Facing up to the challenges of the new UK Bribery Act

NEW LEGISLATION: David Lister is calling on the energy sector to be ready take proper account of the UK Bribery Act
NEW LEGISLATION: David Lister is calling on the energy sector to be ready take proper account of the UK Bribery Act
Opinion by Energy Voice

THE introduction of the Bribery Act 2010 on July 1 represented the biggest change to UK laws in respect of this area of business in generations.

With the legislation still in its infancy, companies – particularly those in the extraction industries and oil field services – continue to define and confront its considerations.

This article examines the issues that are beginning to arise from the act, as well as some of the current best practice thinking and guidance that has been provided by enforcement bodies. This guidance, while not statute, helps to set the legislation and its enforcement in context.

As companies operating in a sector characterised by complex business partnering arrangements, the act presents UK-based mid-tier oil and gas business and service providers with their own particular set of challenges.

In addition to ensuring compliance with the regulations in their own right, these businesses have to be mindful of their status as “associated persons” of their clients; broadly defined by section eight of the act as “a person or business that performs services for or on behalf of a relevant commercial organisation.”

Clients could include majors with mature compliance programmes and full awareness of the exposure, under section seven of the act for failing to prevent bribery by their associated persons. Such companies will avoid suppliers that cannot point to an adequate compliance standard, making it a competitive consideration.

Guidance issued by the Ministry of Justice addresses the associated persons relationship under three scenarios.

Our understanding of when a commercial organisation is responsible for the corrupt activities of third parties – that is, their associated persons – may be summarised as follows:

o Supply chain. A commercial organisation should put anti-bribery procedures in place in respect of its contractual counter-party and request the contractual counter-party to adopt a similar approach with the next party in the chain.

o Joint Venture (JV) operating through a separate legal entity. A commercial organisation which is the member of a JV should put anti-bribery procedures in place in respect of the JV, where it is performing services specifically for the commercial organisation and a bribe may be paid with the intention of directly benefiting the commercial organisation (as distinct from the JV as a whole, in both instances).

o JV operating through a contractual agreement. A commercial organisation which participates in such a venture should put anti-bribery procedures in place in respect of the JV where it has the requisite degree of control.

Facilitation payments is an area creating uncertainty among extractive industry businesses, particularly those operating overseas.

The act makes facilitation payments a criminal offence, but the authorities recognise their prevalence in emerging markets and views their reduction and eventual eradication as a long-term goal, despite the legislation requiring a short-term solution.

Richard Alderman, director of the Serious Fraud Office (SFO), said: “I do not expect facilitation payments to end the moment the Bribery Act comes into force.

“What I do expect, though, is for corporates that do not yet have a zero-tolerance approach to these payments to commit themselves to such an approach and to work on how to eliminate these payments over a period of time.”

When considering the activities of a company that continues to make small facilitation payments after July 1, enforcers have stated they will look for the following:

o Whether that company has issued a clear policy regarding such payments.

o Whether written guidance is available to relevant employees on the procedure they should follow when asked to make a payment.

o Whether such procedures are being followed by employees.

o If there is evidence that all such payments are being recorded by the company.

o If there is evidence that proper action (collective or otherwise) is being taken to inform the appropriate authorities in the countries concerned that such payments are being demanded.

o Whether the company is taking the practical steps it can to curtail the making of such payments.

Companies should have a defence against prosecution provided they answer these questions satisfactorily.

Until recently, there was a potential disparity between enforcement of the act in the rest of the UK when compared to Scotland.

The SFO, the enforcement body in England and Wales, advocated a process of self-reporting where a business became aware of wrongdoing. The model, similar to the one used in the US, allows, in theory, self-reporting businesses to bypass the full penalties of the criminal legislation.

July saw the Scottish Crown Office issue guidance confirming the trial of a self-reporting mechanism over a period of 12 months.

Broadly similar to the SFO and US model, the initiative allows companies to self-report incidents of bribery to the authorities with the possibility of obtaining leniency in terms of penalties.

Whether or not to report a concern that there has been a bribery offence will no doubt require careful consideration depending on the facts of the case, and businesses will have to consult their legal advisers.

The guidance states a report under this initiative should be made to the authorities by a solicitor acting on behalf of the business.

The minimum requirements for acceptance of a report are:

o The business has conducted a thorough investigation of the circumstances, which may include an assessment by forensic accountants.

The business must be willing to share any resulting report.

o It agrees to disclose the full extent of criminal conduct which has been discovered.

o It describes what has been done to prevent a repetition of this conduct.

o It is committed to dialogue with the Crown in their assessment of the case and any investigation.

* * *

THE introduction of the Bribery Act 2010 on July 1 represented the biggest change to UK laws in respect of this area of business in generations.

With the legislation still in its infancy, companies – particularly those in the extraction industries and oil field services – continue to define and confront its considerations.

This article examines the issues that are beginning to arise from the act, as well as some of the current best practice thinking and guidance that has been provided by enforcement bodies. This guidance, while not statute, helps to set the legislation and its enforcement in context.

As companies operating in a sector characterised by complex business partnering arrangements, the act presents UK-based mid-tier oil and gas business and service providers with their own particular set of challenges.

In addition to ensuring compliance with the regulations in their own right, these businesses have to be mindful of their status as “associated persons” of their clients; broadly defined by section eight of the act as “a person or business that performs services for or on behalf of a relevant commercial organisation.”

Clients could include majors with mature compliance programmes and full awareness of the exposure, under section seven of the act for failing to prevent bribery by their associated persons. Such companies will avoid suppliers that cannot point to an adequate compliance standard, making it a competitive consideration.

Guidance issued by the Ministry of Justice addresses the associated persons relationship under three scenarios.

Our understanding of when a commercial organisation is responsible for the corrupt activities of third parties – that is, their associated persons – may be summarised as follows:

o Supply chain. A commercial organisation should put anti-bribery procedures in place in respect of its contractual counter-party and request the contractual counter-party to adopt a similar approach with the next party in the chain.

o Joint Venture (JV) operating through a separate legal entity. A commercial organisation which is the member of a JV should put anti-bribery procedures in place in respect of the JV, where it is performing services specifically for the commercial organisation and a bribe may be paid with the intention of directly benefiting the commercial organisation (as distinct from the JV as a whole, in both instances).

o JV operating through a contractual agreement. A commercial organisation which participates in such a venture should put anti-bribery procedures in place in respect of the JV where it has the requisite degree of control.

Facilitation payments is an area creating uncertainty among extractive industry businesses, particularly those operating overseas.

The act makes facilitation payments a criminal offence, but the authorities recognise their prevalence in emerging markets and views their reduction and eventual eradication as a long-term goal, despite the legislation requiring a short-term solution.

Richard Alderman, director of the Serious Fraud Office (SFO), said: “I do not expect facilitation payments to end the moment the Bribery Act comes into force.

“What I do expect, though, is for corporates that do not yet have a zero-tolerance approach to these payments to commit themselves to such an approach and to work on how to eliminate these payments over a period of time.”

When considering the activities of a company that continues to make small facilitation payments after July 1, enforcers have stated they will look for the following:

o Whether that company has issued a clear policy regarding such payments.

o Whether written guidance is available to relevant employees on the procedure they should follow when asked to make a payment.

o Whether such procedures are being followed by employees.

o If there is evidence that all such payments are being recorded by the company.

o If there is evidence that proper action (collective or otherwise) is being taken to inform the appropriate authorities in the countries concerned that such payments are being demanded.

o Whether the company is taking the practical steps it can to curtail the making of such payments.

Companies should have a defence against prosecution provided they answer these questions satisfactorily.

Until recently, there was a potential disparity between enforcement of the act in the rest of the UK when compared to Scotland.

The SFO, the enforcement body in England and Wales, advocated a process of self-reporting where a business became aware of wrongdoing. The model, similar to the one used in the US, allows, in theory, self-reporting businesses to bypass the full penalties of the criminal legislation.

July saw the Scottish Crown Office issue guidance confirming the trial of a self-reporting mechanism over a period of 12 months.

Broadly similar to the SFO and US model, the initiative allows companies to self-report incidents of bribery to the authorities with the possibility of obtaining leniency in terms of penalties.

Whether or not to report a concern that there has been a bribery offence will no doubt require careful consideration depending on the facts of the case, and businesses will have to consult their legal advisers.

The guidance states a report under this initiative should be made to the authorities by a solicitor acting on behalf of the business.

The minimum requirements for acceptance of a report are:

o The business has conducted a thorough investigation of the circumstances, which may include an assessment by forensic accountants.

The business must be willing to share any resulting report.

o It agrees to disclose the full extent of criminal conduct which has been discovered.

o It describes what has been done to prevent a repetition of this conduct.

o It is committed to dialogue with the Crown in their assessment of the case and any investigation.

o David Lister is head of Fraud Investigation and Dispute Services (FIDS) at Ernst and Young, Scotland

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