The US Foreign Corrupt Practices Act (“FCPA”) is well-known across the globe. Prosecuted aggressively by US authorities, it has resulted in criminal sentences and billions of dollars in fines and penalties.
Now it’s the UK’s turn. Last year, the UK joined the lucrative anti-bribery enforcement playing field when it passed the Bribery Act 2010 which takes effect today, July 1, 2011. It remains to be seen whether UK authorities will take an equally aggressive stance with enforcement, but given the breadth of the Bribery Act, the corporate community should be ready for the worst. The FCPA compliance programs in the US do not offer protection from Bribery Act violations.
The FCPA and the Bribery Act vary in scope, jurisdiction, knowledge standards and compliance program directives. While the FCPA extends only to corrupt payments to public officials, the Bribery Act prevents the offer of an advantage to any person if it would induce or reward them to act improperly. As most US anti-corruption policies are limited to prohibiting dealings with public officials, these guidelines must be widened to include the private sector. The Bribery Act, unlike the FCPA, also includes penalties for those who receive the bribe, placing non-UK companies at risk for making and accepting bribes. In the US, commercial bribery legislation has historically been the province of the states. Compliance programs failing to address corporate officers, employees and agents accepting bribes will not satisfy the Bribery Act requirements.
The jurisdictional reach of the Bribery Act is also far broader than that of the FCPA. The FCPA applies to US and foreign companies listed on a US stock exchange and their officers, directors, employees and agents. The Bribery Act broadens that territorial reach to include acts committed by British residents, nationals and foreign companies that carry on business or part of a business in the UK regardless of where the offense was committed. So, for example, a US company that does business in the UK and commits a bribery offense in Nigeria may be subject to penalties under the Bribery Act.
Unfortunately, for those non-UK companies attempting to interpret the legislation, the Bribery Act does not define ‘doing business’ in the UK. Although the guidance from the UK Ministry of Justice (MoJ) has stated that a parent company is not doing business in the UK based solely on the presence of an independent acting UK subsidiary, the UK’s Serious Fraud Office (SFO) has stated it intends to interpret the Act broadly. This conflicting guidance has placed US companies trying to examine their business dealings and supply chains to determine whether the Act may apply at an extreme disadvantage.
US companies should take note of the Bribery Act’s silence as to whether there is successor liability for acquiring companies. Under the FCPA, an acquiring company can be liable for an acquiree’s pre-transaction conduct, and there are many examples of successor liability settlements with the Department of Justice. Clearly, it would be prudent to assume the UK will enforce consistently and non-UK acquirers should supplement M&A due diligence checklists to include analysis of Bribery Act compliance.
The Bribery Act has garnered attention for its making it a corporate offense to fail to prevent bribery. Under the Act, a company will be criminally liable if a person associated with it bribes another person intending to obtain or retain business or an advantage in the course of business and there are no adequate procedures in place designed to prevent bribery. This strict liability offense of corporate failure to prevent bribery has no FCPA equivalent. Instead, the FCPA requires that knowledge of the offense be shown.
One of the few defenses under the FCPA is an exemption for facilitation or ‘grease’ payments made to expedite a routine governmental action. There is no such exception under the Bribery Act and the MoJ’s guidance draws a distinction with the FCPA, describing this exemption as artificial and perpetuating the culture of bribery. This discrepancy between the FCPA and the Bribery Act should be promptly communicated to officers, employees and agents.
The Bribery Act can ascribe liability to a company following a single instance of bribery by an associated person, a term defined to potentially include any third party that performs services for or on behalf of the company. The Bribery Act does provide a full defense where the company can demonstrate that it had adequate procedures in place to prevent the bribery. The Guidance makes clear that there is no universal approach and the adequacy of the procedures depends on the risks the company faces as well as the nature, size and complexity of the business. Under the Bribery Act’s strict liability standard, an effective compliance program is a company’s only get out of jail free card.
Ultimately, the UK courts will be the final arbiter of the ambiguity-laden Bribery Act. In the interim, US companies will be watching to see whether the SFO uses its considerable prosecutorial discretion to assuage the anxiety of companies trying to stay competitive in the UK market or flexes its muscle to surpass the vigorous enforcement tactics employed under the FCPA.
Michael F. Perlis is a partner with Stroock & Stroock & Lavan in Los Angeles and a former assistant director of the Division Enforcement of the Securities and Exchange Commission. He assisted in the original drafting of the Federal Corrupt Practices Act. Wrenn E. Chais is Of Counsel at Stroock & Stroock & Lavan in Los Angeles, where she practices securities-related litigation.