The Bribery Act – Six months on…

The Bribery Act 2010 (“the Act”) is now over six months old. Its introduction was met with universal acclaim by the prosecuting authorities and equal concern by those in the business community seeking to operate within this new legal landscape.

The Act had been one of the major achievements of the outgoing head of the Serious Fraud Office (“SFO”), Richard Alderman and already has its first prosecution under its belt. The offender convicted under the Act was an administrative clerk from Redbridge Magistrates Court. He was convicted of misconduct in public office for which he received a six year sentence to run concurrently with a three year sentence for bribery.  

In this article, fraud experts Mark Kenkre and Arun Chauhan discuss the Bribery Act, the current guidance offered by the SFO and the issues faced by businesses seeking to operate in this new regime. We’ve also included a real case study to highlight how bribery can affect businesses and the possible issues faced by businesses where bribery is discovered.

Why was the Act introduced?

Transparency International has recently issued the 2011 Bribe Payers Index. This ranks the likelihood of companies (in the 28 leading economies) paying bribes abroad to win business. They concluded that the perception of the frequency of foreign bribery by country and business sector have on average seen no improvement since the last Bribe Payers Index in 2008.

This report states that:

• Two in five business executives have been asked to pay a bribe when dealing with public institutions.

• Corruption raises project costs by 10%.

• One in five business executives claimed to have lost business because of bribes by a competitor.

The UK is behind the rest of the major economic powers in dealing with bribery. The last piece of legislation before the Act was the Prevention of Corruption Act 1916! The Act was therefore brought in to significantly impact upon the conduct of businesses both in the UK and beyond together with altering the perception of the UK to one of a global standard bearer in the fight against bribery.

Legislation

When the Act received Royal Assent its stated aims were to:

• Provide a more effective framework to combat bribery in the public and private sectors.

• Replace the fragmented and complex offences at common law and in the Prevention of Corruption Acts 1889-1916.

• Create two general offences covering the offering, promising or giving of an advantage and requesting, agreeing to receive or accept an advantage.

• Create a discrete offence of bribery of a public official.

• Create a new offence of failure by a commercial organisation to prevent a bribe being paid for or on its behalf.

• Help tackle the threat that bribery poses to economic progress and commercial development around the world.

The legislation that followed these objectives encompasses all of these aspects creating a legal framework that enables the prosecuting authorities to pursue criminal proceedings against companies and its directors. Part of the problem with cases prior to the Act was that the prosecution were unable to prove that a ‘directing mind’ was the senior management of the business. The Act removed this burden as the prosecution only has to prove a ‘failure to prevent’ bribery on behalf of the company.

Case Study: IKEA

Facts

• In 2007, two former IKEA staff and a supplier were found guilty of accepting/passing bribes of over £1.3m.

• The fraudsters set up a number of companies to supply goods to the UK operation of IKEA.

• IKEA operates a policy whereby it would not take more than 40% of any supplier’s turnover. This rule was designed to prevent suppliers being over reliant on IKEA’s business.

• In this instance, the entire turnover of these companies was with IKEA. The true position as to the turnover enjoyed by the supplier and the identity of the supplier was hidden through a web of companies.

• In order to ensure the payments went through and the ultimate identity of the supplier remained, hidden payments of £1,012,730 and £268,168 were made to two IKEA executives.

• The identity of the supplier and the payments were finally discovered as the supplier began to dictate what goods IKEA would order and in what quantities.

Breaches

• This case happened prior to the Act coming into force. These payments were hidden and were made/received without the knowledge of senior management within IKEA.

• Under the Act the suppliers owners would have committed an offence under section 1 of the Act and the two IKEA employees an offence under section 2 of the Act.

• These provisions relate to the giving and receiving of bribes.

• The supplier would also have committed a corporate offence under section 7 of the Act. This provision relates to the corporate offence of failing to prevent bribery.

• IKEA would have potentially committed an offence under section 7 of the Act.

Damages

• The owners of the suppliers could be liable for an unlimited fine with the directors potentially subject to a custodial sentence of up to ten years. IKEA, its directors and its former employees could find themselves in the same position.

• IKEA and the supplier would have the defence open to them that they had ‘adequate procedures’ in place. IKEA would have to show that it had looked at the risk posed to its business from bribery and put controls in place to limit the possibility of any such bribes taking place. This involves undertaking a risk assessment together with putting the necessary controls in place to identify any illegal payments being made or received.

• The greatest damage would be to the reputation of IKEA. There is also the possibility of being debarred from public contracts that the company may have in existence. This may not be of particular concern to IKEA, but other organisations who are reliant on public contracts could swiftly fold if they are found guilty of allowing bribery to take place in the workplace.

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