Adequate Procedures, Corporate hospitality, Your Questions: Answered - Written by on Wednesday, February 23, 2011 0:11 - 1 Comment

Ask Barry & Richard: Corporate hospitality – what does ordinary mean?

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Question:

Let me ask this question: how much worry should a company have over the term “ordinary” when it comes to hospitality? The US equivalent is “reasonable,” and hospitality concerns still effect business practice because of the fear that the US regulators will claim that certain hospitality is unreasonable.

Your article seems to indicate so. But once you start down that path, how much comfort can you take? I would think that hospitality tents at Wimbledon might actually be problematic depending on who is invited. Would “ordinary” hospitality allow you to invite family members of government officials to the tent? How would you control for that? These are thorny issues.

I’m also wondering about the intersection between your prohibition on private sector bribery and hospitality. At least under the FCPA, you don’t need to worry about hospitality except for government officials. Do you need to worry about everyone?

I am, by the way, a huge fan of your site. It’s excellent.

Howard@openair

[we would normally not give the name of the person posing the question but in this instance Howard left a public question in the comments on one of our previous posts on corporate hospitality]

Answer:

Under the Bribery Act commercial bribery is covered.  So yes you will need to worry about everyone.

However, there is good news.

First, unlike the FCPA there is a defence.  Adequate Procedures and so much has been written about that we will not get bogged down about them here. But it is an absolute defence and it is significant.

Second, the SFO and Ken Clarke have been consistent in stating their intended proportionate common sense approach, namely that customary hospitality will continue.  I have asked the GC of the SFO flat out will corporate golf days be criminalised under the Act.  His emphatic answer was no.

Richard Alderman, Director of the Serious Fraud Office said this earlier this month:

“I know as well that there is concern about sporting events and whether or not it is appropriate to take clients to these events. I know that a number of corporates simply refuse to do this. Others though regard it as a perfectly normal part of their business.  This is an area where we are considering giving more guidance and indeed providing guidance publicly on our website before major sporting events.

Kenneth Clarke Minister of Justice said this last week:

“Ordinary hospitality to meet and network with customers and to improve relationships is an ordinary part of business and should never be a criminal offence. I hope to put out very clear guidance for businesses of all sizes to make that clear and to save them from the fears that are sometimes aroused by the compliance industry-the consultants and lawyers who will, of course, try to persuade companies that millions of pounds must be spent on new systems that, in my opinion, no honest firm will require to comply with the Act.”

We anticipate that the delayed guidance will give more clarity on this issue.

In practice, we doubt the SFO is about to raid Wimbledon to prosecute offences under the Bribery Act.  If they did it would play into the hands of some of the fiercest critics of the new law who have produced headlines suggesting that corporate hospitality such as golf days and the tents which are routine fixtures at the summer events in the UK are to be criminalised under the new law.

We question the likely reaction of a jury to such a prosecution.  In other words we would expect any competent defence counsel to have a field day and for a jury (and the mainstream media) to be sympathetic to any defendant prosecuted for bribery (and extremely hostile to any prosecutor) in such circumstances.

The SFO’s watch word is “lavish”.  We think the touchstone for corporate hospitality in the context of both poacher and gamekeeper will be common sense.

People will have to think about whether what they are offering is appropriate corporate hospitality in the circumstances.

Thank you for your question and your kind words.

About Ask Barry & Richard

Readers seeking an answer for questions on the Bribery Act, the UK money laundering legislation or similar should contact us.

We will not be able to reply to every email but those questions we choose to include will be answered by us and published on thebriberyact.com in a weekly post.

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Howard@OpenAIr
Feb 23, 2011 8:56

Thanks. The word we worry about on this side of the pond is “lavish” also. And I agree that common sense is really the standard. The problem I’ve encountered, and my colleagues in-house have encountered, is that common sense for me and common sense for sales and marketing folks aren’t always the same thing. Their lavish is very much more lavish than my lavish, so to speak.

I like the quote from Ken Clarke (I posted it on my blog also), but without a bright line test, you’re left with judgment, which means it’s something the compliance folks will have to train on, monitor, audit, etc. All the costs with none of the comfort.

Just my opinion.

Howard

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