Billions of dollars are spent worldwide each year on homeland security and counterterrorism-related products and services. A good deal of that business is transacted in the United States and the United Kingdom. This rapidly developing marketplace is highly competitive – not everyone plays by the rules, and the rules are getting tougher. On April 8, 2010, the U.K. Parliament passed the Bribery Act 2010 (the “Act”) and the U.K. Ministry of Justice recently released draft guidance for the Act. The Act applies to companies incorporated or formed in the U.K. or companies that conduct business in the U.K.
Though the private sector is undoubtedly familiar with the Foreign Corrupt Practices Act (“FCPA”), there are some major distinctions between the FCPA and the Act. The Act covers both public and private bribery and does not allow for facilitation or “grease” payments. The Act imposes strict liability on companies that do not have anti-bribery compliance programs.
Penalties for violating the Act are steeper than the FCPA penalties, as the Act provides for up to ten years of incarceration per offense; unlimited fines for guilty individuals; disgorgement of contract proceeds; debarment from public tendering; and civil recovery orders, which allow the government to bring civil proceedings to recover property obtained by unlawful conduct without a prosecution.
While initially slated to come into force in October 2010, the Act’s implementation has been pushed back to April 2011. The Ministry of Justice issued draft guidance for the Act on September 14, 2010, which is intended to help companies understand what types of procedures they should put in place to prevent bribery. The Ministry of Justice makes clear, however, that only a court can decide whether a company had adequate procedures in place to prevent bribery and avoid criminal liability. The draft guidance sets out the following six general principles for the prevention of bribery:
- Risk Assessment: Knowing and keeping up to date with the bribery risks a company faces in its sector, market and location.
- Top Level Commitment: Creating a corporate culture that makes clear to everyone (e.g. employees, managers, upper-level management and business partners) that no form of bribery will be tolerated.
- Due Diligence: Implementing and enforcing due diligence policies and procedures, including knowing why, when and to whom a company is releasing funds. Proper due diligence requires an analysis of risk relating to the location of the business opportunity and/or business partners.
- Clear, Practical, and Accessible Policies and Procedures: Implementing and enforcing policies and procedures that apply to everyone in the company, business partners, joint-ventures, agents and anyone else under the company’s effective control. These policies and procedures must make clear the company’s serious, top-level commitment to anti-bribery, including a no-tolerance policy. Policies should identify risks that a company may face, including requests for political and charitable contributions, gifts and hospitality, promotional expenses, and demands for facilitation payments.
- Effective Implementation: Going beyond “paper compliance” and embedding anti-bribery in the company’s internal controls, communications, policies, procedures, operations and training programs.
- Monitoring and Review: Ensuring compliance with a company’s policies and procedures is essential to an effective anti-bribery program. This may involve internal or external monitoring and review of a company.
What can companies do to ensure that they are not at risk of prosecution? A strong defense is to prove that, despite a particular case of bribery, a company nevertheless had adequate procedures in place to prevent people associated with it from committing bribery. Despite some significant differences between the Act and the FCPA, the U.S. Federal Sentencing Guidelines for Organizations (“FSGO”) offers guidelines that are similar to the draft guidance published by the Ministry of Justice last month.
The FSGO offers the following guidelines for developing effective programs to avoid bribery: organizational implementation of compliance standards and procedures; assignment of high-level personnel to oversee compliance; due care in avoiding delegation to individuals whom the organization knew or should have known had the propensity to engage in illegal activities; establishing monitoring, auditing and reporting systems; and developing appropriate responses to offenses.
Companies with compliance programs existing under the FSGO should be able to, with some modifications, ensure that their programs comply with the Act. These changes include closure of the “grease” payment loophole, an emphasis on private corruption, and broader training of all employees and representatives of a company (e.g., agents) who are within a company’s effective control.
The stakes are high for companies and the U.K. Government. Will U.K. officials seek to convict a company of bribery if the government is heavily dependent on that company’s services and could not, therefore, afford to disqualify the company from government work? Only time will tell; and no company wants to be the “test case.”
Companies should comprehensively review their current compliance programs and make the necessary changes before the Act comes into effect in April 2011. The penalties are more severe than those applied in the U.S., and the training programs that need to be implemented will take time to create and put into action. Be proactive – don’t let the international “business” of homeland security and counterterrorism place your business’ security in jeopardy.
Scott Louis Weber is a partner in the law firm Patton Boggs LLP, serves on the Board of Advisors of the Chertoff Group, LLC and is the former Senior Counselor to the Secretary of the U.S. Department of Homeland Security.