New Dimensions in Financial Crime: The Real impact of the Bribery Act 2010 Corporate Liability

The Bribery Act came into force on 1 July 2011.  Under the Act, it is an offence for a person to bribe or be bribed.  A bribe is essentially the offer of a financial or other advantage with the intent that the person receiving it is induced to improperly perform their function.

The Act created a new offence, under Section 7, for a "commercial organisation" to fail to prevent bribery and it is guilty of an offence where an "associated person" bribes another person, intending to obtain or retain business or to obtain or retain an advantage in the conduct of business.   The only defence to the Section 7 offence is for the commercial organisation to prove that it had in place adequate procedures designed to prevent a person associated with it from undertaking such conduct. 

The UK Prosecuting Authority, the Serious Fraud Office ("SFO") has signalled its intent to be more aggressive in its pursuit of prosecutions under the Act, with the focus as much on corporate wrong doing as it is on individual misconduct.  Consequently, for multi-national corporations, bribery risk exposure will increasingly be an area of real concern. 
 
The Extra Jurisdictional Reach of the Act

It is crucial for multi-national corporations to understand that the Act is not just concerned with what happens in the UK.  It extends to conduct outside of the UK even where that conduct occurs wholly outside of the UK.
If a corporate carries out business in the UK, it can be prosecuted in the UK under s.7 regardless of where the conduct was carried out.  As a result, all corporates who do business in the UK need to be aware of the provisions of the Act and have put in place policies and procedures to prevent bribery.  A failure to do so will leave the corporate exposed to prosecution under s.7. 

There is some debate around what "carries on a business" means.  It is not defined in the Act.  It clearly denotes more than just a mere physical or legal presence in the UK.  Whilst it is obviously inherent that there needs to be some activity, exactly what activity is open to debate.  It naturally includes the corporates regular trade or commercial activity but there can be little doubt that the intention was to widely define the activity being carried out.  It seems likely that this will be an area for judicial consideration and direction.

Self-Reporting

The focus of the Bribery Act is very much on establishing liability for corporate wrongdoing and has extra-jurisdictional reach as explained above.  However, the identification of corporate wrongdoing, especially where it takes place outside the UK, is quite often very difficult with heavy reliance placed on whistle-blowers.  This state of affairs puts the prosecuting authorities in a difficult position: how do they go about discovering corporate wrongdoing?  One way of doing so lies in encouraging the commercial organisation to self-report and the provisions of the Bribery Act and the guidance surrounding it has lent itself well to the promotion of this principle where the commercial organisation potentially gains a number of significant benefits by being prepared to "grasp the nettle".  
 
The Act itself says nothing about self-reporting.  

The substantive guidance for commercial organisations on the dynamics of self-reporting emanates from the rules that govern how the prosecution authorities approach their charging decision.  The SFO is a designated prosecuting authority and it has issued guidance, albeit brief, on corporate self-reporting.  

At a fundamental level, the prosecutor must be satisfied that there is sufficient evidence to provide a realistic prospect of conviction against each suspect on each charge.  It must consider what the defence may be and how it is likely to affect the prospects of conviction.  If the case does not pass the evidential stage, it must not proceed, no matter how serious or sensitive it may be.

If, and only if, the prosecutor is satisfied that the evidential test is met can it proceed to consider whether the public interest test is met.  The public interest test is subject to 7 primary, but non-exhaustive, questions which the prosecutor needs to consider in order to identify and determine the relevant public interest factors for and against prosecution.  

The primary considerations will be:

How serious is the offence committed?
What is the level of culpability of the suspect?
What are the circumstances of and the harm caused to the victim?
 
In assessing seriousness extra jurisdictional issues are clearly relevant with guidance including…" the impact of the offending in other counties, and not just the consequences in the UK should be taken into account".  
The decision to self-report is itself surrounded by uncertainty.  The SFO expects commercial organisations to make a report at an early stage.  However, identifying the appropriate time to do so is not easy.  Too soon and the commercial organisation risks scrutiny in circumstances where the conduct may not be established, or the allegations might simply prove to have been false or unfounded.  Too late and the commercial organisation may lose any benefit associated with doing so.  

The SFO does not want the commercial organisation to carry out an exhaustive internal investigation before making a report.  The commercial organisation is expected to have done enough to establish at least that there is real suspicion that a bribery offence has occurred.  The SFO will then want to be involved in how any further investigation is carried out in order to establish the suspicions.  

Care needs to be taken in collating evidence in order to maintain confidentiality in legally privileged material.  

The SFO has made it clear that it will not provide a commercial organisation with any guidance on what form a report should take and it will not provide any guidance on the likely outcome of a self-report until the completion of that process.  The commercial organisation is, therefore, taking something of a leap of faith in self-reporting.  
However, where the commercial organisation reports itself and the SFO accepts that it did so at the appropriate time, it retains a greater level of control of the outcome.  Prosecution may not follow. Instead, the SFO may be content with the commercial organisation proceeding to take remedial action which includes compensation of victims, disgorgement of any gain, enhancements to its anti-bribery systems and controls, further training and a period of monitoring and further reporting. 
 
Conclusion

All UK corporates and multinational corporates with operations in the UK need to take bribery risk very seriously.  Potential criminal liability brings with it a new dimension that should not be underestimated, nor should the determination of the prosecuting authorities in pursuing it.  The decision to prosecute a corporate is subject to the test at criminal law which has little to no commercial element to it.  The difficulty of dealing with the criminal authorities is something that most corporates will be unprepared for and early specialist advice should be sought in all cases where bribery risk is an issue.

Jonathan Brogden is a partner in the firm's Banking Litigation Group and advises on banking and finance disputes, Financial Services regulatory investigations, White Collar Crime and complex contractual disputes.
 
He has wide experience in handling Financial Services regulatory investigations having acted for parties involved in FCA investigations and enforcement action. 
 
Jonathan also handles the defence of criminal proceedings brought against corporate entities and their employees.  He currently acts for one of 11 traders charged by the SFO with conspiracy to defraud in relation to the alleged manipulation of EURIBOR and acts in relation to Financial Crime Investigations and prosecutions.

Jonathan can be contacted on 020 7894 6290 or by email at jbrogden@dacbeachcroft.com