In a recent survey by accountants Ernst & Young, it is reported in HR Magazine they found that around half of British employers are failing to vet their suppliers for compliance with the Bribery Act.  This is surprising to anticorruption practitioners, taking into account that the Bribery Act provides strict liability for the acts or omissions of associated parties, including suppliers, in the situation where adequate procedures were not in place. One of those adequate procedures would be to vet your suppliers adequately.

Other revealing statistics from the E&Y report:

• 60% of firms with a turnover between £5 and £50m vet their suppliers to assess whether their businesses comply with the Bribery Act (hence 40% do not)
• 16% of these midmarket firms would do nothing if their suppliers failed to comply (so one asks oneself: why bother asking them whether they do comply? )
• Among the 40% of firms which do NOT vet their suppliers, 60 % reported that they were not planning to implement any anti-bribery provisions in the future;
• Of the larger firms (turnover in excess of £50m) only 40% would terminate their suppliers if they failed to comply with the Act.

So one can conclude from these statistics that many British firms have either missed the point of this legislation altogether or are making a positive decision to run a the risk of not being caught, perhaps based on their belief that the Serious Fraud Office and other prosecutors have insufficient resources to discover the fraudulent conduct.  We at the BriberyLibrary wonder whether business managers would be quite so cavalier about not insuring their offices and factories against the risk of fire and flood? The potential disaster which can befall a company which is the subject of an investigation and then a prosecution is not so well known on this side of the Atlantic.  But just look at the examples of Siemens and Innospec, to name but two companies which suffered very significant financial and reputational damage from their prosecutions in the US and other countries. 

The head-in-the-sand approach, which this survey seems to suggest is taking place in many British companies, risks, amongst other things:-

• an unlimited fine for the company,
• a serious prison term for the directors or senior managers who permitted illegal acts to carry on or turned a blind eye to them,
• possible debarment from public procurement tendering in many parts of the world,
• very large legal costs
• consequential civil claims from competitors or others who claim to have lost business as a consequence of illegal acts committed by the company’s associated persons
• a fall in share price for publicly quoted companies

In stark contrast with the Ernst & Young report which suggests not enough is being done, in fact many British businesses are complaining that they feel “hampered” by the Bribery Act and that the Act is unduly restrictive of British trade abroad. This other point of view is summarised, by way of example in a letter in the Financial Times online on 17 March 2013:

“As a businessman I can testify to the shameful cost in executive time that it has caused British companies. In addition it has had an entrepreneurial cost as non-executive directors are understandably anxious about its implications”. 

We at the BriberyLibrary can certainly understand that the Bribery Act will add a certain layer of cost, particularly initially, in order to make sure that you have a robust anticorruption compliance programme, but once it is on its feet, depending on the size of your business and how much you rely on overseas sales, it should not be especially expensive to maintain.  The costs of ensuring that you do not become involved in arrangements which might involve bribing and corrupting others will pale into insignificance when compared with the costs of being prosecuted (see the list of bullet points above).

The Daily Telegraph reported recently that

“…Crispin Simon, a senior executive in UK Trade and Investment, the Government’s export agency, disclosed the move when he gave evidence to the House of Lords committee on small and medium-sized enterprises. He said there was a “desire” that the Bribery Act should be tested by the Crown Prosecution Service to provide a “better sense of where it stands”, and acknowledged it was “possible” that the legislation had resulted in the loss of some business….”

The House of Lords committee, however, believes that there should be some urgent scrutiny of the Act, which in its view has put British business at a disadvantage in the BRIC countries where trade involved  “challenging questions”,  which one assumes means repeated requests for bribes, although it is not entirely clear.

The Daily Telegraph report continues

“Tony Shepherd, of Alderley Group, told the committee: “The existing Act is virtually impossible to operate as far as a UK company is concerned. You cannot really take someone out to dinner without committing a crime. I am extremely in favour of trying to eliminate bribery, but to have a situation where we are subject to a law that is much more severe than anywhere else in the world is not good.”

It should be said that the Serious Fraud Office, which will be the principal prosecuting body for offences under the Bribery Act , has made it clear on many occasions since the Act was passed in April 2010 (and also in the Government’s Guidance on the Bribery Act in March 2011) that it will not be prosecuting defendants for dinners and other reasonable entertainment. So there seems to be a certain amount of misunderstanding amongst business managers.

The United States has been enforcing its anticorruption laws (under the Foreign Corrupt Practices Act) against American corporations and individuals as well as foreign corporations and individuals (who are subject to its very low jurisdictional hurdles) for many years now.  So in fact the UK is merely playing catch up with one of its allies and competitors in terms of both its laws and its attitude to proper enforcement.

No one case being prosecuted will be able to test all parts of the  Bribery Act.  It may take several such cases to go through the courts (if they do not reach a civil settlement before any trial) to test all parts of the Act.  If the UK’s experience turns out like the United States’ experience, it could take many years, even decades, for enough cases to go through the courts for the law to be clarifies by the judiciary. We all await the first corporate prosecution under the Act with great interest, but we might have to wait some time longer yet as the Act has only been in force for some 21 months, and it takes time for acts and omissions to be reported to or discovered by the investigators, and then more time for a decision to prosecute, and then to go through the justice system.  In the meantime in our opinion, there really is no alternative for British business other than putting in place a robust compliance programme so that the company is best protected against rogue employees or others associated with the company.