Special thanks to Squire Sanders Manchester office and particularly trainee solicitor Philip Bonner for preparing the article below.
If recent press reports are to be believed, in particular those emanating from the Financial Times (“FT”), the British Government is considering whether to relax the current ban on facilitation payments for small and medium-sized enterprises (“SMEs)”. This as yet unconfirmed review of the Bribery Act 2010, which only came into force on 1 July 2011 and has yet to yield a prosecution of a commercial organisation, has understandably provoked much comment from both champions of the legislation on one side of the debate and the pro-business lobby on the other.
Roads to Success
The Government has yet to make an official comment on the story but it can be assumed the FT has some well-placed (and well informed) sources. Indeed the FT stated that the paper had seen documentation confirming that the review may be announced as early as this month. What appears to have been the major catalyst for the review, notwithstanding the concerns that have been raised by business groups both before and after the law was enacted two years ago, was a report by the House of Lords’ Select Committee on SMEs in February 2013.
The report in question, somewhat tellingly entitled “Roads to Success: SME Exports”, addressed whether SMEs had been disproportionately affected by the Bribery Act. The report called for an urgent scrutiny of the legislation, claiming that the application of the Bribery Act had been met with “confusion and uncertainty”. This was based on the concern that SMEs are anxious about the way in which the legislation would be interpreted, are unsure about what adequate procedures need to be put in place in order to avail themselves of the defence under the Bribery Act and (most importantly) that the legislation is restricting the trading opportunities for British businesses, putting them at a disadvantage in a fiercely competitive export market.
The evidence given to the Select Committee was clear in its tenor. A good example is the evidence from the Chairman of Alderley plc Tony Shepherd, who stated that “we are subject to a law that is much more severe than anywhere else in the world” and that the “existing Act is virtually impossible to operate”. On a similar note, the Institute of Directors described the Bribery Act as being a “counterproductive” measure that has a “significant impact” on members trading in the BRIC nations and in developing economies. There was no shortage of similar evidence from pro-business groups and SMEs, all of which painted the picture of overly burdensome regulation throttling British exports.
This led the Select Committee to note that whilst it “acknowledged the importance of high ethical standards being set” it felt that it was “not satisfactory to wait for elaborate court cases to define the workings of the Bribery Act 2010”. As a consequence, the report called for the Government to urgently review the legislation in light of its findings and the views of the business community.
The march of the makers
Following the publishing of the report in February of this year, it appears a meeting of the UK Government’s “Star Chamber” was held in March. This group is (amongst other things) tasked with implementing the UK Government’s “red tape challenge”, the aim of which is to decrease the regulatory burden on SMEs in the UK.
The review of the Bribery Act has to be viewed as part of the wider economic and political context. The UK Government, as part of its plan to boost the stuttering economy, has championed the potential of SMEs to help stimulate economic growth. In his March 2011 budget announcement, the Chancellor George Osborne painted a picture of Britain “carried aloft by the march of the makers”. As part of the wider rebalancing of the economy, it wanted the manufacturing industry and SMEs in general to increase British exports and help deliver a timely and much needed boost to UK plc.
This is where the Bribery Act becomes politically sensitive for the Government. The Government has set great store on removing unnecessary legislation from British business in a variety of areas, as part of its wider blitz on the somewhat vaguely defined (but much maligned) red tape.
How can the UK Government expect SMEs to become willing foot soldiers in George Osborne’s march of the makers if they are being impeded in export markets by the current anti-bribery legislation? As noted above, the evidence from SMEs and influential industry groups (such as the Confederation of British Industry) to the Select Committee made it clear that the very markets that the Government sees as providing real potential for exports, such as the BRIC nations and the so-called “Next Eleven”, are the markets where corruption is most common.
Whilst the precise scope of the review of the anti-bribery regime has yet to be confirmed, the FT report suggested that the review would focus on the current blanket prohibition on facilitation payments. Under the Bribery Act 2010, there are no exemptions or de minimis levels for making or receiving facilitation payments. An oft-cited contrast to the stance under the Bribery Act is the exemption contained in the US Foreign Corrupt Practices Act, which allows for small payments to be made to foreign officials to expedite or secure routine governmental actions such as issuing visas or allowing goods through customs.
Many British businesses have argued these so-called “grease” payments are a necessary evil and essential for doing business in certain markets. In light of the risk of prosecution under the Bribery Act, the Confederation of British Industry has claimed that many companies are shunning exporting to nations where corruption is rife and focusing on more developed markets. This has been exacerbated by some SMEs finding it difficult to create proportionate compliance programmes to allow them to rely on the adequate procedures defence under the legislation.
Going soft on corruption?
Unsurprisingly, the news of a potential review of the Bribery Act has attracted the ire of anti-bribery campaigners. They see this review as an attempt to undermine the legislation before it has had a chance to take effect. The Director of Transparency International Robert Barrington has stated that “a company does not pay a bribe in vacuum”, hinting at an unwillingness on the part of some businesses to alter deep-seated and long-used practices that no longer chime with the new, stricter regime.
Another interesting dynamic to this review is how uncomfortably it sits with the Serious Fraud Office’s (“SFO”) recently updated, unequivocal and uncompromising guidance on facilitation payments. The October 2012 Guidance is straight to the point, with the very first line stating that a “facilitation payment is a type of bribe and should be seen as such”. It goes on to state that facilitation payments were “illegal before the Bribery Act came into force and they are illegal under the Bribery Act, regardless of their size or frequency”. This Guidance also states that the SFO’s decision on whether to prosecute a corporate body will be determined in accordance with (amongst other things) the Bribery Act Prosecution Guidance, which was jointly published by the Director of the SFO and the Director of Public Prosecutions. The Bribery Act Prosecution Guidance states that whilst the public interest factors for and against prosecution might apply to facilitation payments, a prosecution will usually take place unless the public interest factors against prosecution outweigh those in favour. The SFO have yet to provide any comment on the issue since last week’s reports surfaced but they have reiterated that they have seven ongoing investigations into potential violations of the Bribery Act.
A further twist to the tale is what the Organisation for Economic Co-operation and Development (“OECD”) will make of all of this. A softening of the legislation, however slight, could damage Britain’s international reputation. It should not be forgotten that the Bribery Act was motivated in part by the stinging criticism of the OECD that the UK was weak on tackling corruption, which was fuelled by the “discontinuing” of the SFO’s probe into BAE Systems arms deal with Saudia Arabia on national security grounds in 2006, after an intervention by the then Attorney General Lord Goldsmith. The passing of the Bribery Act ensured the UK was fully compliant with the OECD’s Anti-Bribery Convention.
The review’s probable focus on facilitation payments is likely to be particularly jarring to the OECD given the changing of its stance on such payments in November 2009. Whilst it has always considered facilitation payments (even small ones) “corrosive”, in its November 2009 missive it advised signatories to its 1997 Anti-Bribery Convention to review their policies on facilitation payments to combat the phenomenon and raise awareness of domestic bribery laws with their public officials. With the passing of the Bribery Act, the UK was one of only seven countries that was classed as actively enforcing their legislative prohibition on facilitation payments in Transparency International’s July 2010 Progress Report on the Enforcement of the OECD Convention. Given that anti-corruption legislation commonly has ratchet effect, any softening of UK’s stance on facilitation payments would not go unnoticed.
Likely outcome of review
Given the various political and economic considerations for the UK Government, it will be interesting to see what the outcome of the review on facilitation payments will be. The first challenge the UK Government may face is ignoring the already growing clamour from some to widen the scope of the review and to also reconsider other aspects of the Bribery Act that some commercial organisations find unpalatable. The personal liability of directors for an act of bribery committed by their own company is a particular target.
However, as the report in the FT suggests, it is likely that the UK Government will seek to keep the review tightly focussed on facilitation payments. In addition, it would be extremely surprising if the ban on facilitation payments was lifted and if any exemptions or a de minimis level of payment was created given the hard line adopted in the SFO’s guidance on the issue or the OECD’s stance on facilitation payments since 2009.
The likely outcome of the review is more detailed guidance on facilitation payments, potentially aimed at SMEs in particular. This newly drafted guidance may address what compliance programmes are needed to utilise the adequate procedures defence. Presumably the focus will be on keeping any compliance programmes proportionate, given the UK Government’s agenda with regards to cutting regulation. Whether or not more guidance is required (or will deal with the concerns of SMEs) is another matter entirely. It should not be forgotten that the Ministry of Justice has already published Guidance on the Bribery Act 2010, rolled out awareness raising programmes and an online Business Anti-Corruption Portal has been created, which is specifically targeted at SMEs and has advice on sixty-two countries.
The precise wording of any new SME-specific guidance on facilitation payments will be interesting to see. Any guidance that appears to diverge from the SFO’s tough stance will no doubt attract the opprobrium of the OECD. What may become important is whose criticism the UK Government fears more, the OECD or the pro-business lobby? The exigencies for economic growth and the central role the UK Government wants SMEs to play in increasing exports may mean it is the latter.