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Part Two: Bribery and White Collar Crime

Part Two: Bribery and White Collar Crime

In part one of this series on the emergence of white collar crime, we discussed the definition, prosecution and penalties for these offences and some of the most famous cases of fraud in recent years. In part two, we move on to discuss the significant changes brought in by the Bribery Act 2010 and the nature of corruption in large corporations. Stay tuned for part three in the next week, where we’ll be considering the impact of the Act on the legal industry and the future of corruption.

Corruption and the Bribery Act

The Bribery Act 2010 came into effect on 1 July 2011 and brought substantial changes to this area of law, arming prosecutors in the fight against corruption.

The Bribery Act overrules the old law, which required the prosecution to prove ‘corrupt’ intent.

Under the new legislation, individuals can be prosecuted for engaging in active or passive bribery or bribery of foreign public officials and for conspiracy to commit bribery or aiding bribery. The Bribery Act overrules the old law, which required the prosecution to prove ‘corrupt’ intent. This was notoriously difficult as there was no statutory definition and the guidance under common law was viewed as unhelpful. In addition, the Act introduced the new corporate offence of failing to prevent bribery. This is a strict liability offence which does not require proof of intent, knowledge or suspicion on the part of the company. However, a company can use the defence under the Act, that it had implemented adequate procedures to prevent bribery and the wrongdoer was essentially a rogue employee. It is also important to note that under the new Act a UK corporation will be liable if a person ‘associated with’ it bribes another. The term ‘associated with’ provides a tremendous inter-jurisdictional scope to the Act as it can include any company or person around the world (such as an employee, agent or subsidiary) who acts on behalf of the defendant corporation.

Jurisdiction

Historically, the US Foreign Corrupt Practices Act (FCPA) has been the main legislation dealing with inter-jurisdictional corruption. This has seen both the Serious Fraud Office (SFO) in the UK and the Department of Justice in the US work together on cross border investigations. Of course, companies’ compliance policies (which set out the principles by which the company operates) have grown more sophisticated over the years. However, with the emergence of the Bribery Act and its multi-jurisdictional scope, multinational businesses cannot assume that their policies, which have previously complied with the FCPA, will necessarily comply with the Bribery Act. As such, here are the main differences between the FCPA and the Bribery Act:

  • The FCPA applies only to bribery of foreign officials whilst the Bribery Act criminalises both public and private sector bribery.
  • The FCPA bribery offence requires knowledge to be proved on the part of the principal whilst the Bribery Act creates a strict liability offence.
  • Facilitation payments are permissible under the FCPA, but not under the Bribery Act.

‘Facilitation payments’ are the practice of making small payments to public officials as assurance that they will perform their duties or as a way of speeding the process. When the Bribery Act was passed, there was significant concern within the business world about its effect on corporate hospitality. However, the SFO has stated that there has been no change with regards to corporate hospitality. Such business practices are legal provided they are proportionate and seek to establish relationships or improve the image of the company. However, facilitation payments have always, and continue to be, illegal. The SFO withdrew its guidance on facilitation payments, which entailed a six-step plan that companies needed to follow in order to minimise the risk of corporate prosecution. The current position is for the SFO to decide whether it would be in the public interest to prosecute.

So where does one draw the line between corporate hospitality, bribery and facilitation payments? This would depend on several factors including: the culture and custom of the relevant jurisdiction, the industry practice and the reasonableness of the gifts. Past prosecutions under the FCPA provide an example of overly-generous corporate hospitality that was in effect sanctioned as facilitation payments or bribery. These include: a $12,000 birthday trip or $10,000 spent on wining, dining and entertaining one person.

The current position is for the SFO to decide whether it would be in the public interest to prosecute.

Self-reporting and whistle-blowing

Similarly, a change has been viewed with regards to self-reporting. Traditionally, self-reporting was believed to, almost inevitably, result in lesser penalties. The SFO encouraged self-reporting by providing an incentive for penalising the company involved through civil, rather than the far more damaging criminal, sanctions. This approach has been changed following recommendations. Currently, there is no automatic presumption that a person who reports themselves will escape prosecution or receive a reduced penalty. Nevertheless, the new SFO director, David Green QC, recognises that there needs to be more done to encourage self-reporting.

…the only way a culture of reporting can be created is by providing an incentive to whistle-blowers.

As there is no legal obligation to self-report bribery or corruption to the SFO, the only way a culture of reporting can be created is by providing an incentive to whistle-blowers. One way this could be done is by giving immunity to the whistle-blowing party, which is particularly popular in EU Competition law dealing with cartelism. Furthermore, under the Dodd-Frank Act in the US a whistle-blower is eligible to receive part of the settlement (referred to as a whistle-blower bounty payment). This is a provision which aggressively promotes a culture of reporting.

In addition, deferred prosecution agreements are expected to be introduced in the UK in late 2013. Such agreements have been particularly popular in the US since their inception in 1999. The prosecutor chooses not to pursue any charges provided certain conditions are met for a specific period. These conditions can include: a financial penalty, restitution to the victims, removal of rogue employees or the implementation of relevant policies. Its obvious benefits include the avoidance of criminal prosecution, and all ramifications arising from it, as well as avoidance of the penalty of automatic debarment from securing public procurement contracts.

Now we have examined the significant changes brought by the Bribery Act, in part three we will analyse its effect on the legal market and the latest industry trends.

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