Bribery, corruption and slavery: assessing the risk to your business
Eversheds International explains how businesses should comply with the legal obligations of the Bribery Act and the Modern Slavery Act.
See also the e-Bulletin article by David Whyte - Editor of How Corrupt is Britain? – which considers the spirit of the law rather than the letter of the law.
Recent years have seen a myriad changes to the legal landscape of bribery, corruption and anti-slavery legislative practices, making treacherous trading conditions for businesses across a wide range of sectors, including construction and engineering, and jurisdictions. More so with the increasingly prominent international marketplace with each jurisdiction procuring its own set of often complex offences and penalties.
The UK Bribery Act now represents the most expansive and stringent anti-corruption practice in the world. This article will assist in guiding your business through the minefield of risks associated with the new era of bribery, corruption and anti-slavery provisions.
Bribery Act 2010
Government guidance upon the release of the Bribery Act in 2010 noted the importance of addressing the growing issue of bribery and corruption in the marketplace: “Bribery undermines democracy and the rule of law and poses very serious threats to sustained economic progress in developing and emerging economies and to the proper operation of free markets more generally’.
Since then commentators have described the Bribery Act 2010 as having ‘sharp teeth’ due to its hard-hitting approach to reform. The Act introduced a stringent new legislative regime which criminalises the failure of a business to prevent bribery on its behalf. The Act details general offences in relation to bribing another person or being bribed and a specific offence relating to bribing foreign public officials, along with a specific corporate offence of failing to prevent bribery.
The Chartered Institute of Building reported that 49% of respondents to its survey believe corruption is common within the construction industry. This theory has been blamed on embedded cultural practices combined with difficult economic conditions, such as squeezed tender margins or less activity in the marketplace. This has arguably led some organisations to make reckless decisions which, under the Act, could lead to an unlimited fine and irreparable reputational damage in the marketplace.
Very generally, bribery is defined as giving someone a financial or other advantage to encourage that person to perform their functions or activities improperly or to reward that person for actions already performed.
A bribe has therefore occurred when a person offers, gives or promises to give a monetary benefit or benefit in kind for an action. This is known as active bribery. Passive bribery includes the requesting, agreeing, receiving or acceptance of a bribe.
The Act provides a new form of corporate liability for failing to prevent bribery on behalf of a commercial organisation. A ‘relevant commercial organisation’ is defined as a body or partnership incorporated or formed in the UK irrespective of where it carries on a business, or an incorporated body or partnership which carries on a business or part of a business in the UK irrespective of the place of incorporation or formation. A common sense approach will be applied to what should be included in the definition of a commercial organisation: this is likely to therefore include charities, public bodies and education entities.
A commercial organisation will be liable if a person associated with it bribes another person intending to obtain or retain business or an advantage in the conduct of business for that organisation. There must therefore be a failure on the organisation’s part to prevent the conduct which commissions an offence under the Act.
An associated person is someone who performs services for or on behalf of the organisation. The objective of this section of the Act ‘is not to bring the full force of the criminal law to bear upon well run commercial organisations that experience an isolated incident of bribery on their behalf’. It is to achieve a balance which will punish those who offend not only wilfully but also inattentively. The organisation will be awarded a full defence if it is able to illustrate it did have adequate procedures in place on the balance of probabilities.
The key questions prosecutors will consider when determining whether to prosecute under the Act will include the extent of the evidence collected and if a prosecution would be in the interests of the public. Arguably the larger the company the higher onus on its senior staff to comply with the Act. Businesses face unlimited fines should they be found liable under the Act of an offence along with being subject to a confiscation order under the Proceeds of Crime Act 2002. A company director who is convicted may also be disqualified under the Company Directors Disqualification Act 1986.
What do businesses need to do?
The government offers guidance in the form of the following six principles which should be adhered to when a business is evaluating its position under the Act:
- a business should have proportionate procedures in terms of nature, scale and complexity and must these be clear, practical, accessible and effectively implemented and enforced
- there should be commitment from board level to shop floor to cultivate the correct culture within the organisation
- regular risk assessments should be performed to address potential bribery risks within the organisation
- enforcement of the bribery policies should be approached with due diligence
- communication is key; policies should be embedded, discussed and visible to both internal and external individuals
- risk within the organisation should be monitored and reviewed regularly.
Key is acting quickly and effectively; if you haven’t already done so review your anti-bribery and corruption policies and procedures. Ensure they are compliant with the Act and filtered into the business at every level. Regular training should take place along with policy updates as and when required in line with updates across the market.
Modern Slavery Act 2015
The Modern Slavery Act 2015, which came into force in October 2015, provides for the offences of slavery, servitude and forced or compulsory labour and human trafficking) in the UK.
In the UK an estimated 13,000 people are working as slaves and according to the International Labour Organisation, there are 21m people around the world trapped in some form of forced labour.
Arguably the nature of work associated with the construction industry naturally correlates to some of the offences defined under the Act. The Act is likely to affect this industry more than others due to the size and complexity of projects often involving lower-skilled workers, alongside the complexity of a multitude of organisations and the growing trend to outsourcing work and cut price contracting.
The Act requires businesses with a turnover of £36m and above that are supplying goods or services to publicly report steps they have taken to ensure their operations and supply chains are trafficking and slavery free. Similar to the Bribery Act 2010, a common sense approach as to what goods or services include will be applied. The duty applies to businesses that carry on business in the UK, wherever they may be incorporated.
There are complexities when it comes to non-UK domiciled companies or subsidiaries that don’t do business in the UK. There is ambiguity in the position of UK companies with wholly-owned subsidiaries operating overseas that don’t provide goods or services to the British market. For example, a UK construction company with a wholly-owned subsidiary in the Middle East operating exclusively in those countries could potentially argue that the provision doesn’t apply to its operations.
Some businesses are already active or have responded accordingly to the Act - for example, by introducing policies and training as well as employing risk analysis audits, due diligence, complaints mechanisms, stakeholder engagement and a review across the business with particular focus on supply chains. For others, the Act can seem vast with a range of risks and issues which need addressing with the likelihood of this taking time, resource and money. However, businesses need to react quickly to the new regime in order to avoid criminal prosecution or monetary fines and negative, sometimes irreversible, reputational damage.
What do businesses need to do?
In order to be compliant with the Act businesses that meet the turnover threshold will need to prepare and publish a statement setting out the steps they have taken to ensure slavery is not part of their businesses or part of their supply chain. Guidance as to what should be included in the statement is limited, but the more transparent it can be, the higher the likelihood it will be complaint under the Act.
Suggestions about input include structural information about the business, policies in relation to slavery and human trafficking, due diligence relating to its supply chain and the identified risks and examples of employee engagement and training in relation to the Act. The statement must be approved at board level.
The formulation of anti-bribery and modern slavery provisions in the UK creates a complex array of complicated and often high risk provision, each requiring action from board level down.
To avoid corporate liability for bribery, companies must make sure they have clear, up-to-date and effective anti-bribery policies and procedures in place. This requirement goes further than being effective theoretically; as a strict liability offence companies are required to illustrate how their systems work effectively with adequate procedures designed to prevent persons associated with it from undertaking bribery. This is the only defence businesses may rely upon, limited in scope and application.
A similar story prevails in relation to the modern slavery provisions, which will doubtless have a vast impact across the marketplace. According to the Guardian newspaper, early analysis of the first 100 company statements revealed that most fell short of the legal requirements and were too broad, generic and brief.
However, changes in the marketplace are without doubt important for both ethical, moral and commercial objectives. The sooner companies are able to cleanse their processes and procedures the sooner the entire marketplace will move in the right direction to eliminate inhumane and immoral treatment.
This article is reproduced with the kind permission of Eversheds International and was first produced on its website in June 2016.
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice.