The Bribery Act 2010 is due to come into force on July 1, 2011. Therefore, any Indian commercial organisation, which has a demonstrable business presence in the UK, should be taking steps now to review or implement anti-bribery procedures and policies.
Under the Act, the failure by a commercial organisation to prevent its employees, agents or subsidiaries from engaging in bribery can lead to an unlimited fine and, in some circumstances, personal criminal liability for directors and employees, who on conviction may be imprisoned for a period of up to 10 years.
Indian companies frequently invest in the USA or the UK, making them directly subject to this legislation. Some Indian companies were concerned when the US Foreign Corrupt Practices Act (FCPA) came into force because of their significant business dealings with US customers, clients and business associates. The broader scope of the Act will now put additional pressure on them to implement adequate compliance measures.
The Indian anti-corruption legislation, the Prevention of Corruption Act 1988, prescribes penalties ranging from imprisonment for up to five years to an unlimited fine. However, fines imposed for criminal offences in India have seldom served as a deterrent on account of their quantum. Although, the anti-bribery legislation in India has been on the statute books since 1988, successful prosecutions resulting in imprisonment are more the exception than the rule. Thus, with the Act in the UK due to come into force, Indian companies, particularly those with cross-border ambitions, will need to gear their strategy carefully to stay clear of this overarching anti-bribery framework.
The UK Ministry of Justice has already published a guidance paper based on six general principles to help organisations implement ‘adequate procedures’ to prevent bribery.
Below, we set out some of the salient features that Indian companies with a business presence in the UK, either directly or through commercial relationships with UK organisations, will need to consider – prior to the Act coming into force.
This is seen as the foundation of the guiding principles. The action a business needs to take should be proportionate to the risks which that business faces and to the size of the business. Adequate bribery prevention procedures ought to be proportionate to the bribery risks that the organisation faces. There is an acknowledgement that what may be appropriate for a large multi-national organisation will not necessarily work for a small or medium-sized enterprise. An initial assessment of risk across the organisation is, therefore, a necessary first step. The procedures may be stand-alone or form part of a wider guidance – for example, managing a tender process in public procurement.
This principle is about creating a zero-tolerance bribery culture throughout an organisation. The guidance recommends having a public statement of commitment to counter bribery in all parts of an organisation’s operation and to appoint a senior manager to oversee the development of the anti-bribery programme. Senior officers should be personally involved in developing and implementing bribery prevention procedures. It would be worthwhile for an Indian company with a UK interface to integrate such anti-bribery mechanisms within its corporate governance initiatives, which are either voluntary or statutorily mandated under listing rules etc.
Risk assessment is obviously a key element in ascertaining what steps a business should take. The guidance acknowledges that risks constantly evolve over time and, therefore, an organisation’s risk assessment policy must also evolve. What will constitute adequate risk assessment procedures will vary depending on the size of the company, its activities, its customers and the markets in which it operates. An organisation should identify key bribery risks relevant to its business and sector. Relevant ‘bribery risks’ include deficiencies in employee knowledge, training or skills; a lack of clarity in the organisation’s policy on gifts, entertaining and travel expenses; tender processes; licences and permits; high-value projects with many contractors and involvement of intermediaries or agents.
The commercial organisation needs to have due diligence policies and procedures in place to cover all parties to a business relationship – for example, undertaking background checks on the individuals and/or organisations with whom the company does business (or plans to do business). Such steps will obviously help manage the risks of bribery. The level of due diligence required is, once again, dependent on the level of risk of the situation.
The guidance stresses that the policies and procedures introduced to prevent bribery being committed should be embedded and understood throughout the organisation through internal and external communication, including training. As with other principles, the guidance contemplates that this should be done in a way which is proportionate to the risks which the organisation faces. Training should be continuous and regularly monitored and evaluated.
Monitoring & Review
The guidance suggests that organisations should consider what internal monitoring and review mechanisms are required in order to ensure policies are effective. Monitoring should include internal checks and balances, as well as effective financial and auditing controls to pick up any irregularities.
Adequate Procedures: Compliance Tips
Organisations in India with a UK interface need to be aware of the impact of the Bribery Act from both compliance and competitiveness viewpoints and should be taking steps to review existing bribery prevention policies and procedures to determine whether they have adequate procedures in place. From the six principles outlined above, the following tips can be considered:
• Implement a ‘zero-tolerance’ bribery prevention policy which is communicated to staff on induction and regularly as part of training sessions.
• Designate a responsible person to oversee bribery prevention matters.
• Ensure that monitoring systems are in place at all levels, adopting a clear policy on gifts, expenses and corporate hospitality, keeping records of gifts and centrally monitoring payments.
• Ensure that senior officers take responsibility for the bribery prevention programme.
• Carry out sufficient due diligence on any potential business partners and agents used to identify the possible risk of bribery.
• Include anti-bribery terms in contracts entered into between the organisation and its business partners, particularly where agents are being used.
• Include express contractual obligations and penalties in relation to bribery and corruption in employment contracts and put in place appropriate disciplinary procedures.
• Develop and implement ‘whistle-blowing’ and reporting investigation procedures.
Under the Act, Indian companies with a demonstrable corporate presence in the UK which are unable to demonstrate that they have implemented ‘adequate procedures’ to prevent corrupt practices within their organisations or through third parties on their behalf, can be exposed to unlimited fines, as well as other collateral consequences, such as long-term imprisonment for their directors. Further, Indian companies, which seek to be competitive from a business perspective with UK companies, will also need to demonstrate compliance on the Bribery Act front.
Increased vigilance by international enforcement agencies, such as the Serious Fraud Office in the UK and the US Department of Justice, has increased the chance of detection of bribery and successful prosecution. Therefore, undertaking a thorough review of the anti-bribery procedures in place before embarking on a business venture in the UK will reduce several ‘pain points’ in the growth trajectory in the UK.
(Saionton Basu is the Co-Head, India Group, Penningtons Solicitors and Tom Clark is Solicitor, Penningtons Solicitors LLP. Penningtons Solicitors LLP is a top 100 UK law firm with offices in the City of London, Hampshire and Surrey).