The Counsel

The End to the Free Lunch?

An Introduction to The Bribery Act, 2010

By Hasnain Ali Khalid

Imagine being woken up from your sleep in the early hours of morning the early hours of the morning, your home telephone rings, your Blackberry starts beeping away. Why the pandemonium? The CEO of your largest corporate client has just been arrested in the UK for an imprisonable offence. All he did was travel to the UK for a short break with his family.

He was not arrested for something he did, but because of the actions of one of his employees whose name he may never have heard of, or even an employee of one of his suppliers, back in Pakistan, he is currently floundering in the custody suite of a London police station.

It could be a lot worse, he could have flown to the States where the UK authorities requested his extradition to the UK.

Welcome to the world of the United Kingdom’s Bribery Act, 2010, which came into force on 1 July 2011.

Why the concern to Pakistani lawyers?

From now on almost every UK based business, engaged in business with Pakistan, will almost always insist that its international partners, employees, agents have suitable measures in place to combat bribery.

Pakistani corporate and commercial counsel will almost certainly need to advise their clients on such matters.
In short, the Act makes it an offence for a British citizen to pay or receive a bribe, directly or indirectly. More controversially the Act criminalises acts and omissions abroad by individuals with a connection to the UK, if those acts or omissions would be considered offences in the UK. Hence, our poor CEO’s shopping trip to London was cut short.

The Act creates four offences:

(i) bribing a person to induce or reward them for performing a ‘relevant function’ improperly;

(ii) requesting, receiving or accepting a bribe as a reward for performing a ‘relevant function’ improperly;

(iii) using a bribe to influence a foreign official to gain business advantage; and,

(iv) bribing a person with the intention of gaining a business advantage for a commercial organisation.

Helpfully, the Bribery Act does not define what a ‘bribe’ actually is. Instead, the Public Bodies Corrupt Practices Act, 1889 is referred to for assistance. which defines a bribe as: “any gift, loan, fee, reward, or advantage whatever as an inducement .. or reward”.

When looking at the term ‘relevant function’, section 3(2) of the Bribery Act gives the prosecuting authorities a relatively wide berth. The section provides the term could include:

(a ) any function of a public nature,

(b) any activity connected with business;

(c) any activity performed in the course of a person’s employment;

(d) any activity performed by or on behalf of a body of persons (whether corporate or unincorporate)

an objective test is laid down which considers what a reasonable person in the UK would expect. The same test is followed if the function occurred outside the UK, though local custom may be considered.

The Corporate Offence

Section 7 of the Act creates an offence that is committed by a relevant commercial organisation if a person associated with it bribes another. A relevant commercial organisation could include any partnership or incorporated body set up under any jurisdiction which carries out any part of its business in the UK; or a UK business carrying on its business worldwide.

Section 8 of the Act provides that as long as an individual, or an organisation, performs a service for another, he is “an associate”, and, an associate could be an employee, agent or subsidiary. Commentators have suggested that this could be a joint venture partner, agent, distributor, or even professional advisers.

This could cause problems, especially where it is common practice to make payments. Indeed, even in the Unites States of America, certain facilitation payments may be made under the Foreign Corrupt Practices Act, 1997. Such facilitation payments cover items such as the payment of additional fees to expedite a visa application. However, under the Bribery Act, this is an offence.

The Corporate Defence

The Act provides the only defence to an offence under Section 7, is that the company or organisation has ‘adequate procedures’ to prevent bribery. This makes it important for organisations to have anti- bribery procedures and protocols in place which are proportionate to the risk posed.

it is essential for there to be a risk analysis by every company or organisation of its procedures and protocols. The danger for most Pakistani organisations is that that they have a laissez faire attitude to many of their business relationships and it is hard to determine ifeveryone within an organisation is holding a valid employment contract. There is no standard by which arrangements with suppliers are formalised and may beVerbal, though a battle of forms, or worse still, on ‘wink and a nod’ basis.

A possible safeguard to an allegation of bribery would be to ensure that the organisation has a suitable form of redress with such stakeholders. For instance, there could be a provision in employment contracts requiring the employee to indemnify the employer should (s)he accept or give a bribe and similar provisions for supply contracts. Therefore, if the British organisation seeks financial redress from its Pakistani partner, the partner in turn could seek redress from the offending party. Of course, an indemnity will only be worth something if the person providing it has assets to back the indemnity.

it may be advisable for an additional layer of due diligence to be undertaken for checking associates, agents, contractors or anyone that an organisation has a commercial relationship with.

It is foreseeable that British businesses, wanting to have an arrangement with a party in Pakistan, will want to undertake some due diligence on its Pakistani partner or agent. Certainly, almost all UK companies will want contractual provisions in place to ensure that there is compliance, of the Bribery Act by the Pakistani counterpart.

Typical clause

Contractual clauses dealing with the Bribery Act have already started to make their way into draft documents for some time.

A typical boilerplate contract clause dealing with the Act is set out below, where X is the local, Pakistani party. Suggested amendments have been made by the author in italic text:

1.1: X agrees that in respect of all matters connected with or arising out of this Agreement only, it:

(a) shall not, and will procure that its those employees, sub-contractors and agents under its direct control and as far as reasonably possible will not, engage in any bribery conduct;

(b) shall not, and will procure as far as is reasonably possible that its employees, sub-contractors and agents will not on behalf of X, make, give, procure, receive, or obtain any bribe (or attempt to do so);

(c) has in place, and will maintain, reasonable and adequate procedures designed to prevent persons with under X’s control (including employees) engaging in any unlawful conduct, including, but not limited to, bribery conduct committed with intent to obtain or retain business for X or to obtain or retain an advantage in the conduct of business for X; and

1.2: X will as far as reasonably possible in the circumstances at the time not do or permit anything to be done through act or omission which would result in Y, any employee, sub-contractor or agent of Y or any Y affiliate engaging in bribery conduct or breaching or incurring liability;

1.3: X will not offer or give or agree to give any employee or agent of Y or any Y affiliate any gift or consideration of any kind as an inducement or reward for any act or omission (or intended act or omission) relating to the obtaining or execution of this or any other Agreement for Y or any Y affiliate or for showing or withholding favour or disfavour to any person in relation to this or any other agreement for Y or any Y affiliate.

1.4: Any breach of this clause by X will automatically be deemed to be a material breach of this Agreement.

1.5: X will notify Y immediately if as soon as reasonably possible after it becomes aware, or has reason to believe, that:-

(a) it has breached any of its obligations arising out of this clause; or

(b) any person or party directly or indirectly connected with the services has engaged in any bribery conduct or made, given, procured, received, or obtained any bribe (or attempted to do so).”

With good reason the lawyer, who drafted the clause, has exercised a full ‘belts and braces’ exercise in relation to the X’s obligations. However, it is possible to moderate the obligation. Counsel could go further and make the obligations mutual. After all, if Y’s employees commit an act of bribery, why should X not be able to seek indemnification from Y? Like with any commercial arrangement, it will boil down to the bargaining power of the parties.

Without a doubt, the Bribery Act has far reaching consequence for those doing business with the UK. For instance, how common is it for some clients to lavish entertainment on their suppliers? At the start of a relationship, would a small corporate gift cause problems in future? Certainly these are all items which are part of Pakistani culture and ones which many clients take for granted. Nevertheless, in light of this piece of legislation one now has to consider how would such meal or gift be perceived by the reasonable man sitting on the Clapham Omnibus.

many clients will do well to bear in mind a quotation by the infamous beauty pageant queen, turned politician, Bess Myerson: “The accomplice to the crime of corruption is frequently our own indifference” especially with their future dealings with the UK.

The author is an Associate at Bhandari, Naqvi & Riaz at Lahore and a Solicitor of the Supreme Court of England and Wales.