources and time  SFO – reported to spend an average of 3.5 years and GBP 1.5 million investigating each bribery case  These are not the Munir Patel type prosecutions taken by the Crown prosecution Service  Some commentators set unrealistic expectations for the speed at which enforcement actions would appear  SFO likely to seek prosecutions and settlements in cases of clear criminal culpability 7 Workshop: UK Bribery Act 2010

karanovic/nikolic  Summary of the Act, its key provisions and its relevance to Croatia There are 4 main offences: 1. Offering, promising or giving a bribe (s1) 2. Requesting, agreeing to receive or accepting a bribe (s2) 3. Bribing a foreign public official (s6) 4. Corporate offence: failure to prevent bribes (s7) 8 Workshop: UK Bribery Act 2010

karanovic/nikolic  Giving and receiving bribes (s1 and s2)  Applies to both public and private sectors  Offence for a person to offer, promise or give a financial or other advantage to another person in return for the “improper performance” by another person of a ‘relevant function or activity’  In essence it means a performance which amounts to a breach of an expectation that a person will act in good faith, impartially or in accordance with a position of trust  No need to demonstrate an “intention to corrupt”  Local custom or practice no defence unless permitted or required by written law  UK “Reasonable Person” standard applies 9 Workshop: UK Bribery Act 2010

karanovic/nikolic  Giving and receiving bribes (s1 and s2)  Corporate hospitality: must be reasonable and proportionate  Hospitality that is overly ‘lavish’ and not of ‘genuine mutual convenience’ to be avoided  Question: Would my competitors consider this hospitality to be overly excessive or somewhat suspicious?  Practical example: Football game and dinner for client whilst on site visit on genuine business trip  Facilitation payments: illegal with no exemption  Practical example: Small payment to speed up foreign work permit application 10 Workshop: UK Bribery Act 2010

karanovic/nikolic  Giving and receiving bribes (s1 and s2) Jurisdiction applies to:  Anybody (including Croatian nationals and Croatian businesses) if the relevant conduct occurs in the UK; and  UK nationals/Croatian UK residents/corporates regardless of where the bribery occurs  Corporates (regardless of where they are located) if they have a ‘close connection’ to the UK regardless of where the bribery occurs. (E.g. Croatian company that carries on any part of its business in the UK) 11 Workshop: UK Bribery Act 2010

karanovic/nikolic  Bribery of a foreign public official (s6) ▬ Offence committed if a person offers or gives a financial or other advantage to a foreign official and that person’s intention is to: — influence the foreign official in his or her capacity as a foreign public official; and to — obtain or retain business or an advantage ▬ Prosecution must show sufficient connection between advantage and intention to influence — NB: No requirement of ‘improper performance’ by foreign public official — Gives rise to concerns over corporate hospitality / promotional activity ▬ Who is a ‘foreign public official’? — holds a “legislative, administrative or judicial position”; OR — is an “official or agent of a public international organisation”; OR — “exercises a public function … for any public agency or public enterprise” ▬ Companies partly state owned? Sovereign wealth funds? Not entirely clear cut! ▬ Jurisdiction the same as for s1 and s2 offences. 12 Workshop: UK Bribery Act 2010

karanovic/nikolic  The corporate offence (s7) ▬ A commercial organisation (company) may be liable if a person performing services for, or on behalf of the company (defined as an “associated person”) bribes a third party in order to obtain or retain business/a business advantage for the company ▬ The Corporate Offence is one of strict liability, meaning that the prosecution will not have to prove intention or negligence by the corporate, merely that the s1 or s6 offence occurred as a matter of fact (or would have occurred had it happened in the UK). So a s1 or a s6 conviction is not a prerequisite ▬ Key issues — Company is liable for bribes made by an ‘associated person’ — Only defence is if the company had ‘adequate procedures’ designed to prevent relevant conduct — Local custom and practice no defence: UK ‘reasonable person’ standard applies — Extra-territorial application — Offence committed by corporates not individuals – but potential accessory liability (senior officials with sufficient link to the UK) 13 Workshop: UK Bribery Act 2010

karanovic/nikolic  The corporate offence (s7) ▬ An ‘associated person’ performing services for a company could be an: — Employee — Director or officer — Agent — Trustee — Subsidiary or Affiliate — Joint Venture (incorporated or unincorporated) — Supplier — Contractor 14 Workshop: UK Bribery Act 2010

karanovic/nikolic  The corporate offence (s7): extra-territorial application ▬ Extra-territorial application: corporate offence applicable to: — UK incorporated companies (or partnership) wherever conduct occurred — Any entity carrying on business or part of business in the UK — Extremely wide territorial effect 15 Workshop: UK Bribery Act 2010

karanovic/nikolic  The corporate offence (s7) ▬ A bribe on behalf of a subsidiary by one of its employees or agents will not automatically involve liability on the part of its parent company, or any other subsidiaries of the parent company, if it cannot be shown that the employee or agent intended to obtain or retain business or a business advantage for the parent company or other subsidiaries. The bribe must be intended to confer a direct benefit on the organisation. ▬ The Guidance states that “having a UK subsidiary will not, in itself, mean that a parent company is carrying on a business in the UK, since a subsidiary may act independently of its parent or other group companies”. ▬ For example: A multinational owns a construction company in Croatia, and the same multinational also owns a European wide mining business (including the UK), it will not be committing the corporate offence under the Act for failing to prevent bribery in the Croatian construction business. The business being carried on in the UK should be a related business to the business where the act of bribery has taken place. 16 Workshop: UK Bribery Act 2010

karanovic/nikolic  The corporate offence (s7): the “adequate procedures” defence ▬ “It is a defence... to prove that the corporate had in place adequate procedures designed to prevent persons associated with the company from undertaking such conduct.” s7(2) ▬ What are “adequate procedures”? — MoJ Guidance published 30 March 2011 — Six principles: – Proportionate procedures – Top-level commitment – Risk assessment – Due diligence – Communication (including training) – Monitoring and review ▬ Principles are ‘not prescriptive’ but ‘flexible and outcome focused’ ▬ Level of control over an associated person – a relevant consideration ▬ Prosecutorial Guidance also published 30 March 2011 Workshop: UK Bribery Act

karanovic/nikolic Proportionality ▬ Procedures must be proportionate to the bribery risks faced by that organisation. ▬ Small national organisations in low risk industries will not have to apply the same procedures as large international organisations in high risk industries. Top Level Commitment ▬ The top level of any organisation (be it the Board of Directors, the owners, the partners or the sole practitioners) must be involved in determining and implementing the procedures on an ongoing basis. 18 Workshop: UK Bribery Act 2010  The corporate offence (s7): the “adequate procedures” defence

karanovic/nikolic Risk Assessment Procedures. ▬ Organisations must know, and keep up to date with, the bribery risks they face in their sector and market generally. Such risk assessments must be periodic, informed and documented. There are five main groups of risk: country, sector, transaction, business opportunity, and business partnership. Due Diligence Procedures. ▬ Due diligence is risk assessment applied to an organisation’s particular business and business partners. Organisations must do such due diligence to find out who they are doing business with (for example why, when and to whom they are releasing funds). Background checks may need to be made, for example on agents and intermediaries, and target acquisitions clearly vetted. 19 Workshop: UK Bribery Act 2010  The corporate offence (s7): the “adequate procedures” defence

karanovic/nikolic Communication and Training. ▬ Organisations must make it clear and unambiguous to all staff and business partners that bribery is unacceptable. Bribery prevention policies and procedures must be embedded and understood throughout the organisation, including by training that is proportionate to the risks faced. Monitoring and Review. ▬ The procedures must be regularly monitored and reviewed, and improved where necessary to respond to any changes in risk. Systems such as financial control mechanisms, staff surveys and reports to top- level management 20 Workshop: UK Bribery Act 2010  The corporate offence (s7): the “adequate procedures” defence

karanovic/nikolic  Six principles: “adequate procedures” 21 Workshop: UK Bribery Act 2010 What Sectors are you in? Carry our risk assessment on the business areas Issue a statement clearly committing to anti bribery Appoint a board member to have responsibility for bribery compliance What Transactions and with whom? Business opportunity risk: tenders, new markets Business partnership, agents, suppliers, JVs Identify the level of risk for each area If all risks are low, record finding and take no further action Which Countries are you in? Internal procedures – senior management involvement Due Diligence, vetting procedures for third parties, e.g. suppliers, agents, sub contractors Regularly review, obtain feedback, monitor risk, improve policies and procedures. Hospitality, consider financial controls, purpose of hospitality, senior level sign off Facilitation Payments, look at likely scenarios, local written laws, reporting procedures Communicate and Train employees on policies. Implement whistle blowing policies. Update existing or develop practical policies and procedures to cover bribery issues

karanovic/nikolic  Issues of concern Bribery Act Facilitation payments “Associated persons” Extra-territorial application ”Carrying on business” Strict liability for acts beyond control Gifts and hospitality Workshop: UK Bribery Act

karanovic/nikolic  Enforcement Investigations under the Bribery Act are primarily carried out the UK Serious Fraud Office (“SFO”). ▬ The Government has stated that there will be prosecutorial discretion in the enforcement of the new Bribery Act offences; freedom is given to the SFO and the Crown Prosecution Service in deciding whether or not to prosecute — Is there sufficient evidence to provide a realistic prospect of prosecution? — If so, is a prosecution in the public interest? — In practice: Did the bribe disadvantage a UK competitor ? 23 Workshop: UK Bribery Act 2010

karanovic/nikolic  Penalties  Individuals: up to 10 years prison and /or unlimited fine  Corporates: unlimited fine  Corporate organisation found guilty of commercial offence could also have a senior manager, secretary or other senior officer convicted if such a senior officer gave their ‘consent or connivance’ to the offence 24 Workshop: UK Bribery Act 2010

karanovic/nikolic  Other consequences of non-compliance  Aside from the statutory penalties, there are some other clear consequences of non-compliance: — Organisations should also be mindful of the accompanying adverse publicity any bribery — An investigation or conviction is likely to result in blacklisting, loss of customers, repudiation of certain contracts and revenue loss — Unanticipated, unbudgeted costs of investigation, corrective action and legal costs — Potential impact on loans, covenants and credit lines — Interruption of service, diversion of management focus, effort and resources away from core focus — Under the EU Public Sector and Utilities Procurement Directives, public authorities are required to exclude from public contracts all suppliers that have been convicted of a corruption offence. 25 Workshop: UK Bribery Act 2010

karanovic/nikolic  Example of liability ▬ Possible scenario: — Croatia JV provides UK Co with certain services. — In order to provide these services in a timely manner, Croatia JV makes a facilitation payment to a Chinese government official to overcome a bureaucratic hold up. ▬ Issues: — Is Croatia JV an associated person? — FP in connection with services? — UK Co: direct benefit? — if contractual: degree of control? ▬ Potential offences:  s6 – only if the employee making the payment has a close connection to the UK.  s7 – UK co. Services provided UK Co Croatia JV Facilitation payment Chinese official Workshop: UK Bribery Act

karanovic/nikolic  Example of liability ▬ Possible scenario:  The Romania Services Co provides excessive hospitality to a Local Introducer, in order to raise Croatia Co’s profile in Romania. ▬ Issues:  Is Croatia Co within the jurisdictional reach of the Act?  In theory: potentially, yes – depending on whether UK Branch constitutes a ‘demonstrable business presence’ for Croatia Co  In practice: a SFO priority? Did the bribe disadvantage a UK competitor to Croatia Co?  What if UK Branch was an incorporated subsidiary? → cannot “structure out” of the Act → depends on the factual reality → however subsidiary, in and of itself – not enough ▬ Potential offences:  s7 – Croatia Co. Croatia Co Romania Services Co UK Branch Local Introducer Excessive hospitality 27 Workshop: UK Bribery Act 2010

karanovic/nikolic  Your ‘take home’ information sheet. ▬ I direct your attention to the useful information sheet that is contained in your documents pack ▬ This contains practical examples of how the Bribery Act could be applicable to Croatian companies in specific scenarios ▬ It also lists some of the differences between the UK and US legislation ▬ It contains a useful flow chart illustrating how a company ought to consider the ‘adequate procedures’ and the ‘six principles’ 28 Workshop: UK Bribery Act 2010

karanovic/nikolic / Thank you