The Work

March 17, 2011 9:02 AM

Leaked Government Documents Reveal Weakening Of U.K. Bribery Act

Posted by Chris Johnson

Leaked government documents suggest that the U.K. Ministry of Justice has taken measures to radically weaken the jurisdictional reach of the country's new bribery act, which could in turn reduce the work generated by the proposed law for U.S. white-collar lawyers when it takes effect.

A draft copy of the new guidance, first obtained by The Guardian, reveals that international companies with London Stock Exchange listings but no other presence in the United Kingdom will be exempt from prosecution under the act.

"The government would not expect, for example, the fact that the company's securities have been trading on the London stock exchange, in itself to qualify that the company is carrying on a business in the U.K. ...for the purposes of [the act]," the guidance says.

Previously, such companies would have been subject to what has been described as the world's most draconian anticorruption law, carrying unlimited fines and an increased maximum jail term of ten years.

"If the reports of what is contained in the final guidance are indeed correct, then it is surprising that the MoJ has been willing to stray from the narrow confines of what it is obliged to provide under section 9 of the Bribery Act into offering apparent blanket exemptions," says former Serious Fraud Office (SFO) anticorruption head Robert Amaee, who joined Covington & Burling's London white-collar team in January. "It is by no means certain that there is a sound legal basis or that it is indeed desirable from a policy perspective to say that any non-U.K. registered company trading on the London Stock Exchange but not otherwise operating in the U.K. is, as a matter of course, exempt from the ambit of the term 'carries on a business, or part of a business, in…the U.K.; a term which after all was left undefined by Parliament."

A spokesperson for the MoJ said: "We cannot comment on draft guidance which is yet to be made public. A common sense approach would mean that organisations which do not have a demonstrable business presence in the U.K. would not satisfy this test. The mere fact that a company is listed for London Stock Exchange purposes may not, in itself, be enough to amount to carrying on a business or part of a business in the U.K. However, it will always be for the courts to decide in individual cases whether a foreign company carries on a business or part of a business in the U.K."

After being rushed through parliament, the act was originally scheduled to take effect last October, but was delayed in order to allow companies to better prepare for its implementation. It was delayed a second time in February, reportedly to provide additional time for companies to put in place adequate procedures to prevent bribery. However, the leaked guidance suggests that justice minister Kenneth Clarke also used the time to review some of the act's more controversial features.

Critics within the City--John Cridland, head of business lobbying group the CBI, said recently that the act was "not fit for purpose"--had feared that the legislation would hamper London's ability to attract international companies to list on its exchanges.

Despite the softening, the law is still significantly broader in both its scope and remit than the U.S. Foreign Corrupt Practices Act.

Unlike the FCPA, which only deals with government bribery, the U.K. act also covers corruption between commercial entities. And where U.S. legislation requires prosecutors to prove intent and awareness of the bribe at a senior level, the Bribery Act imposes strict liability on any company that fails to prevent bribery from taking place. This not only covers bribes made by its own employees, but also by any individual "associated" with the company.

The Bribery Act also makes no distinction between bribery and facilitation or so-called grease payments--a key safe harbor under the FCPA--and even prohibits corporate hospitality if it is determined to "subvert the duties of good faith or impartiality that the recipient owes his or her employer." It does allow a defense if companies can prove they have adequate antibribery procedures in place, however.

And while the presence of U.K.-listed stock is no longer enough for a company to automatically be affected by the act, the wide-ranging law still covers any company with a U.K. office; that has employees who are U.K. citizens; or that provides any services to a U.K. organization. It is likely, therefore, that U.S. lawyers already advising public companies on FCPA violations are likely to face an increased workload and new reporting obligations to the SFO.

Law firms have been busy bolstering their white-collar practices ahead of the act's introduction. Freshfields Bruckhaus Deringer and SJ Berwin both launched dedicated investigations practices in 2010, while White & Case and Covington recently hired SFO prosecutors--a practice that until recently had been a rarity in the U.K.

The act, the first change to the U.K.'s antiquated bribery laws for more than a century, has also resulted in the formation of the first barristers set specializing in bribery work. Fulcrum Chambers was set up last year by several senior counsel including David Williams QC of Essex Court Chambers and former SFO assistant director Helen Garlick of 18 Red Lion Court.

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