Columnist

The fine line between bribery and corporate hospitality

Many of our clients are still not clear on what level of corporate hospitality is allowed under the Bribery Act 2010 (the Act) and what may be seen as bribery.

Reminder: what are the offences under the Act?

There are two general offences in the Act covering the offering, promising or giving of a bribe (section 1) and the requesting, agreeing to receive or accepting of a bribe (section 2). Section 6 creates an offence relating to bribery of a foreign public official, and section 7 creates a new form of corporate liability for a failure by a commercial organisation to prevent bribery.

What is the impact on corporate hospitality and gifts?

The impact of the Act on so-called ‘promotional expenses’ has raised concerns since its inception. This is because the offences in the Act are so widely drafted that, at first glance, it seems that providing and accepting many types of ‘promotional expense’ could be an offence. For example, it has been argued that taking a supplier to a sporting event or paying for transport and accommodation for a foreign public official on a trip to a factory during the process of obtaining a permit or licence could be an offence. The section 7 ‘failure to prevent bribery’ offence can mean liability for a commercial organisation if a person “associated” with it bribes another person to either obtain or retain business for it, or to obtain or retain an advantage in the conduct of business. The word “associated” can cover (but is not limited to) employees, agents and subsidiaries. It covers individuals and corporate entities (incorporated and unincorporated). This is potentially quite scary for businesses if they do not have adequate procedures and controls in place to stop bribery.

Defence and Government Guidance

The only defence is for the organisation in question to show that it had adequate procedures in place to prevent this conduct. The Ministry of Justice was required by section 9 of the Act to provide guidance on these ‘adequate procedures’, which it did in March 2011 (the Ministry of Justice Guidance).

The Serious Fraud Office and Director of Public Prosecutions on 30 March 2011 published joint guidance upon prosecutions under the Act, which also addressed concerns over hospitality and promotional expenditure (the Prosecution Guidance). One of the key points coming out of both pieces of guidance is that hospitality and promotional expenditure that is reasonable, proportionate and made in good faith is an established part of business, and the Act does not seek to penalize it. Another is that businesses must have clear, well communicated procedures in place regarding bribery. The Prosecution guidance, like the Ministry of Justice Guidance, states that lavish hospitality may point towards an offence being committed. The Prosecution Guidance adds that all the circumstances must be considered and adds that factors pointing to hospitality or gifts amounting to bribery could include that the hospitality or gifts were concealed, or were not clearly connected with legitimate business activity.

The Serious Fraud Office subsequently stated that it would prosecute a case if there was sufficient evidence and if it was in the public interest to do so. Where appropriate, it will also use its asset recovery powers under the Proceeds of Crime Act 2002.

What does the Guidance say about ’adequate procedures’?

The Ministry of Justice Guidance sets out six principles and detailed guidance upon these principles. This can be summarised as requirements for:

• clear, practical, accessible policies which are implemented and enforced;
• due diligence and risk assessment of business relationships especially those with ‘associated persons’ both at the beginning of the relationship and on an going basis;
• top level commitment (covering directors, owners and ‘any other equivalent body or person’) to preventing bribery; and
• communication of policies both internally and externally, and training upon procedures.
• When the Serious Fraud Office is considering whether any particular case of corporate expenditure appears to fall outside the bounds of reasonable and proportionate hospitality, it will be looking to see whether:
• the company has a clear issued policy regarding gifts and hospitality;
• the scale of the expenditure was within the policy and if not, whether special permission had been sought at a high level;
• the expenditure was proportionate;
• there is evidence that the expenditure was recorded by the company; and
• the recipient could receive the hospitality under the law of their country

Factors they will see as indicating a bribe include:

• any unjustifiable ‘add-ons’(for example, in relation to travel or accommodation); or
• the expenditure in question being potentially related to some actual or anticipated business with the recipient, particularly in a competitive context.

Practical steps to take

Commercial organisations (be they companies, LLPs, or unincorporated bodies) should take the following steps:

• put in place clear written policies prohibiting gifts, expenses or hospitality which might or could be seen to influence a contractual or material matter;
• issue internal guidance upon an upper limit for gifts, hospitality and/or expenses;
• communicate policies and procedures to employees, consultants, agents, distributors and suppliers.
• Ideally, document all gifts, hospitality and expenses in a register.

For more information and for guidance on how to ensure you are complying with the Bribery Act 2010 please contact Victoria Robertson at victoria.robertson@needlepartners.com

This was posted in Bdaily's Members' News section by The Needle Partnership .