The Bribery Act Adequate Procedures Susannah Cogman, Herbert Smith - - PowerPoint PPT Presentation

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The Bribery Act – Adequate Procedures

Susannah Cogman, Herbert Smith LLP February 2011

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The Bribery Act - Background

The Bribery Act 2010

• The Bribery Act will repeal the common law offence of bribery, the 1889,

1906 and 1916 Acts

• Structure of the Act:

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Offences of ‘active’ and ‘passive’ bribery

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Offence of bribing a foreign public official

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Corporate offence/failing to prevent bribery – committed by a company where a bribe is paid on its behalf

• Timing:

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September 2010: Consultation on adequate procedures guidance

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January 2011: Referral to Coalition Growth Review

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February 2011: Delay in implementation announced

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March 2011?: Publication of Adequate Procedures guidance

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June 2011?: Act brought into force

31797895

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The Bribery Act – Background

Active and Passive bribery offences

• Public and private sector
• Offering, promising or giving a “financial or other advantage”
• Intention that recipient perform a function “improperly”; reward for

improper performance; or receipt of advantage improper

• Improperly = in breach of expectation of good faith, impartiality or trust –

reasonable UK person Foreign Public Officials offence

• Offering, promising or giving a “financial or other advantage”
• Intending to influence – but no need that influence be improper
• Intending to obtain business or a business advantage

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The Bribery Act – Background

The Corporate Offence

• Applies to a company or partnership (“C”) incorporated/formed in the

UK or which carries on a business or part of a business in the UK

• Offence committed if:

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someone who performs services on behalf of C

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bribes another person

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intending to obtain or retain a business advantage for C

• Defence for C to show that there were “adequate procedures” in place

designed to prevent such persons from paying bribes

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Importance of adequate procedures

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Statutory guidance – section 9

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The Bribery Act – Key issues

Key issues for companies

• Geographical coverage
• (In some circumstances) Liability for acts of business partners
• (In some circumstances) Liability for acts of subsidiaries
• Gifts, hospitality and contractual expenditure – particularly in relation to

public officials

• Facilitation payments
• Lack of clarity in relation to ‘adequate procedures’

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The Bribery Act – FCPA comparison

FCPA Bribery Act Public Sector Public and private sectors Definition of public official Narrower definition of public official Permits reasonable and bona fide expenditure Advantages to foreign public

• fficials to obtain or retain business

prohibited Parent liability in relation to acts of subsidiaries Subsidiaries/Joint venture coverage more limited – performing services test Permits expenditure for routine governmental actions Prohibits facilitation payments

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Bribery Act – Geographical scope

UK company PRC operations PRC subsidiary Country X sub

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Bribery Act – Geographical scope

PRC company UK operations UK subsidiary Country X subsidiary

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The Bribery Act – Adequate Procedures

‘Adequate Procedures’ guidance

• Legal status of guidance
• (Current draft) Content:

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Principle 1: Risk assessment

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Principle 2: Top level commitment

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Principle 3: Due diligence

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Principle 4: Clear, practical and accessible policies and procedures

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Principle 5: Effective implementation

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Principle 6: Monitoring and review

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General guidance on the Act

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Case studies

• Other guidance

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The Principles: Risk assessment

Principle 1 of the draft ‘Adequate Procedures’ Guidance: "The commercial organisation regularly and comprehensively assesses the nature and extent of the risks relating to bribery to which it is exposed". Some issues to consider:

• What does “regularly” mean?
• Who undertakes the review?
• How far do you extend the review – scope issues under the Bribery Act
• How will you gather information?
• What will your risk assessment ‘look’ like?
• Resourcing? “… will need to ensure that it is devoting sufficient

resources to the assessment and mitigation of bribery risks …"

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Risk assessment – external risk factors

What information will you gather?

• External risk factors

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Country, transaction and partnership risks, i.e. where, what type and with whom you do business

• Jurisdictional risk
• Value of business opportunities
• Public sector interactions/contracting? Licences, permits etc?
• Offset requirements?
• Lobbying? Political and/or charitable donations?
• Cross-border transit of goods or people?
• High risk industry sectors?
• M&A activity (planned or historic)? Joint ventures?

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Third party business partners

• Identify and devise appropriate risk categorisation
• Procurement/supply chain
• New versus existing relationships – should you/can you revisit current arrangements

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Risk assessment – internal risk factors

What information will you gather (cont.)?

• Internal risk factors

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Deficiencies in employee knowledge and training

• What training currently exists; who receives it; how frequently;

content of training

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Remuneration structures (staff and also agents/intermediaries)

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Recruitment / vetting

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Appraisals / disciplinary

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The Principles: Top Level Commitment

Principle 2 of the draft Guidance: “The top level management of a commercial organisation (be it a board of directors, the owners or any other equivalent body or person) are committed to preventing bribery. They establish a culture within the organisation in which bribery is never acceptable. They take steps to ensure that the organisation’s policy to operate without bribery is clearly communicated to all levels of management, the workforce and any relevant external actors".

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Top Level Commitment

• Some issues to consider:

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Apportionment of responsibility

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‘Item on the agenda’

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Management information

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Training

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How is the company’s policy “communicated to…any relevant external actors”? Who is “relevant”?

• Formal adoption of risk assessment and/or planned anti-corruption

programme?

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Do controls track the identified risks?

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Where improvements are needed, have you set realistic goals?

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Procedures for review/updating

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The Principles: Due diligence

Principle 3 of the draft Guidance: “The commercial organisation has due diligence policies and procedures which cover all parties to a business relationship, including the organisation’s supply chain, agents and intermediaries, all forms of joint venture and similar relationships, and all markets in which the commercial organisation does business”

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Due diligence and third parties

Third party business partners

• Risk assessment
• Appointment
• Due diligence
• Compliance information?
• Press searches/review of independent information?
• Use of third party vetting organisations?
• Investigate and resolve red flags!
• (Recording) justification for appointment
• Method of remuneration
• Justification for remuneration
• Approval – who and when; what training has been provided?

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Due diligence and third parties

Third party business partners (cont.)

• Typical contractual provisions

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Scope of services

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Payment mechanics

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Representations and warranties – corrupt acts; investigations; public

• fficials; customer links; anti-corruption policies?

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Undertakings not to bribe – consider scope of prohibition and extension to associated parties

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Due diligence and third parties

Third party business partners (cont.)

• Typical contractual provisions (cont.)

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Right to train?

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Compliance with the company’s ethics or ABC policy?

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Monitoring

• Right to call for information
• Audit rights?
• Investigation rights?

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Termination

• Exercising contractual rights

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Due diligence and third parties

Third party business partners (cont.)

• Approval of payment of commission;

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What documentation will be required before commission is payable?

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Who will approve payments? Interaction with AML/fraud controls?

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Bespoke procedures e.g. escrow accounts?

• How will you monitor the activities of the third party?
• What (if any) management information will be generated?
• Renewal

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The Principles: Policies and Procedures

Principle 4 of the draft Guidance: “The commercial organisation’s policies and procedures to prevent bribery being committed on its behalf are clear, practical, accessible and enforceable. Policies and procedures take into account the roles of the whole work force from the owners or board of directors to all employees, and all people and entities over which the commercial

• rganisation has control”.

Principle 5 of the draft Guidance: “The commercial organisation effectively implements its anti- bribery policies and procedures and ensures they are embedded throughout the organisation. This process ensures that the development of policies and procedures reflects the practical business issues that an organisation’s management and workforce fact when seeking to conduct business without bribery”

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Policies and Procedures – anti-bribery

Ethics policy / manual / anti-bribery policy

• Accessibility and scope

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Communication to “all people and entity… over whom the company has control”. What does this mean in practice?

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Publication?

• Code of Conduct? Detailed policy? Accompanying guidance?
• Annual certification process?

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Policies and Procedures – anti-bribery

Ethics policy / manual / anti-bribery policy

• Some issues to consider in policy design:

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Scope of prohibition

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Non-technical language – use of examples?

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Facilitation payments

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Sources of guidance / support

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Disciplinary sanctions and whistleblowing

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Supporting policies/procedures. Draft guidance specifically references: "guidance on making, directly or indirectly, political and charitable contributions, gifts, and appropriate levels and manner of provision

• f bona fide hospitality or promotional expenses to ensure that the

purposes of such expenditure are ethically sound and transparent".

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Policies and Procedures – gifts and

hospitality

Gifts and hospitality

• When might a gift or act of hospitality be considered to be corrupt?

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Foreign Public Official (FPO) recipients (s.6):

• Financial or other advantage
• Intention to influence FPO; or
• Intention to obtain or retain advantage in the conduct of business

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All recipients (s.1):

• Financial or other advantage
• Intention to induce recipient to/reward them for acting improperly; or
• Knowledge that acceptance of advantage would itself constitute

improper performance

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Policies and Procedures – gifts and

hospitality

Gifts and hospitality (cont’d)

• Some issues to consider in policy design:

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Fixed limits or 'principles'?

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Specific prohibitions?

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Specific exemptions?

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Global or local limits?

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Separate public and private limits?

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Separate inward and outward limits?

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Policies and Procedures – gifts and

hospitality

Gifts and hospitality (cont’d):

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Aggregation issues

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Approval controls

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Register?

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Receipt of non-conforming gifts

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Local law advice?

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Per diems and sponsored travel?

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Other budgets?

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Internships

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Policies and Procedures – facilitation payments

Facilitation payments

• Issues under the Act:

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Section 1: Acceptance of advantage would constitute improper performance of a relevant function

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Section 6: Advantage to public officials with intention to influence and obtain a business advantage

• Policy wording options
• Training
• Other (suggested) measures (see TI) eg

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Specific training for high risk employees in negotiation skills to resist demands

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Flash cards or leaflets in local language

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Build time into projects to allow for delay at customs etc

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Prohibition on reimbursement

• Monitoring and reporting? Collective action?

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Policies and Procedures – supporting

policies

Political and charitable donations

• Political donations

° What are the risks? ° What procedures will mitigate those risks? ° "Foreign" public officials

• Charitable donations

° What are the risks? ° What procedures will mitigate those risks?

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Policies and Procedures – supporting

policies

Other systems and controls to be considered/implemented

• Whistleblowing
• Clear procedures to ensure prompt reporting of, and obtaining

guidance in relation to, questionable conduct

• Interaction with Suspicious Activity Reporting (money laundering

regime)

• Investigations
• Disciplinary
• Internal and/or external audit/review (see Principle 6)
• Publication of findings?

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The Principles: Monitoring and review

Principle 6 of the draft Guidance: “The commercial organisation institutes monitoring and review mechanisms to ensure compliance with relevant policies and procedures and identifies any issues as they arise. The organisation implements improvements where appropriate”

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Monitoring and review

The role of internal audit/compliance/legal

• Risk based
• Procedures to focus on both the form and substance of the operation of

ABC policies

• Training for reviewers? Independence of review?
• Triggers for review: incidents; red flags; change in business

methodology; changes in TI perceptions index; changes of laws; annual bi/annual cycle?

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Monitoring and review

What could a review entail?

• Checks on higher risk third party payments to ensure relevant approvals
• btained and adequate justification to pay
• Independent checking of compliance's (or equivalent) role
• Interviews of key staff and business partners
• Review of whistleblowing reports and how dealt with
• Review of gifts and hospitality registers
• Re-assessment of risks - business risks; jurisdictional risks; legal risk
• Review of training programmes - completeness and effectiveness
• Review of third parties procedures/records
• Audit work on cash and banking activities e.g. examine access to bank

accounts to ensure adequately restricted; processes for making payments, including petty cash, employee advances and other cash equivalents

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Monitoring and review

What could a review entail (cont’d)?

• Perform work on general ledger to ensure manual journal entries are

valid, authorised and consistent with policy; review suspense accounts and why they exist

• Review inter-company transactions to ensure they were accurately

recorded, authorised and consistent with policy Work product?

• Reporting on the results of any audit to appropriate management
• Key MI for senior management (ongoing)?
• Lessons learned from any incident; how were the policies and

procedures by-passed or lacking

• Contract reviews?

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• ffices

Herbert Smith LLP, Gleiss Lutz and Stibbe are three independent firms which have a formal alliance