What will the Bribery Act mean for business?

Type: Think Pieces Written by Isabella Charlton | Thursday 24 March 2011

Implementation of the Bribery Act 2010 was meant to occur in April 2011, but has been delayed for a second time: is it now just a matter of time before it comes into effect? This think piece argues that the act itself will make Britain uncompetitive, and should be radically overhauled to prevent shifting undue responsibility onto businesses.

The Bribery Act 2010 may put Britain in a difficult position. The Act will require companies with a UK connection to put in place what the Act vaguely describes as “adequate procedures" to prevent bribery. The extent and costs of these procedures are unclear. The worst case scenario is that multinational firms and organizations, for legal reasons, may be wary of having any connection with the UK in order to avoid this strict liability offence (ie, no proof of intention required) and the associated costs and reputational damage of having to defend if prosecuted..

The problem is the scope of the Act and its significant implications for businesses with a UK connection. One of the offences created is "failure to prevent bribery". This may be committed by a company which "carries on a business or part of a business" (a term which is not defined in the Act) in the UK. The Act also applies to any person or company that commits a bribery offence outside the UK as long as they are a British citizen or resident, or a body incorporated under the law of any part of the UK. The offence may apply to bribery conducted anywhere in the world by a person with no connection to the UK as long as they are "associated with the company". A person is "associated with a company" if they perform services on behalf of or for the company - this has the potential catching a company's agents, employees, subsidiaries, intermediaries, joint venture partners and suppliers.

The most contentious part of the Act is section 7 of the offence, "Failure of Commercial Organisations to Prevent Bribery". It is a strict liability offence and the main defence for the commercial organisation is an ability to show that it had "adequate procedures" in place to prevent persons associated with the organisation from committing bribery.

The issues with the Act are, first, it criminalises a company or person for an action by a foreign associate done without their knowledge. Secondly, in order to have a “defence” to the Act, many companies will establish an internal anti-corruption department in order to safeguard themselves from prosecution, this will be costly and may have no effect on corruption.

Thirdly, even if UK businesses may be willing to play the game, why would foreign businesses with only minor business dealings with the UK overhaul their entire company at great expense to ensure compliance with the Act, when they could trade with other major economies to our loss. Overseas companies considering a listing on the London Stock Exchange will have to bear in mind the downside risk of exposure to this vague legislation which would come with a London listing.

There has been considerable delay in bringing this legislation into effect. The Act received Royal Assent in April 2010 and was originally to come into force in October 2010, but was delayed until April 2011. It has now been delayed a second time, due partly to the complexity of the Act, which requires considerable guidance notes for companies, and partly to the reluctance of politicians, who realise that despite the good intentions of the Act, it may go a few steps too far and be damaging to British businesses operating abroad as well as eroding the UK's business competitiveness. The Bribery Act is widely considered to be more far reaching than the US Foreign Corrupt Practices Act 1977 in its extra-territorial application, and it is being reviewed as part of the Government’s Growth Review (the Government initiative to reduce the regulatory burden on businesses in Britain).

A spokesman for the Prime Minister described the Growth Review position on the Bribery Act in the following terms, "The Growth Review is ensuring that every Government department is doing everything it can to identify the obstacles for investment and help the country's economy to grow." But, when asked if the Prime Minister was sympathetic to criticisms of the Act, the spokesman stated that "The Government is clear that corruption should not be considered an acceptable way to win business and the UK stands alongside the Organisation for Economic Co-operation and Development countries, all of whom have criminalised foreign bribery." It would seem that there is considerable political and international pressure to implement the Act, which was originally the response to criticism by the Organisation for Economic Cooperation and Development.

Like international banking regulation, unless implemented by all major economies in tandem this kind of legislation will be a hugely anti-competitive step for the UK. In a globalised economy excessive or more strident regulation, out of step with other major economies, makes your country uncompetitive by driving up costs for businesses and driving off foreign businesses who would otherwise invest in your economy.