1. 1 Introduction to the new UK Bribery Act and what it mean for Russian companies Doran Doeh Managing Partner - Russia T (+7 495) 229 2333 doran.doeh@snrdenton.com snrdenton.com

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4. 4 Agenda  Introduction  The Core Bribery Offenses  Failure to Prevent Bribery  Extraterritoriality  Who does the Act apply to?  Penalties and Consequences  Defences under the Act  How will the Act be interpreted and applied?  How does the Act differ from the US FCPA?  Case studies  Note: Presentation to the Law Society meeting at the British Embassy in Moscow on 14 December 2010, setting out the position as known at that date.

5. 5 Introduction  Consolidates and replaces old fragmented UK laws and common law on bribery  Old UK law had to prove the “controlling mind” guilty – very difficult with global businesses - few successful prosecutions  Implements the OECD Anti-Bribery Convention  OECD 2008 report heavily criticised UK judiciary’s handling of BAe Systems case (allegations surfaced in 2003) and highlighted many problems with UK’s application of the OECD Anti-Bribery Convention  Adopted April 2010 – comes into force April 2011  Replaces –Common law –Public Bodies Corrupt Practices Act 1889 –Prevention of Corruption Acts 1906 and 1916

6. 6 Introduction  Has extra-territorial effect – applies to actions by UK individuals and companies/partnerships AND persons connected with the UK, wherever in the world those actions occur AND to any non-UK corporate body or partnership that “carries on a business or part of a business” in the UK  Includes a new strict liability offence for commercial organisations who fail to prevent bribery by their associates  Unusually short and simple for UK legislation – much more like civil law/Russian legislation – gaps and ambiguities need to be filled by secondary legislation – not clear intended Guidance on “adequate procedures” will do this sufficiently; Guidance on prosecutions may be very relevant

7. 7 The Core Bribery Offenses –Bribing a person –Being bribed –Bribing a foreign public official

8. 8 Bribing (section 1) Person (individual or corporate) may commit following offences:  Bribing another person (private or public sector) –offers, promises or gives a financial or other advantage to another (directly or indirectly); and intends the advantage to induce/reward a person for the improper performance of a relevant function or activity; or knows or believes the acceptance of the advantage is itself improper performance  EXAMPLE: P provides a friend (who works in the same company as X) $10,000 to give to X, to persuade X to send P confidential information about the company that P wants in connection with her own business.

9. 9 Being bribed (section 2) Person (individual or corporate) may commit following offences:  Being bribed (private or public sector) –requests, agrees to receive or accepts a financial or other advantage (directly or indirectly); and (a) intends there to be improper performance as a consequence; or (b) there is improper performance of relevant function or activity (whether as reward, in anticipation or consequence of request, agreement or acceptance) –in the cases outlined in (b), no requirement for person to know or believe that performance of the function or activity is improper

10. 10 Being bribed (section 2)  EXAMPLES: (a)R asks P for $10,000 if he – R – or a colleague destroy supporting documents submitted by rival bidders for a contract P is seeking with R’s employer. (b)R, a civil servant, asks for $1,000 for himself to process a routine application. (c)R, a civil servant, asks for $1,000 from P as a reward, having processed P’s application especially quickly. (d)R, an agent, accepts P’s bid for a contract on behalf of a company, because R expects P secretly to reward him personally.

11. 11 Common points (sections 1 and 2)  The law applies: –wherever the giving/receiving of the advantage occurs and wherever the performance occurs –whether direct or indirect –whether or not person receiving the advantage is the person performing the function and –In some cases, whether or not the person knows the performance is “improper”

12. 12 Common points (sections 1 and 2)  Applies to almost any activity or function, public or private business, in relation to which the person: (A) is expected to perform in good faith (B) is expected to perform impartially and/or (C) is in position of trust by virtue of performing it. (Section 3)  “Improper performance” means performance or failure to perform in breach of a “relevant expectation” under conditions (A), (B) or (C) above. (Section 4)  What is expected? “what a reasonable person in the United Kingdom would expect in relation to the performance of the type of function or activity concerned… any local custom or practice is to be disregarded unless it is permitted or required by written law” (Section 5)

13. 13 Bribing a foreign public official (section 6)  Also a specific offence of bribing a foreign public official (“FPO”) if the person: –intended to influence that FPO is his capacity as an FPO and –intended to obtain or retain business or an advantage in the conduct of business  Applies if, directly or through a third party, a person promises or gives any financial or other advantage to a FPO or another person at the request or with the assent or acquiescence of the FPO  An FPO is any person who: –holds an administrative, legislative or judicial position or –exercises any public function for any country or territory or subdivision of any country or territory or any public agency or enterprise or –is an official or agent of any public international organisation

14. 14 Bribing foreign officials (section 6)  Exception if –the foreign public official is permitted or required by applicable written law to be influenced by offer promise or gift – e.g. set-off arrangements  No requirement for conduct to be deemed improper  Note: foreign public official does not commit offence by being bribed (unless also within section 2)

15. 15 Bribing foreign officials (section 6)  EXAMPLE: (offence) P asks R, a civil servant in Toyland, to process quickly P’s application for licence to engage in construction work in Toyland. R says that will only be possible if P provides X, a relative of R, with help in the conversion of flats on X’s land. P agrees to provide the help.  EXAMPLE: (no offence) P asks R, a civil servant in Toyland, to process quickly P’s application for a licence to engage in construction work in Toyland. R says that will only be possible if P helps to build a new school in Toyland. P agrees to provide the help. The written law applicable to R says that favourable treatment may be given to foreign businesses if they agree to fund school building work in Toyland.

16. 16 Senior officer liability Senior officers may commit following offence:  Section 14: Liability of senior officers of bodies corporate –where section 1, 2 and 6 offences committed by a body corporate, senior officer (or person purporting to act in that capacity) also guilty of offence if: (a)offence committed with consent or connivance of senior officer (or person purporting to act in that capacity); and (b)where bribery act took place outside UK (and underlying offence only committed because person is UK body corporate), the senior officer or person also has “close connection” with UK.

17. 17 Senior officer liability  EXAMPLE: P gives Y (working at a rival company to P’s employer company) $500 for confidential information. P completes an expenses form for general unspecified expenses of $500 which is signed off by a senior officer of P’s employer company. The senior officer knows the $500 has been used to purchase confidential information..

18. 18 Failure to Prevent Bribery - the main concern for Russian companies

19. 19 Failure to prevent bribery (section 7)  Offences under Sections 1, 2 and 6 still require the “controlling mind” of a company/partnership to be guilty of an offence  Section 7 provides a new strict liability offence with no requirement that the “controlling mind” of the organisation authorise, encourage or be aware of the bribery  A “relevant commercial organisation” is guilty of an offence if a person “associated” with it bribes another person intending: –to obtain or retain business for the commercial organisation or –to obtain or retain an advantage in the conduct of business for the commercial organisation  Applies wherever in the world the offence takes place  It is a defence for a relevant commercial organisation to prove that it had in place “adequate procedures” designed to prevent persons associated with it from undertaking such conduct

20. 20 Failure to prevent bribery - “associated person”  A “associated person” is any person who performs services in any capacity for or on behalf of the relevant commercial organisation – no need for associated person to have close connection with UK  Can include agents, subsidiaries, intermediaries, distributors, contractors, joint venture partners and consortium members …  Employees assumed to be “associated” unless prove not performing service for or on behalf of the relevant commercial organisation  It is the “associated person”, rather than the relevant commercial organisation, that needs to have the intention to obtain or retain business  Meaning of “performs services” – determined “by reference to all the relevant circumstances and not merely by reference to the nature of the relationship between A and C”  Role of subsidiaries unclear and begs the question of what “doing business” means

21. 21 Failure to prevent bribery  EXAMPLE: C (a company incorporated in the UK) wishes to do business in Toyland. C employs an agent (X) living in Toyland to establish business contacts on C’s behalf with government officials in Toyland. X bribes those officials to place contracts with C. The directors of C had given no guidance to A on their attitude to bribery, even though it is well-known that officials in Toyland are open to bribery.

22. 22 Extraterritoriality

23. 23 Extraterritoriality: section 1, 2 and 6 offences  Section 12: Extraterritoriality –Section 1, 2 and 6 offences committed (a) if any part of conduct occurs in UK; or (b) if act take place abroad, provided the person performing the act has a close connection with the UK –Close connection: (a)British (e.g. British citizen, British National, British Overseas citizen etc.) (b)individual ordinarily resident in the UK (c)a body incorporated in the UK.

24. 24 Extraterritoriality: section 7 offence  Section 7: Failure of commercial organisation to prevent bribery –no requirement for the associated person to have close connection with the UK if acts committed abroad –definition of “relevant commercial organisation” includes: body corporate or partnership which carries on business or part of a business in the UK  Question: Does operating in the UK through a branch or a subsidiary make a difference?  EXAMPLE: C, a company incorporated in Noddy Land, with a branch in the UK, wishes to do business in Toyland. C, through its head office in Noddy Land, employs an agent (X) living in Toyland to establish business contacts on C’s behalf with government officials in Toyland. X bribes those officials to place contracts with C. The directors of C had given no guidance to X on their attitude to bribery, even though it is well-known that officials in Toyland are open to bribery..

25. 25 Who does the Act apply to?

26. 26 Who does the Act apply to?  CORE OFFENCES (SECTIONS 1, 2 & 6) –Offence in the UK: any person/company/partnership (whether or not connected with the UK) –Offence outside the UK: any person with a “close connection” with the UK: British citizen/national/subject individual ordinarily resident in UK UK company/partnership/body –Senior officers of body/partnership if consented or connived and either (i) offence in the UK or (ii) outside UK but senior officer has a “close connection” with the UK (Section 14)

27. 27 Who does the Act apply to?  FAILURE TO PREVENT (SECTION 7) –Wherever offence takes place, a “relevant commercial organisation” is: UK company/partnership which carries on a business anywhere Non-UK company/partnership which carries on a business or part of a business in the UK –“carries on a business” not defined in the Act but may be given very broad meaning “business” does not necessarily involve profit or gain single transaction could, in some cases, qualify listing on LSE/AIM? agents in the UK?

28. 28 Penalties and consequences

29. 29 Penalties and consequences  Sections 1, 2 and 6 (core bribery offences): –Individuals – up to 10 years and unlimited fine –Organisations – unlimited fine.  Section 7 (failure of commercial organisation to prevent) –Organisations – unlimited fine  Debarment from bidding for government contracts in the EU  Civil Recovery Orders  Financial services organisations –Financial Services Authority –Aon fine

30. 30 Defences

31. 31 Defences  Section 7: “failure to prevent bribery” –adequate procedures in place designed to prevent persons associated with a commercial organisation from bribing  all other offences –defences given for intelligence service and armed forces only

32. 32 What are “adequate procedures”?  The Secretary of State is to publish guidance on “adequate procedures” to prevent bribery before the Act comes into force in April 2011  Draft guidance published 14/9/10 and consultation open until 8/11/10: http://www.justice.gov.uk/consultations/briberyactconsultation.htm http://www.justice.gov.uk/consultations/briberyactconsultation.htm  Draft guidance sets out six principles for bribery prevention: –Risk assessment (specific to sector and market) –Top level commitment (establishing a no-tolerance culture) –Due diligence (particularly relevant to JVs and associates) –Clear, practical and accessible policies and procedures –Effective implementation –Monitoring and review and distinguishes between larger and smaller organisations NEXT PRESENTATION DEALS WITH THIS

33. 33 How will the Act be interpreted and applied?

34. 34 How will the Act be interpreted and applied?  The Act is written deliberately broadly to catch all forms of bribery and does not include any safe harbours or de minimis levels  The Director of the Serious Fraud Office (SFO) will be responsible for prosecutions under the Bribery Act in relation to offences outside of the UK  Before bringing a prosecution the Director must be satisfied that: –there is sufficient evidence to provide a realistic prospect of conviction and –if there is sufficient evidence, whether a prosecution is in the public interest  The more serious the offence the more likely to be in the public interest to prosecute  Joint SFO/DPP legal guidance for prosecutors will be published early 2011 and will include “a clear, comprehensive and consistent guide to the law and relevant public interest considerations” (Speech by Attorney General Sept 2010)  “Adequate procedures” are the only defence to strict liability – don’t wait until April 2010 to prepare these

35. 35 How will the Act be interpreted and applied? (cont)  Facilitation payments: “it will rarely be in the public interest to prosecute … for the payment of small sums to secure the performance of routine tasks”. Law Commission report (not binding) – suggests sensible use of discretion not to prosecute is best way to deal with small facilitation payments  Corporate hospitality: “Corporate hospitality would trigger the offence only where it was proved that the person offering the hospitality intended the recipient to be influenced to act improperly. Obviously lavish or extraordinary hospitality may lead a jury to reach such a conclusion but “most routine and inexpensive hospitality would be unlikely to lead to a reasonable expectation of improper conduct”.” Lord Tunnicliffe, Ministry of Justice (Jan 2010), quoting Director of SFO  “Offset” arrangements where additional investment offered or required as part of a tender “unlikely to give rise to difficulties” – Ministry of Justice draft guidance

36. 36 Comparison with FCPA

37. 37 Comparison with FCPA  FCPA –Only applies where a non-US public sector party involved –Can be liable for acts of agents and other parties where “know” they will bribe on your behalf –Safe harbours for (i) facilitation payments for “routine government action” and (ii) reasonable promotion or demonstration of company products –Currently no automatic exclusion from public contracts but bill pending in Congress  UK BRIBERY ACT –Applies also to entirely private transactions –Applies strict liability to acts of “associated” service providers irrespective of knowledge –No carve outs for facilitation payments, corporate hospitality or demonstrations –Conviction under Act would result in exclusion from public sector contracts in EU

38. 38 Case Studies

39. 39 Case Study 1 – Corporate entertainment  Manufacturing Supplier (C) invites 10 selected client personnel to day out at Olympic games. Day out includes slap up meal provided by C.  C invites 10 selected client personnel to day out at Olympic games and extends the invitation to spouses.  C invites 10 selected client personnel (including their spouses) to day out at Olympic games. Some of the individuals are based in Asia and US. C pays for their flights and provides hotel accommodation for the client personnel and their spouses.  C is unaware that one relevant spouse flown in from Asia is a government official who works in a procurement department. C will shortly be submitting a tender to this government department to supply its manufactured goods.  X is a potential client that C is hoping to do business with. C has been asked by X to submit a tender for the supply of goods. A, an employee at X, sends an email to a director of C. A states that he looks forward to receiving the tender. As a PS to the email, A asks if he can be added to any list there might be for corporate events at the Olympics, in particular any events to which he can bring his wife and children.

40. 40 Case Study 2 – International issues  Y Limited is a UK-based insurance broker in the niche market of arranging insurance on risks relating to the supply of cocoa beans. –Y Limited operates from the UK, with a subsidiary in Ghana, and branches in Brazil and Indonesia. –The branch offices use a network of local intermediaries to source business from the branch base and surrounding countries back to the UK, so Y Limited can introduce the would-be insureds to its panel of insurers.  How widely does the Bribery Act apply?  Does it apply differently to branches and subsidiaries?  What is its effect on intermediaries?  What should Y Limited –require in its procedures? –do to monitor the activities of its overseas offices and intermediaries?  Would it make any difference if Y Limited were based outside UK but is listed on LSE?

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