What does the Bribery Act 2010 mean for the Construction Sector?
The Bribery Act 2010
The Bribery Act 2010 ("the Act") establishes four types of offence. The first three offences can be committed by either a company or an individual, whilst the fourth offence can only be committed by a company. The offences are:
- Bribing another person;
- Being bribed;
- Bribing a foreign public official; and
- Failure by a commercial organisation to prevent bribery ("the corporate offence").
Unlike the old bribery offences, the new offences do not rely upon the establishment of a particular relationship – instead they revolve around the concept of improper conduct. Offences 1 and 2 are based upon the idea that an advantage is offered or accepted, with the intention that some function or activity is performed improperly. Offence 3 arises when an advantage is promised or offered to a foreign public official, combined with an intent to influence that official in order to obtain or retain business. Offence 4 arises when a commercial organisation fails to prevent offences 1-3 being committed by a person it is associated with.
A "commercial organisation" includes UK incorporated companies and UK formed partnerships, as well as companies and partnerships, wherever incorporated or formed, which carry on business (or part of a business) in the UK.
The corporate offence
The offence which will be of most significance to the construction industry is the corporate offence, due to the catch-all nature of the drafting of the legislation. The offence is one of strict liability and can be broken down into three components:
- a person associated with a commercial organisation;
- is or would be guilty of offences 1 or 3 (bribing another person or a foreign public official); and
- this bribery was carried out in order to obtain or retain an advantage for the organisation concerned.
The definition and significance of the concept of "associated person" are explored below in the context of issues specific to the construction and infrastructure industry.
There is some good news in the form of a defence to the corporate offence – that of "adequate procedures". A defence is available to commercial organisations if they can show that they had "adequate procedures" in place to prevent bribery taking place. Following a series of consultations the Government has now issued guidance as to what constitutes "adequate procedures" ("Adequate Procedures Guidance"). The Adequate Procedures Guidance also gives further information on the interpretation of the corporate offence.
The Adequate Procedures Guidance provides some helpful case studies but is mainly structured around six principles for bribery prevention, which are as follows:
- Proportionate procedures – the procedures an organisation should take must be proportionate to the risks they face;
- Top level commitment – top level management must make certain that they can demonstrate engagement with bribery issues and ensure that staff and those they do business with understand bribery is never acceptable;
- Risk assessment – organisations are required to make periodic assessments of the nature and extent of their exposure to internal and external risks of bribery;
- Due diligence – it is recommended that organisations undertake a proportionate and risk based approach to due diligence in respect of people who will perform services for and on behalf of the organisation;
- Communication (including training) – internal and external communication of bribery policies and procedures is recommended in order to seek to deter bribery. Training should be used to raise awareness about the threats posed by bribery; and
- Monitoring and review – an organisation should monitor the effectiveness of procedures put in place and make improvements where necessary.
Issues specific to the construction and infrastructure industry
1. Breadth of drafting
The expansive drafting of the Act poses particular problems for the construction and infrastructure industry for two main reasons – firstly because of the complexity of the web of relationships which make up the average construction project (including joint ventures and consortia), and secondly because construction and infrastructure clients often have overseas operations.
The complexity of relationships in construction/infrastructure projects is an issue because of the wide definition of "associated person" in relation to the corporate offence. The Act simply defines an "associated person" as someone who performs services for a commercial organisation. When put into practice, this means that the definition of associated person is so wide that it could include an agent, any other members of a consortium, joint venture partners or sub-contractors. There is not even any requirement for a contractual relationship to be in place – each case will turn on the specific facts.
Ambiguity over how the "associated person" will be interpreted has been somewhat lessened by the Adequate Procedures Guidance, which provides some useful practical examples. These include:
- where a project involves a prime contractor with a series of sub-contractors, the Adequate Procedures Guidance suggests that if an organisation adopts adequate anti-bribery procedures itself, requests that its counterparty does the same and also that the counterparty pass this on down the line of relationships, this is likely to minimise the chances of falling foul of the Act;
- in the case of a joint venture operating through a separate legal entity, liability is likely to depend upon whether the joint venture is performing services for a particular member and whether the bribe is intended to benefit that member; and
- where a joint venture is conducted through contractual arrangement, the degree of control of each participant will be relevant and bribes committed by agents of one participant are unlikely to be attributed to other participants without further evidence that there was an intention to benefit the joint venture as a whole.
Nevertheless, organisations in the construction and infrastructure industry should remain careful when entering new business relationships. A case concerning a major UK based construction and infrastructure company with global operations provides a cautionary tale, when in 2008 they had to take responsibility for the "payment irregularities" of a subsidiary in a joint venture with an Egyptian company. Despite having self reported these irregularities, the company in question had to pay £2.25 million under a Civil Recovery Order. Although the company in question was pursued by the SFO under different legislation to that under discussion, it demonstrates the dangers companies can face through associated entities – and the necessity for thorough due diligence and continuous monitoring.
The Act has a far-reaching extra-territorial scope. There are two broad categories of companies (and partnerships) that are potentially open to be pursued for the corporate offence:
- Type 1 – a body which is incorporated in the UK and carries on a business (whether there or anywhere else in the world); and
- Type 2 – any body corporate (wherever incorporated) which carries on any part of its business anywhere in the UK.
In relation to Type 1 companies, given the fact that developers and contractors often have overseas operations, and that this trend looks set to increase as a consequence of the economic slowdown – with many companies looking for new opportunities in emerging areas such as Africa and China where corruption may be more widespread – it looks like companies are going to have to dedicate serious time and resources to ensure adequate procedures are in place to minimise the risk of non compliance with the Act.
In relation to Type 2 companies, the Adequate Procedures Guidance provides some clarification on the issue of when a body incorporated outside the UK can be regarded as carrying on business in the UK. In general, we are told a commonsense approach will be applied, and organisations without a demonstrable presence in the UK will not be caught. Specifically, we are told that neither the fact that a company’s securities have been admitted to the UK Listing Authority’s Official List nor having a UK subsidiary will in themselves mean that a company is carrying on a business in the UK.
2. EU Public Procurement Directive
The 2004 EU Procurement Rules (and implementing legislation) effectively mean that where a director of a company or certain other representatives have been convicted of bribery offences 1-3, that company can be perpetually debarred from tendering for EU public contracts.
It is currently still unclear whether being found guilty of the corporate offence will also have this effect – some have questioned whether this would be proportionate given that the corporate offence is more akin to negligence than corruption. The point is still under consideration by the government but the Justice Secretary Kenneth Clarke has indicated in the House of Commons that:
"The Government have also decided that a conviction of a commercial organisation under section 7 of the Act in respect of a failure to prevent bribery will attract discretionary rather than mandatory exclusion from public procurement under the UK's implementation of the EU Procurement Directive (Directive 2004/18). The relevant regulations will be amended to reflect this."
What is clear is that if it is decided that failure by a commercial organisation to prevent bribery does trigger debarment, "adequate procedures" will assume even more importance given the potential for construction clients to be permanently cut off from the revenue streams provided by public contracts throughout the EU.
3. Foreign Corrupt Practices Act ("FCPA")
It is important for international construction clients who may be used to operating in compliance with bribery legislation from the USA (the FCPA) to note that there are significant differences to the new UK Act.
The first difference between the FCPA and the Act which has been much commented upon is the carve-out contained in the FCPA in relation to "facilitation" or "grease" payments. These are payments made to foreign officials to expedite routine government business within that foreign jurisdiction. Whilst much has been made of this difference, it should be noted that in practice the effects of the FCPA carve-out are fairly narrow as the key wording ("routine governmental action") means that facilitation payments are not allowed in relation to decisions about awarding new business or continuing existing dealings. Nevertheless, some international operators who may be set up to function in accordance with the American carve-outs could be caught out by the fact that no such exemptions exist in the UK Act.
Whilst the general attitude towards facilitation payments is one of zero-tolerance, the Adequate Procedures Guidance highlights that a prosecutor will have discretion in deciding whether it is in the public interest to pursue a particular prosecution. Whilst a company should have a general policy of probationary facility payment there may be a defence where a payment is made to protect against loss of life, limb or liberty.
The second difference to be noted is that whilst the FCPA is concerned only with the bribery of government officials, the Act makes no such distinctions and will apply to both public and private sector bribery.
4. Corporate hospitality and gifts
The hazy issue of where the line can be drawn between acceptable and unacceptable corporate hospitality and gifts is not one specific to the construction industry, but it is still one the industry needs to be aware of. The Adequate Procedures Guidance states that the Government does not intend for bona fide hospitality and promotional expenditure to be caught by the Act. The pivotal factor when seeking to determine whether hospitality or gifts will constitute bribery appears to be the specific circumstances in which they are provided. Circumstances which will be taken into account include level of expenditure, norms and standards in a particular industry and whether the expenditure is a matter of routine business courtesy.
What can Taylor Wessing do?
- Advise on adequate procedures including preparing an anti-corruption policy for your organisation (typically as part of a wider ethics policy).
- Advise on appropriate due diligence when establishing new relationships with intermediaries and agents for whose acts your business will be responsible and how to monitor those agents.
- A corruption "red-flag" review as part of a due diligence on business acquisitions.
- Investigate potential corruption incidents and advise on appropriate steps to be taken including possible self-reporting to government authorities.
Lawyers Laurence Cobb, Brad Fearn
