UK Bribery Act Signals Rise in Anti-Corruption Clauses

International Law Update

Anti-corruption clauses in commercial contracts and other agreements have become commonplace in international transactions involving a US entity, due to the US Foreign Corrupt Practices Act (FCPA). Recently, the UK passed the Bribery Act, which is even broader in scope than the FCPA in a number of respects. With the Bribery Act expected to come into force in April 2011, we expect anti-corruption clauses to become even more widespread in international commercial contracts and other agreements.

Omani companies that carry out international business are already accustomed to seeing anti-corruption clauses in their contracts with US entities. With the passage of the Bribery Act, Omani companies can expect to also see anti-corruption clauses – and perhaps fuller-bodied ones – in their contracts with UK entities.

An anti-corruption clause could include the following wording:

The Contractor shall not:

(a) offer or agree to give any person working for or engaged by the Company any gift or other consideration, which could act as an inducement or a reward for any act or failure to act connected to this Agreement, or any other agreement between the Contractor and the Company, including its award to the Contractor and any of the rights and obligations contained within it; nor

(b) enter into this Agreement if it has knowledge that, in connection with it, any money has been, or will be, paid to any person working for or engaged by the Company by or for the Contractor, or that an agreement has been reached to that effect, unless details of any such arrangement have been disclosed in writing to the Company before execution of this Agreement.

The Bribery Act sets out four offences, namely:

1. offering, promising or giving a bribe to another person to perform improperly a relevant function or activity, or to reward a person for the improper performance of such a function or activity (an active offence);
2. requesting, agreeing to receive or accepting a bribe to perform a function or activity improperly (a passive offence);
3. bribing a foreign public official; and
4. failure of a commercial organisation to prevent bribery.

The Bribery Act applies to all commercial organisations that are registered in the UK or that have any operations in the UK. The Bribery Act also has extensive extra-territorial application – there are no territorial limits imposed in relation to the prosecution of UK companies, partnerships, citizens or residents, and non-UK persons can be prosecuted for offences of bribery where any part of the offence takes place in the UK.

The standards for determining bribery in relation to the first two offences listed above are based on what a reasonable person in the UK would expect in relation to the performance of the relevant function or activity. If such functions or activities are not subject to UK laws, local customs and practices will be disregarded when deciding what a reasonable person in the UK would expect unless such customs or practices are specifically permitted or required by the relevant local law. Unlike in the FCPA, there is no exception for small facilitation payments paid to officials to smooth official actions.

In relation to the offence of failing to prevent bribery, a commercial organisation will be guilty of this offence if it fails to prevent an “associated” person from bribing another person with the intention of obtaining business, or an advantage in the conduct of business, for that commercial organisation. This is a strict liability offence and applies to any UK-incorporated entity as well as to any company which carries on business in the UK.

A person is considered to be “associated” with a commercial organisation if that person performs services for or on behalf of that organization (e.g., employees, agents or subsidiaries). The associated person does not need to have any connection to the UK for its actions to be covered by the Bribery Act.

Under the Bribery Act, a commercial organisation would have a defence to prosecution if it can show that it has in place “adequate procedures” designed to prevent bribery. The practical effect of this new offence is that all businesses will be well advised to have (i) a clear and comprehensive anti-bribery policy; (ii) clear policies on corporate gifts and hospitality; (iii) regular training and updates for employees at all levels on anti-corruption measures; and (iv) anti-corruption clauses in all of their commercial contracts. These measures are likely to be critical for a commercial organisation seeking to use the “adequate procedures” defence, however, the actual measures will need to be tailored to each commercial organisation, taking into consideration the nature of the business, the size of the organisation and the degree to which it operates in high-risk markets.

The UK Ministry of Justice has recently published its consultation on the meaning of “adequate procedures,” which highlights six high-level general principles: risk assessment; top level commitment; due diligence; clear, practical and accessible policies and procedures; effective implementation; and monitoring and review. The Ministry of Justice has highlighted in the consultation that the guidance is not prescriptive or exhaustive and it envisages a risk-based compliance regime.