The UK Ministry of Justice has published long awaited guidance on the controversial Bribery Act, which goes into effect on July 1.
According to the guidance, for a company to be liable pursuant to Section 7 of the act, which requires companies to prevent people from committing acts of bribery on the company’s behalf, it must either be incorporated or formed in the UK, or be carrying on a business or part of a business in the UK.
But the location of the underlying offence, or the offender’s nationality or residence, needn’t have a close connection to the UK. Moreover, the person committing the underlying offence could, under certain circumstances, include a company’s suppliers and contractors, as well as its employees, agents and subsidiaries.
The question of what it means to carry on a business in the UK has been hotly debated. Before the guidance was published, a group of UK investors, including F&C Investments and Aviva Investors, sent an open letter to the Financial Times seeking assurances from the UK government that the Bribery Act would apply to all foreign issuers seeking to raise capital in London.
If foreign companies are beyond the act’s reach, they warned, the UK’s reputation as a financial centre could be damaged, and the act could have the unintended consequence of treating UK companies unfairly.
The guidance is generally vague and unhelpful on this issue, but it does include two specific examples that should prove useful to foreign companies: (1) a listing on the London Stock Exchange is not, by itself, enough to bring a foreign company within the rules; (2) solely having a UK subsidiary is not enough to qualify as ‘carrying on business’ in the UK for the purposes of the act.
These two examples do not exempt foreign companies from the rules, according to UK justice secretary Kenneth Clarke. But Clarke also says he expects to see few companies prosecuted under the new rules.
His assurances may assuage investors’ fears about the unfair treatment of UK companies, even if Clarke’s small appetite for using the new legislation raises doubts about the UK government’s commitment to protecting the country’s reputation as a financial centre. After all, Clarke’s stated goal of making the UK the ‘leader in the global fight against corruption’ comes after the previous UK government intervened in a Serious Fraud Office (SFO) investigation into BAE Systems, the UK arms manufacturer, which is alleged to have paid billions of pounds to the Saudi royal family to facilitate the purchase of fighter jets and other weaponry during the 1980s and 1990s.
The liability threshold for companies does indeed appear high. Prosecution under the rules will be sought only if one of the two most senior prosecutors in the UK – the director of public prosecutions or the director of the SFO – is personally satisfied that conviction would be likely and in the public interest.
What’s more, there is a significant defence available to companies that can show they have ‘adequate’ procedures in place to prevent bribery. Adequacy, for these purposes, depends on the size of a company and its likely exposure to the risk of bribery.
It remains to be seen how the court will apply the legislation. Until then, the guidance does at least contain some good news for the corporate hospitality industry and the sports-minded members of the UK business community. ‘Rest assured,’ says Clarke in his introduction to the guidance, ‘no one wants to stop firms getting to know their clients by taking them to events like Wimbledon or the Formula 1 Grand Prix.’