Corporate hospitality, Financial Services - Written by on Tuesday, December 14, 2010 3:19 - 0 Comments

Uncertainties in the Bribery Act: The UK Financial Markets Law Committee Report

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On December 1st the Financial Markets Law Committee published a paper on the Bribery Act.

The Financial Markets Law Committee (based at the Bank of England) job is to identify issues of legal uncertainty in the framework of the wholesale financial markets which might give rise to material risks.

The report is entitled “Analysis of uncertainty around the Bribery Act 2010 Ministry of Justice Consultation on guidance about commercial organisations preventing bribery”.

Three key areas are identified which will be familiar to regular readers.

1. Hospitality

This has been the subject of much press coverage and other comment in the UK.  We have posted on it on a number of occasions including answering some burning questions.

The SFO has made various statements aimed to provide comfort in relation to hospitality.  The thrust of these comments is that organisations should use their common sense.

The report says: “It is essential therefore that the circumstances in which hospitality may be regarded as a bribery offence are clarified and bright lines established in this area.”

Our view is that some of the concerns about coporate hospitality are overblown when taking into account the comments of the SFO, those in parliament and also in the draft guidance.

2. Meaning of Associated Person

The report notes that the new law does not offer guidance on the degree of connection necessary to create liability for an organisation under the new Failure to Prevent Bribery offence.

It is true that the new law does give some non-exhaustive examples of an associated person but the key test under the Act is whether or not a person “performs services” to the organisation.

This will be a question of fact in each case.

Interestingly the SFO and the Ministry of Justice are keen to emphasise that there must be limits.

However, depending on the facts it could be construed broadly when applied to specific cases.

This is not so much a case of uncertainty but more a question of the breadth of the potential application of the new law. It seems unlikely that the current potential breadth of the new law will be narrowed.

3. What does carrying on business mean?

The report says:

“The Guidance does not explain or illustrate what is meant by carrying on ―part of a business in the UK. It would be useful to have some illustrations. For example, it is unclear whether the following business models fall within the scope of the Act:
a. a non-UK incorporated company that is listed in the UK but carries on no other business in the UK;
b. a non-UK incorporated company that has a UK-incorporated subsidiary;
c. a non-UK incorporated company that distributes/sells its products in the UK; and/or
d. a non-UK incorporated company that sources materials for its products in the UK.”

These examples are just some of the permutations.  Again it will be very fact specific.

It is one of the most frequently asked questions we receive and we agree that the more clarity which can be given the better.

In conclusion

In summary the report highlights just some of the questions in connection with the new law. The consultation on the draft guidance closed over a month ago and we raised additional areas of concern on a practical level.

The report notes that the draft guidance is “drafted in such high level terms that it does not give practical assistance to firms in understanding their obligations under the Act or the details of compliance procedures that will be considered ―adequate in any particular case.”

In our view the draft guidance was never going to be prescriptive and the guidance when complete will not be.

One size simply will not fit all. For example a standard threshold for the acceptable price of a lunch in one place may be completely inappropriate in another (think Manhattan versus a town in a third world country).

However compliance with the new law does rely on a a heavy dose of common sense. Undoubtedly organisations will have to do significant work looking at their business and assessing what is appropriate in various circumstances. Is this such a bad thing?

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