Jury still out as bribery law is poised for UK crackdown

With the Serious Fraud Office believed to be contemplating a spate of prosecutions under the Bribery Act, how is this new legislation viewed by its supporters and detractors? Michael Dempsey finds out

The Bribery Act has been live on the UK statute books for just over two years. This contentious piece of legislation sprang out of years of lobbying by pressure groups concerned about fraud and corruption.

But it also provoked fierce criticism over the vague wording of its provisions and its apparent failure to take the reality of international business into consideration. With corrupt conduct in global trade as its prime target, the Act attracts wide-ranging attention.

Robert Rhodes, QC, has just returned from a trip to China that saw him lecturing to lawyers in Beijing and Shanghai. The Bribery Act was high on the agenda, with the Chinese viewing its rigorous provisions “with a certain degree of surprise”, according to Mr Rhodes.

Among the more divisive aspects of the Act is a new corporate offence of failing to prevent bribery by the staff of subsidiaries or partner companies. When these third parties are operating on a different continent, how are managers to know that everyone is obeying the letter of a UK law?

The Act stipulates that every company must have “adequate procedures” in place to deter corruption, but that very phrase fast became notorious as lawyers scrambled to define exactly what it meant.

Official guidance issued by the Ministry of Justice was supposed to enlighten all interested parties, but this has failed to impress lawyers. Speaking in 2011, former Attorney General Lord Goldsmith admitted that the initial attempts to reassure business about the Act had not been helpful. Nothing that has happened in the two years since seems to have improved on this.

Mr Rhodes declares flatly that “people don’t regard the guidance as very useful”. The law relies on a flow of judgment and interpretations, and there is palpable frustration among civil lawyers that this has yet to emerge for the Act.

The Serious Fraud Office (SFO) originally encouraged companies to approach it to discuss any evidence of internal malpractice they had uncovered. The intention was to create a possible forum for a business to escape the full weight of the law if rogue employees, or associated but far-flung firms, had misbehaved. This ability to self-report an offence was viewed as a valuable channel for cleaning out occasional bouts of corruption. However, the April 2012 arrival of new SFO director David Green has changed all this.

When third parties are operating on a different continent, how are managers to know that everyone is obeying the letter of a UK law?

Under pressure to sharpen the SFO’s image, after a succession of botched prosecutions and a scathing report delivered by the Crown Prosecution Service’s independent inspectorate, Mr Green may not have endeared himself to lawyers working on the Bribery Act. He has indicated that volunteering information about misconduct by individual employees will not spare a business from a corporate prosecution.

“There is no doubt in my mind that he intends to take a very tough approach,” says Mr Rhodes. “His attitude seems to be that the law is the law and that’s it. But the Act is still very broad and difficult to interpret. Nobody knows what the adequate procedures are until we see judgment in some cases.”

Under Mr Green, the SFO has signalled that it will take a more aggressive approach to seeking out offences. He has spoken of launching “sectoral sweeps” using investigative powers to uncover bribery and corruption in fields such as the oil and gas industries.

Luke Tolaini, a partner at global law firm Clifford Chance, thinks that by apparently removing the self-reporting option from the table, Mr Green has done the SFO no favours. “There have been a series of mixed messages. He has created an environment of far less certainty. There is a sense of frustration in international companies with jurisdictional exposure to UK law,” he says.

Contradictions between national laws are a common problem for business. What is permitted in one jurisdiction may be illegal in another. By making any company that trades in the UK liable for the activities of “associated persons”, the Act places a huge responsibility on firms that had expected a lot more in the way of detailed guidance.

Clients approach Mr Tolaini for assurances he cannot give in relation to the Act. “The Ministry of Justice guidance has dodged every difficult issue. Now we won’t get clarification on much of the Act until we see cases coming to court,” he says. Until then, Mr Tolaini fears, it will be impossible for any business to know whether or not it is fully compliant with the Act’s more imprecise clauses.

2014 is being touted as the year in which the SFO will parade a series of prosecutions under the Act before the courts. But its past record of failed prosecutions means that this may not provide the longed-for clarity.

However, news about the Act is not all bad. Even a critic like Mr Tolaini concedes that by moving bribery to the top of the corporate agenda, it has forced the business community to think hard about how it operates. “This side of corporate governance is something companies have to grasp and manage,” he says.

Forensic Risk Alliance (FRA) is a worldwide business that thrives on digging out legally critical evidence from mountains of digital data. FRA can be called in by investigating authorities or by an organisation keen to establish whether its employees are at fault.

Toby Duthie, an FRA partner, admits that he’s been surprised by the extent to which the Act has altered attitudes. “There has definitely been a big shift in the level of awareness of corporate responsibility. We are doing a lot of work helping organisations to comply with the Act,” he says.

What Mr Duthie has spotted is a new climate among businesses as they realise they cannot avoid exposure to the Act. He concludes: “There is a perception of a broader regulatory scrutiny. I wouldn’t have expected it in the absence of any significant court cases, but the Act is beginning to do its job.”