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THE UK'S BRIBERY ACT: WHAT IT MEANS FOR WEALTH MANAGERS

Chris Hamblin, Compliance Matters, 9 September 2013

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With the Financial Conduct Authority reportedly reviewing at least 22 asset management firms for signs of bribery and corruption in their business practices, the time has come for a long look at the Act which underpins its efforts. Although Section 6 of the UK’s Bribery Act 2010 outlaws the bribing of a foreign public official, it is the offence of normal bribery between private businesses – such as private banks and fund firms – that is the most far-reaching and hardest to defend against. Chris Hamblin explains.

With the Financial Conduct Authority reportedly reviewing at least 22 asset management firms for signs of bribery and corruption in their business practices, the time has come for a long look at the Act which underpins its efforts. Although Section 6 of the UK's Bribery Act 2010 outlaws the bribing of a foreign public official, it is the offence of normal bribery between private businesses - such as private banks and fund firms - that is the most far-reaching and hardest to defend against. Chris Hamblin explains.

The legislation, according to The Economist on 11 July 2011, was “conceived by the previous Labour government in response to the scandal of BAE bribes in Saudi Arabia”. Section 6, which deals with bribing foreign officials, was a direct response to it. Despite this, the smart money is on the Serious Fraud Office, the UK's principal anti-corruption prosecutor, bringing a case under sections 1 and 2, which contain the offences of bribing and being bribed regardless of whether a foreign official is involved. The SFO might also invoke section 7, which prohibits a UK commercial organisation from allowing bribery to happen on its behalf and requires it to do its best to stop “associated persons” who act on its behalf (section 8) from committing it. Why? 

HARDLY ANY NEED FOR A GUILTY MENTALITY 

The first clue lies in the mental element that underpins the “business-to-business” crime under sections 1 and 2. The prosecutor need only prove that the defendant intended some (not necessarily monetary) advantage to accrue to someone. He/she/it need also only intend to cause the improper performance of a “relevant function”. Section 3(2)(d) says that a relevant function for this purpose is any activity performed by or on behalf of a body of persons whether corporate or not – a very wide definition. Anything to do with business or the person’s employment is obviously included. 

The only other condition for “relevance” is that the person in question must be “trusted” or expected to perform it “in good faith” or “impartially”. In using the passive voice without identifying the person doing the trusting, section 3 ensures that a recipient of bribes can be held to misbehave even if his employer does not expect him to live up to these standards, just as long as someone does. 

The only mental element to the crime of bribing in section 1 is that the briber must think that the person to whom he gives the advantage would be “improperly performing” by accepting it; as we have seen, the bar for this is inconsequential. Section 2 has more to say, this time about a bribed party being charged: in most instances, it does not even matter whether he thinks that the required activity is improper. 

Section 7, a corporate offence which also applies to business-to-business crime, goes further because it requires no mental element at all. The company whose officers perform the bribery can be completely oblivious to it and still be liable. Its only defence is the upkeep of good anti-bribery systems in line with the somewhat controversial “guidance” that the Ministry of Justice issued in 2011, under section 9

All individuals and companies anywhere in the world can be found guilty of breaking sections 1, 2 and 7 as long as they or their misdeeds are sufficient well-connected with the UK. The mental element that the SFO needs to prove guilt for these offences is scant and, at times, non-existent. This is not true, however, of section 6, the purely foreign officials section. 

A HIGHER MENTAL TEST 

By stating that the commercial organisation that tries to bribe a foreign public official has to want a business advantage to accrue, section 6(2) asks more of a jury than sections 1 and 2 (subs 2 and 5) do, as these merely call for an intent to promote some improper activity which may not have any effect at all. 

THE “LOCAL LAW” RULE 

There is another area in which section 6 is weaker than its counterparts. Anti-bribery statutes in various parts of the world have a “local law” defence as regards official corruption. Under the US Foreign Corrupt Practices Act 1977, for example, if it is legal for the third-world harbourmaster to demand money from the importing US company with menaces, that company has no choice but to pay him or ship its wares home again with no recourse to a US court. Section 6 has the same stipulation. The US federal courts are gradually whittling this right away and the English courts may do the same, but this is at present unknowable. 

The “local law” defence is not, however, available for the business-to-business offences. Here, the bribed party must be breaching a “relevant expectation” which he ought to be fulfilling impartially or in good faith (sections 3-4). Section 5 states than when a jury evaluates the validity of such an expectation it must look at “what a reasonable person in the United Kingdom would expect in relation to the performance of the type of function or activity concerned”. This tendency to apply UK standards all over the world is present in other criminal statutes such as the Money Laundering Regulations and is increasing with time. It is no wonder that commentators are expecting a “B2B” test case to emerge before one that involves the corruption of public officials. 

The FCA’s report on bribery and corruption in the asset management sector is due to be published sometime this quarter. 

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