Adequate Procedures, Bribery Act & Proceeds of Crime - Written by on Wednesday, August 10, 2011 1:26 - 0 Comments

Adequate Procedures – due diligence and the supply chain – the SFO view

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Last week we had dinner with Vivian Robinson QC to celebrate his departure from the SFO and his first week at his new firm McGuire Woods.

Vivian told us that far from a slow wind down his last weeks at the SFO were a whirlwind of activity which did not let up on the last day when he gave an interview to Luke Balleny of TrustLaw, an excellent free legal resource, run by the Thomson Reuters foundation.

In the interview Vivian dealt with the question of the SFO’s view of the nature of due diligence and other measures which organisations should, in the SFO’s view, put in place to satisfy the Adequate Procedures criteria and provide a defence to the failure to prevent bribery offence.

Vivian’s comments underscore the Ministry of Justice guidance on the same topic.  To recap the MOJ guidance has this to say on the subject:

“A commercial organisation is liable under section 7 if a person ‘associated’ with it bribes another person intending to obtain or retain business or a business advantage for the organisation. A person associated with a commercial organisation is defined at section 8 as a person who ‘performs services’ for or on behalf of the organisation. This person can be an individual or an incorporated or unincorporated body. Section 8 provides that the capacity in which a person performs services for or on behalf of the organisation does not matter, so employees (who are presumed to be performing services for their employer), agents and subsidiaries are included. Section 8(4), however, makes it clear that the question as to whether a person is performing services for an organisation is to be determined by reference to all the relevant circumstances and not merely by reference to the nature of the relationship between that person and the organisation. The concept of a person who ‘performs services for or on behalf of’ the organisation is intended to give section 7 broad scope so as to embrace the whole range of persons connected to an organisation who might be capable of committing bribery on the organisation’s behalf.

This broad scope means that contractors could be ‘associated’ persons to the extent that they are performing services for or on behalf of a commercial organisation. Also, where a supplier can properly be said to be performing services for a commercial organisation rather than simply acting as the seller of goods, it may also be an ‘associated’ person.

Where a supply chain involves several entities or a project is to be performed by a prime contractor with a series of sub-contractors, an organisation is likely only to exercise control over its relationship with its contractual counterparty. Indeed, the organisation may only know the identity of its contractual counterparty. It is likely that persons who contract with that counterparty will be performing services for the counterparty and not for other persons in the contractual chain. The principal way in which commercial organisations may decide to approach bribery risks which arise as a result of a supply chain is by employing the types of anti-bribery procedures referred to elsewhere in this guidance (e.g. risk-based due diligence and the use of anti-bribery terms and conditions) in the relationship with their contractual counterparty, and by requesting that counterparty to adopt a similar approach with the next party in the chain”

This statement was good news for business following some concerns that the new law might impose an obligation to undertake due diligence through the supply chain beyond those with whom they have a contractual relationship.  It was good to see this view confirmed by the SFO.  Vivian said:

“So far as agents and contractors and sub-agents and sub-contractors are concerned, in the context of due diligence, what we look for is that with regard to the primary supplier or the primary contractor we would expect to see very clear and strong due diligence carried out. But we recognise that when you start drilling down below the prime and sub-contractors and you come to the supply chain, the question arises, how far down those particular chains can a company be expected by us to carry out due diligence. We recognise that. We want steps to be taken to show that they’d done what they could to cascade it down through the supplier or contractual chain. We wouldn’t expect people to be taking huge measures themselves to check up on the supply chain or contractual chain, so long as we had the head supplier, head contractor, major due diligence and an invitation to let their sub-contractors/supplier know what the position was, that would be sufficient.”

In further good news for SME’s Vivian said:

“What we’d be looking for in terms of ‘adequate procedures’ in general and due diligence in particular with regard to a small and medium-sized company would not necessarily be the same as we’d be looking for in a large multinational corporate because we are conscious of the fact that there are resource implications which a large company are able to accommodate and which small and medium-sized companies can’t.”

The comments underscore the importance of (i) undertaking proportionate detailed due diligence (which should be recorded) on contractual counterparts with contractual obligations directly imposed on them and (ii) adopting a “waterfall” approach of requiring contractual counterparts to impose obligations on their subcontractors (and so on) when appropriate.

Image © Crown Copyright 2011

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