Legislation introduced at the start of this decade sought to squash bribery and corruption. How well has it worked so far?

The UK’s legislation against bribery came into law at the start of this decade and is being scrutinised to see how well – or not – it works in stopping corruption. The legislation affects organisations even outside the shores of the UK, a fact that some firms might not fully appreciate. And of course a sector that is as affected by such laws as any other is wealth management. The editors are grateful to Neil Swift, partner at Peters & Peters, for taking a detailed look at the rules and the recent actions. The editors as always do not necessarily endorse all views of guest contributors and invite readers to respond. Email tom.burroughes@wealthbriefing.com

A little over seven years since it came into force, the Bribery Act 2010 is currently subject to scrutiny by a House of Lords Select Committee. Chaired by Lord Saville (who conducted the Bloody Sunday Inquiry), the committee has been gathering evidence on the impact of the Act. The committee received written evidence over the summer, before inviting oral evidence from members of the judiciary, law enforcement, NGOs, the legal profession, academics and industry.  What questions have been asked about the Act so far? 

Impact of the Act
The Act has undoubtedly had a significant impact. It was the first in the UK to adopt the novel ‘failure to prevent’ model, criminalising companies for failing to prevent the payment of bribes by persons associated with it. Companies can afford themselves a defence by having in place “adequate procedures designed to prevent associated persons paying bribes”.  

In its short life, the Bribery Act has been used either to prosecute or as a basis for reaching deferred prosecution agreements (1) in 13 cases. The earliest prosecutions under the Act were carried out by the CPS, following investigation by the police. The cases involved individuals, either accepting or offering bribes, where the evidence was entirely domestic.  

That the SFO took some time to dispose of its first case under the Act was to be expected. It takes a considerable length of time to discover, investigate (particularly where assistance is required from overseas) and prosecute substantial economic crime cases. The Act has now been used by the SFO in four cases against companies. Three of those were disposed of using a deferred prosecution agreement and one by a guilty plea, following an unsuccessful attempt to pursue a deferred prosecution agreement. The most significant disposal, albeit only partially for conduct criminalised by the Act, was that of Rolls Royce, who were ordered to pay £497.25 million ($635.5 million) plus interest and costs – a penalty to rival the sort imposed in cases brought by the US Department of Justice.  

For an Act designed to update the UK’s approach to dealing with very serious criminal conduct, the cases dealt with so far represent a respectable haul. However, perhaps the major success of the Bribery Act is how it focused companies’ attention on conducting a proper risk assessment and putting in place preventative measures to address the identified risks.  

Are all companies equally aware? 
Large multi-national companies are certainly aware of the scope of the Act and the guidance issued on adequate procedures. Understanding the risks posed to their business, the vast majority have put in place procedures designed to prevent bribery.  

Less likely to have either understood the scope of the Act or the potential liability it poses are small and medium sized enterprises. A 2015 Government study found that a third of SMEs surveyed had neither heard of the Act nor were they aware of the offence of failure to prevent bribery. A substantial number of those who were unaware exported to the Middle East, Asia, Africa and South and Central America – all comparatively risky parts of the world.   

Of those who were aware of the Act, just under three quarters were not aware of the Ministry of Justice’s guidance on adequate procedures. Only a quarter of those aware of the Act had sought any professional advice about the Act’s scope and impact and the procedures they should have.

In short, there are clearly many SMEs continuing with their ‘high-risk’ business, which are either unaware of the risk, unaware of the steps they should be taking to afford themselves a defence, or have not taken advice on the Act and the guidance. 

Adequate, reasonable, or neither? 
One of the areas under examination is the concept of “adequate procedures”. The committee has questioned how a jury can conclude that procedures were adequate if they failed to prevent bribery, the rationale being that if in a particular instance they failed, they were not adequate.

There is no guidance from decided cases. The issue of whether a company had adequate procedures has only been dealt with in one contested case: the prosecution by the CPS of a dormant company with no assets. In what was a questionable exercise of the requirement to prosecute only when in the public interest, it resulted in an absolute discharge and so will not be considered by the appellate courts.   

Other legislation (2) has subsequently adopted the same ‘failure to prevent’ model but has opted for a defence of “reasonable procedures” rather than “adequate procedures”. The committee is examining whether the former is preferable. As well as providing companies with consistency and certainty, the idea of reasonableness is one which is far more familiar to the criminal law, and one which juries are likely to find far easier to understand. It is perhaps telling that senior representatives of law enforcement agencies favour the status quo.  

The committee also questioned whether it would be preferable to adopt something similar to the US model of criminal liability for companies. Under US law, companies are criminally liable for the criminal acts of employees, committed in the scope of their employment, for at least the partial benefit of their employer. The problem with anything approaching this type of liability is the far greater role played by those who exercise prosecutorial discretion: if a company has no defence when its employee or agent pays a bribe, the prosecutor will decide which cases will result in punishment. For serious criminal conduct, that is not an attractive approach.  

Extension of failure to prevent – in the public interest? 
One of the main reasons for introducing the ‘failure to prevent’ model is the difficulty faced in prosecuting companies under English law. For all other economic crimes (3), it is necessary to have evidence of criminal liability by a member of senior management, such as the board of directors, in order to prosecute a company.  

The introduction of a general offence of failing to prevent economic crime is encouraged by many in law enforcement as it would make it far easier to prosecute companies. However, it lacks universal support. As well as the potential unfairness of criminalising a company for failing to prevent conduct of which it is a victim, it also gives rise to the question of where the public interest lies. Following the financial crisis, the public clamour was not for more prosecutions of companies (the burden of paying financial penalties falling on the shareholders at the time the penalty is imposed) but in holding senior individuals to account.  

In financial services, the introduction of the Senior Managers Regime goes some way towards this.  However, to hold directors criminally to account, prosecutors need evidence. That evidence might be obtained through cooperating defendants (culpable parties being offered a reduced sentence in return for providing evidence against their former colleagues) or by financially incentivising whistle-blowers to come forward to do the same. Both are potentially unpalatable, but perhaps a price worth paying? 

Footnotes:

1,  where a criminal case is commenced, but then suspended following judicial approval of a settlement including financial penalty and other sanctions against the company.
2,  The offence of failing to prevent the facilitation of tax evasion, contained in the Criminal Finances Act 2017.
3,  A different approach is taken in corporate manslaughter and health and safety cases.