What impact has the Bribery act 2010 had on businesses across Scotland? The new law, which came into force on July 1, 2011, carries tough penalties including unlimited fines and prison sentences of up to ten years for offering or requesting a bribe, bribing a foreign public official or failing to prevent bribery by those acting on the company's behalf - including agents, employees, subsidiaries, intermediaries, joint venture partners or suppliers in the UK or overseas
What impact has the Bribery act 2010 had on businesses across Scotland?
The new law, which came into force on July 1, 2011, carries tough penalties including unlimited fines and prison sentences of up to ten years for offering or requesting a bribe, bribing a foreign public official or failing to prevent bribery by those acting on the company's behalf - including agents, employees, subsidiaries, intermediaries, joint venture partners or suppliers in the UK or overseas.
This 'failure to prevent bribery' offence is the most significant expansion of Britain's existing bribery regime and has created a whole new layer of administration for businesses nationwide, regardless of their size.
"The Bribery act 2010, in my opinion, is by far the most stringent piece of anti-corruption legislation in existence," says Scott Grant, senior analyst at Anderson Anderson & Brown accountants in aberdeen. "It goes further than the US Foreign & Corrupt Practices act 1977 and is years ahead of similar European legislation. has it hamstrung Scottish and UK businesses in the short term? Probably, yes."
Despite useful guidance issued by the Ministry of Justice, Grant believes there are still some vague areas and too many unknowns surrounding some aspects of the law. he suggests most Scots businesses are 'waiting to see' what kind of prosecutions come up before fully digesting what the act might mean for them.
The first conviction under the new law, last October, involved a court clerk in East London who admitted accepting a £500 bribe to 'get rid of a speeding charge'. "although sentencing the guilty party to three years imprisonment for the offence sent a clear message that even low level bribery will be severely dealt with, it was not the corporate conviction I'm sure the Serious Fraud Office had hoped for and perhaps allowed organisations to maintain the 'heads in the sand' approach for a little while longer," says Grant.
Charlotte Johns, director of employment law at Semple Fraser, describes two business types: those who have historically developed a focus on culture and ethics and who have been proactive in implementing policies and procedures, and those who haven't got around to it yet. "The latter is potentially quite a high-risk approach, particularly if you work in a highly regulated industry or trade abroad," Johns warns.
"People tend to think it's going to be really complicated, but in general they find it's actually not as labour intensive as they expect," Johns adds. "There are commonsense steps businesses can take. They might, for example, decide to appoint a compliance officer who would oversee an internal training and communications programme. Many organisations have implemented an anti-corruption statement together with policies covering, for example, gifts, hospitality and facilitation payments. Some organisations have identified third parties who might be in a position to offer a bribe for the benefit of the organisation and have then communicated with these people to explain the organisation's stance on such matters."
Keith Dinsmore, a director at corporate legal adviser Vialex and employment law specialist Navigator, points out that fines and prison are not the only potential penalties. Others include potential debarment from tendering for public sector contracts and damage to the company's wider reputation. "If your customers are blue chip companies, will they want to do business with a company that's been convicted under the Bribery Act?" he asks.
For small and medium enterprises, demonstrating probity to customers who are carrying out due diligence on their supply chain is arguably the most pressing concern. Dinsmore suggests keeping it simple. "If you're McShoogle & Co doing business domestically and selling widgets to BP, you shouldn't have to take the same measures as BP, who have international business interests and a far higher risk profile," he says. "Following a risk-based assessment of your business, you may need do no more than adopt a pretty plain vanilla anti-bribery policy and communicate that - even verbally - to your employee base."
Dinsmore expects enforcement agencies to focus on material transgressions which act against the public interest but, on a macroeconomic level, fears the Bribery Act may disincentivise international investment in the UK.
Donald MacKinnon, director of legal services at Law at Work, compares the Bribery Act to discrimination law, in that businesses are held liable for the actions of their employees even if they're wholly unaware of those actions. "You need to control what you're employees are doing," he suggests. "You can't necessarily prevent your staff offering or accepting bribes, but you can put in a framework that minimises that risk." This could include highlighting the company's bribery policy in the employment contracts of individuals who may be particularly at risk.
MacKinnon feels there are still a number of grey areas in the law, particularly what hospitality businesses can and can't offer. "A big element is what's the intent behind it," he explains. "Why is this company taking you to Murrayfield for the rugby? If they've made it explicit you won't win a contract unless they get hospitality, it's clearly a breach. But if it's general keeping in touch, it isn't.
"Companies who do business abroad also need to be careful about the sort of trips they take clients on, and whether or not these could be seen as inducement. Taking a client to visit your premises in Barbados and staying at a five-star hotel could clearly be seen as an inducement unless you can prove otherwise."
Andrew Walker, corporate partner at law firm HBJ Gateley, says the act is having most impact on Scottish business with subsidiaries or affiliated companies in countries like Thailand, where bribes are very common, and seen as a 'necessary commercial evil'. "Under the legislation, UK-based directors of UK corporates would technically be on the hook if employees of these subsidiaries are found to be using bribes, even if they are accepted rules of the game in certain places," Walker explains. "That said, the UK investigating authorities in these circumstances will probably have bigger fish to fry if they're faced with a minor sweetener between individuals, so if a UK firm can show it has taken reasonable steps to prevent bribery in its overseas interests, then these cases shouldn't be too problematic."
More of an issue would be an employee in a foreign subsidiary authorising a big payment which then secured a major contract. "Clearly there are Scottish businesses who'll have had to identify where that might have been happening and put a stop to it," Walker continues. "Unfortunately bribery is a fact of life in places like Thailand and it's potentially damaging to the UK's competitiveness to apply the act in those circumstances."
Jamie Stark, a partner in Paull & Williamsons' corporate division, cites a client with a business in West Africa, where facilitation or 'grease' payments are common. "Their people are accommodated in a secure compound and a significant element of the security provided comes from local police patrolling the compound every hour," he explains. "The local public official who has responsibility for setting police rotas requires a modest cash payment each month to ensure the compound bene ts from such security. Does the client pay this backhander, in clear breach of the Bribery Act, or risk compromising the safety of his people?"
Certain industries - particularly oil and gas - also face a greater risk of corruption than others. "It's a global industry and the larger reserves of oil and gas are o en found in countries with a poor track record of tackling corruption and where getting things done meant keeping on good terms with the local public o cial," Stark continues. " is heightens the need for proper diligence when acquiring overseas businesses and ensuring robust controls are in place to tackle corruption."
David Lister, head of fraud investigations and dispute services at Ernst & Young in Scotland, agrees the oil and gas sector will be subject to more action than most, as the extractive industries have already been subject to a fifth of all enforcement actions started since the Foreign Corrupt Practices Act was passed in the United States. "In-country employees and other stakeholders may operate on a 'this is how we do business here' premise and, as a result, modify or bypass certain policies as they proceed with practices deemed fraudulent or corrupt in other jurisdictions," says Lister. "In order to reduce their exposure, companies must undertake a detailed risk assessment for each country they operate in, develop and implement training for all staff and contractors, and exercise global 'best practice' guidelines that can be tailored to meet local legal, cultural and commercial requirements."
Catriona Munro, a partner in the EU competition and regulatory team at Maclay Murray & Spens, points out that shareholders can be forced to pay back dividends if these are deemed proceeds of crime. She highlights the case last year of Mabey & Johnson, an engineering group found to have made illegal payments to Iraqi offcials to receive contracts. It was ordered to pay more than £6.5m in fines, costs and reparations, and repay £130,000 in dividends funded from the proceeds of the unlawful contracts.
"The message for both institutional investors in quoted companies and shareholders in private companies is clear: if you don't ask about the adequacy of the company's anti-bribery procedures, and keep asking, your dividends will be at risk," Munro says. "For a PLC paying out dividends, this means institutional investors and asset managers will be asking more questions about anti-bribery policies and procedures before they invest, and then in ongoing meetings with management. If there are any doubts about the robustness of a PLC's practices they may find investors reluctant to buy their shares, which could make it difficult to raise capital."
Paul Marshall, associate in the public law team at Brodies, feels there needs to be more guidance from the Serious and Organised Crime Division (SOCD) - which was set up by the Crown Office in March 2011 and is responsible for enforcing the Bribery Act in Scotland - on how businesses can report bribery. "The key message from the prosecution authorities has been an invitation to businesses to self-report any concerns about bribery," Marshall explains. "However, self reporting doesn't guarantee immunity from prosecution. In fact, it's something of a leap of faith for businesses because while self-reporting might be the key to achieving an alternative to prosecution, it might also be the foundation for criminal charges being brought."
Marshall calls for "real clarity" on the potential consequences and repercussions of self-reporting. "There needs to be clearer communication from the SOCD and the Crown as to how they intend to enforce the Bribery Act in Scotland," he says. "The introduction of a self-reporting initiative is a welcome development, as is an act designed to prevent bribery, but we need greater transparency from the authorities as to how it will work in practice and what companies can expect in return for full co-operation."