The flavour du jour

Today the claimed uncertainty surrounding the Bribery Act flagged in an article in the Daily Telegraph relates to its intended long arm jurisdiction.  The article notes that the SFO’s stated intention to use the long arm jurisdiction aggressively could be curtailed by the courts taking a narrow view of carrying on business in the UK.

This is true. They could.

In short in order to assert the long arm jurisdiction over a foreign corporate the prosecution will need to show that the foreign corporate conducts business or part of a business in the UK.

The purpose of the court system

The law is not in force yet and the SFO freely admits that it welcomes judicial guidance on its provisions flowing from court decisions.  This includes on the meaning of carrying on business in the UK.

This will only come when prosecutions are brought and cases won and lost.

However, organisations should be wary about assuming that the courts will impose a high bar to get over to impose long arm jurisdiction.

There is already precedent.

What does carrying on business in the UK mean in a Financial Services context?

Under the Financial Services and Markets Act 2000 organisations must not carry on regulated activity as a business in the UK without FSA authorisation.

Like the Bribery Act, there is little by way of guidance in FSMA about what “carrying on business in the UK” actually means.

Section 418 of FSMA highlights some examples where it would meet the threshold but these are not exclusive.

Filling the vacuum

In light of this vacuum the FSA has issued perimeter guidance on the test for carrying on business which states:

“A person based outside the UK may also be carrying on activities in the UK even if he does not have a place of business maintained by him in the UK (for example, by means of the internet or other telecommunications system or by occasional visits).”

In other words the FSA clearly contemplates that organisations could carry on business in the UK without (much of/if any) a physical presence.  This is borne out by the well known so-called “overseas persons” exemption a series of gateways where persons outside of the UK can undertake certain activities without violating FSMA.

When we interviewed Vivian Robinson QC about the likely scope of long arm jurisdiction we asked what, in his view, might the position might be for an internet retailer with operations outside the UK but with a web presence and which ships products to the UK.

Could this equate to carrying on business in the UK under the Bribery Act?

His answer: “I think that the courts may very well construe that as carrying on business”.

Not a very high bar at all.

Under FSMA, there have been a couple of cases on the point (one on a horseracing betting arrangement run out of Ireland and another relating to a so-called boiler room scheme).

In both cases the court found no difficulty in finding that the organisation in question was conducting business in the UK notwithstanding that its physical presense was (very) limited.

The most illuminating of the cases is Fradley.  This is what the Court of Appeal said:

“I turn now to issue (c) above on the basis already stated, that Mr Fradley loses at trial on issue (a). Does the position change when Mr Fradley moved his operations to Ireland in April 2003? Mr Fradley contends that he ceased to be subject to the restrictions in the FSA once he moved to Ireland. Miss Stubbs, however, submits that he continued to carry on business in the United Kingdom because he continued to maintain in the jurisdiction a bank account and an accommodation address. Many of the investors were resident in the United Kingdom. There is a dispute of fact as to whether Mr Fradley used bookmakers here when placing bets here although the FSA contends that that is shown by a schedule prepared by the FSA from the records of TBPS. Miss Stubbs submits that the carrying on of any activity within the scheme would be enough to bring the scheme within FSMA. Again, this is an issue of law which can be determined on the limited facts not in dispute.

The FSMA does not contain an exhaustive description of what constitutes the carrying on of business within the United Kingdom. All that section 418 (set out above) provides is that the requirement is to be satisfied in certain specific cases if it would not otherwise be so satisfied. This case is not within those cases. Accordingly, the Court is left with the question whether the activities described above (so far as not disputed), of themselves, constituted the carrying on of business in the United Kingdom. FSMA does not require that the entirety of a business activity be carried on in the United Kingdom. If it did, it would be open to obvious abuse.

In my judgment, it is sufficient if the activities in question which took place in this jurisdiction were a significant part of the business activity of running the CIS (if any) constituted by the betting services offered by 147 and TBPS. In this case, the communications with clients and prospective clients, and the maintenance of a bank account and an accommodation address, all of which took place in the United Kingdom, were all business activities. In my judgment they were of sufficient regularity and substance to constitute the carrying on of business here even after Mr Fradley moved his own office to Ireland in April 2003 and gave instructions by post or internet from there. I leave open the question whether the requirement for carrying on business within the jurisdiction can be satisfied in any other case.”

There will no doubt be arguments about the scope of jurisdiction of the Bribery Act.  Each case will turn on its own individual facts and we agree that there are legal arguments to be made.

We shall make compelling arguments if a client is faced with prosecution about these issues…

However, ask yourself this question.

In light of the stance of the UK Financial Services Authority and the interpretation by the courts of this question in a regulatory context: in the words of Clint Eastwood:

“Do I feel lucky…………Well do you…?”