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Bribery Act leaves FDs scratching their heads

The dictum made popular by free market economist Milton Friedman that there is no such thing as a free lunch never seemed so prescient. Finance directors would do well to remember that old adage as the new UK Bribery Act comes into force.

But with only two months until it is implemented, there remains much head scratching among FDs and their lawyers about some key areas of the Act. It remains unclear what actually constitutes a bribe and, if a bribe is made or received by an employee, what constitutes having “adequate procedures” in place to prevent an act of bribery taking place.

Some see the dividing line at, for example, corporate hospitality events – where no business talk is expected to be held: the event is purely for enjoyment.

“The fallacy is: what actually constitutes a bribe?” Andy Blackstone, FD at advertising agency M&C Saatchi tells Financial Director. “If I take a client to the cricket, that is okay because we are able to talk, but if I took them to a tennis match, that is not acceptable because we are unable to talk.”

The Act makes an offence of both the act of bribery itself as well as the new corporate offence of failing to prevent any act of bribery being carried out by a company’s employees or associated persons – which includes agents, distributors and subsidiary companies that may be outside of the parent’s control.

However, the same Act turns a wide range of practices that might currently be seen as acceptable “schmoozing” into criminal offences – such as corporate hospitality, which could include a trip to the recent Ashes series in Australia – and punishable with a 10-year jail term, and leaving companies on the hook for unlimited fines.

Taking advantage

A bribe may take any form and is referred to in the Act as a “financial or other advantage”. The offence of bribery is very widely drafted and applies to both the public and private sector. It is not limited to the actual giving or receiving of a bribe – to “offer, promise, request or receive” a bribe may also contravene the Act.

Concern has been expressed that the Act is so widely drafted it has the potential to criminalise conduct that was previously not viewed as criminal. How this will affect a chairman inviting one of their non-executive directors for a lunch to discuss a delicate board matter, or HM Revenue & Customs boss Dave Hartnett accepting an invitation to dinner with BT – one of many such invitations he received in 2009, according to data from the Bureau of Investigative Journalism – is not clear.

“The definition of bribery is too uncertain on what is caught by it and what is not, on what is reasonable and what is not,” the FD of a housing association who prefers to remain anonymous tells Financial Director.

Laurie Anstis, associate in the employment team at law firm Boyes Turner, says: “The statute doesn’t define corporate hospitality one way or the other. It is too widely defined, but I can understand why the government has done that – it wouldn’t want to give a precise definition that lawyers can get round.”

 

 

In a letter to the House of Lords on corporate hospitality sent in January last year, Lord Tunnicliffe, government spokesperson for the Ministry of Justice, recognised that corporate hospitality is an accepted part of modern business practice, adding that the government would not seek to penalise expenditure on corporate hospitality for legitimate commercial purposes. But lavish corporate hospitality can also be used as a bribe to secure advantages, and the offences in the Act must therefore be capable of penalising those who use it to that end. However, there is as little guidance around what constitutes “reasonable” as there is around what constitutes “lavish”.

“Say we do a day out to watch the cricket in summer. That is okay, but if I bought you a Cartier watch, you move into a grey area. Gifts and entertainment are a grey area that is difficult to quantify and monitor,” says Neill Blundell, head of law firm Eversheds’ fraud group. “If I took you to The Ivy, would a £200 or £1,000 bottle of champagne be seen as inducing a bribe?”

A “normal” business lunch is unlikely to be seen as a bribe, but lavish hospitality, such as a weekend away at an exclusive sporting event, could land executives in hot water. In some cases, though, it is hard to define what is proportionate if personal interpretation is the key.

And the perception of what is lavish could be very different from the reality. For instance, holding an event in the UK for UK residents would be seen as reasonable while holding an event abroad and paying for those individuals to travel to it could be viewed as lavish – and therefore a bribe.

“I have found that it can be cheaper to host a corporate hospitality event abroad during off-season than holding it in the UK,” one FD tells Financial Director. “But the perception is that the mere fact you have gone abroad means that it becomes ‘lavish’.”

In need of guidance

Should a company fall foul of the Act, it must prove it has “adequate procedures” in place to ensure employees, intermediaries, subcontractors, agents and suppliers are committed to anti-bribery measures. What constitutes “adequate procedures” is still not clear, though final guidance is due to be issued shortly.

“The issue is that the government has not made the final announcement – that is the nightmare for FDs,” says Blackstone at M&C Saatchi. “FDs are heading into our busiest quarter and we have not got that final piece.”

Blackstone should not hold his breath hoping for any succour in this area. Most lawyers do not expect any real changes to the draft guidance issued by the Ministry of Justice last year (see box).

“It would be nice for there to be some clarification about what is meant by corporate hospitality and what is meant by adequate controls, but I don’t expect any changes,” says Anstis. “Although businesses are not happy with the uncertainty, I don’t think the government is bothered.”

FDs are screaming out for guidance on the guidance which, rather than being prescriptive, is principles-based and provides six illustrations of good bribery-prevention practice. Even after the Act comes into force, many FDs will simply have to feel their way when considering how well protected their company is.

“We don’t know what is adequate and the government has not told us,” says Blackstone. “We won’t know until there is case law. It is a bit hard to put procedures in place if you don’t know what they are.”

And it is not only FDs who are struggling without the final guidance. Even the experts are at a loss.

“From our perspective, it is difficult to give definitive advice without final guidance and the benefit of case law. That is the only way to provide a benchmark for companies to measure what constitutes adequate procedures,” says Anstis.

For now, everyone is looking at the draft guidance. “The guidance is far from perfect but it gives a lot to go on what is expected,” Anstis adds. “Companies need to adopt a pragmatic approach. The draft guidance is a very good starting point. There is an awful lot companies can be doing.”

This should include a comprehensive review of the corruption risks the business is exposed to, along with a review of the anti-corruption policies the company has in place and the introduction of an anti-corruption culture within the organisation.

In the case of these new bribery laws, ignorance certainly is not bliss.

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