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Case law: First conviction of UK business for ‘failing to prevent bribery’ offence

All business organisations and senior officers should ensure they have adequate procedures to prevent bribery by ‘associated persons’ on their behalf, or risk being criminally liable, after the first conviction for ‘failure to prevent bribery’.

Legal Alert

This update was published in Legal Alert - April 2016

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

Under UK anti-bribery laws, a commercial organisation can be criminally liable if it fails to prevent an ‘associated person’ from bribing another person, anywhere in the world, in order to obtain or retain business or a business advantage for the organisation.

Senior officers (such as directors) may also be criminally liable if the offence was committed with their consent or connivance.

Bribery is widely defined as “giving someone a financial or other advantage to encourage that person to perform their functions or activities improperly or to reward that person for having already done so”. An associated person is anyone who performs services for or on behalf of the organisation, for example, an employee, a subsidiary company, commercial agent, supplier, contractor or business partner in a joint venture.

The law therefore makes UK organisations potentially criminally liable for the activities of third parties who could be, for example, independent, working with the organisation on only one project or transaction, geographically remote and operating in a very different business culture.

However, the organisation has a defence if it has “adequate procedures” in place. This means they should have clear, easy to read, accessible, proportionate, risk-based anti-bribery and corruption procedures designed to stop employees, agents or others acting on its behalf, from committing bribery offences.

In a recent case, a holding company pleaded guilty to failing to prevent an associated person bribing on its behalf. Its wholly-owned Cypriot subsidiary (the ‘associated person’) bribed an overseas business person (without the holding company knowing) in order to win a major contract that was worth £1.6m to the subsidiary. It did this by making payments to him for consultancy services via sham companies.

The holding company later discovered the bribery and reported it to the Serious Fraud Office (one of the UK bodies responsible for enforcing UK bribery laws), and was fined £2.35m.

Whilst the holding company had an anti-bribery statement, an ethics policy and online training (all of which applied to the subsidiary), it admitted that these did not amount to ‘adequate procedures’.

The amount of the fine reflected the fact that the bribery had gone on for more than 18 months, and the holding company had failed to update its internal governance since the bribery laws came into force. There was also evidence of a failure to co-operate fully with the SFO investigation.

Also, a previous independent review of the subsidiary’s financial controls by accountants found they were unsatisfactory and needed urgent attention. A key finding was that it had failed to record its commercial reasons for using subcontractors and consultants and did not have sufficient policies or processes for engaging them. However, management had ‘wilfully ignored’ the results.

For what it was worth, the holding company had no previous convictions, had co-operated and made changes to prevent repetition of the offence.

Operative date

  • Now

Recommendations

  • Organisations and senior officers, no matter how large or small, should ensure they have adequate procedures in place to prevent bribery by ‘associated persons’ on their behalf, or risk being criminally liable for breach of UK bribery law

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.

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