If you don't know where you are going, you might wind up someplace else. -- Yogi Berra
After all the dust has settled, the political recriminations have been leveled, and the issuance of reams of client alerts by every law firm on the planet, companies are now staring at July 1, 2011, the effective date of the UK Bribery Act. The build up to the issuance of the Ministry of Justice’s Guidance was historic – leak after leak, political infighting and threats by international anti-corruption organizations and other governments against a weakening of the UK Bribery Act.
After all this build up, we are left with the following: the UK Bribery Act still stands, the Guidance, which was intended to add some clarity and safe harbors for businesses, is a mish mosh of policies and general conclusions which provide little comfort or real guidance to businesses. By describing its “talismanic” credo to be “common sense,” the Ministry of Justice failed miserably to provide real guidance or to explain a real prosecution policy. The Ministry of Justice owes businesses more than general pronouncements.
In the end, companies have to comply with the UK Bribery Act. Businesses need to recognize that ultimately it will be prosecutors and the courts which will draw the lines. There is nothing surprising in that. It was the inevitable result. Prosecutors will define the limits through its enforcement actions, and the courts will have a chance to review such actions.
As demonstrated in the BAE case, the UK courts are more than willing to review and reject prosecutors’ proposed settlements and enforcement actions. That is how a healthy judicial system operates, unlike the US system where courts have been unable or unwilling to review and challenge the Justice Department’s enforcement of the Foreign Corrupt Practices Act. Punting on “Guidance” As Yogi Berra’s quote demonstrates, companies now must decide how to comply with the UK Bribery Act by relying on “Guidance” which provides no clarity whatsoever other than meaningless platitudes.
Some examples demonstrate my point:
Application of the UK Bribery Act to Non-UK Companies: As written, the UK Bribery Act applies to any company that “carries on a business or part of a business” in the UK, regardless of its place of incorporation or primary location. To provide some comfort to business concerns about wide application of the Act to non-UK companies, the Guidance points out that the determination of this issue will be decided by the UK courts, and tries to carve out two possible scenarios by explaining: a. “the mere fact” that a company’s securities have been listed on the London Stock Exchange will not subject it to the Bribery Act’s jurisdiction; and b. having a UK subsidiary would not, “in itself,” be sufficient to subject a parent company or its affiliates to the Bribery Act’s jurisdiction, “since a subsidiary may act independently of its parent or other group companies.” Companies can rest assured now that the UK courts will decide this issue.
For in-house counsel, we are sure they are breathing a sigh of relief. The two specific scenarios are really not that realistic at all – you can bet that if a non-UK company engaged in any serious bribery, the UK courts will have no difficulty in finding that the non-UK’s activities in the UK are sufficient to fall within the jurisdictional requirement.
Corporate entertainment and promotional expenditures: The plain language of the Bribery Act broadly prohibits the kinds of entertainment and promotional expenditures that are routinely made by most companies. The Guidance provides assurances that prosecutors will not bring prosecutions for routine activities: “Hospitality or promotional expenditure which is reasonable, proportionate and made in good faith is an established and important part of doing business. The Act does not seek to penalize such activity.”
Where will the line be drawn between “reasonable, proportionate and good faith” expenditures and prohibited hospitality? As explained by the Ministry of Justice, lavish or disproportionate hospitality expenditures will be barred by the Act. Again, the failure to guide leads to more uncertainty for businesses, and punts the issue to prosecutors and the courts.
Adequate Procedures Defense to Corporate Strict Liability for “Failure to Prevent Bribery: While the Act provides a complete defense of “adequate [compliance] procedures” to a corporate “failure to prevent” bribery charge, the Guidance provides little help other than the observation “no bribery prevention regime will be capable of preventing bribery at all times,” and its desire not to impose harsh sanctions on “well run commercial organizations that experience an isolated incident of bribery on their behalf.”
The “Prosecution Guidance” issued on the same day stated that “a single instance of bribery does not necessarily mean that an organization’s procedures are inadequate. For example, the actions of an agent or employee may be willfully contrary to very robust corporate contractual requirements, instructions or guidance.” For companies, this provides little comfort. Almost every prosecutor in the US and the UK would decline a case where there was a “single” or “isolated” occurrence of bribery, especially when such incident occurred despite a robust compliance program. If common sense is the guiding principle, then the guidance has provided little guidance to companies.
The Political Dance is Over: Now Comes the Real Work