James Roe on The UK Bribery Act: Business as Usual.

We talk with James Roe, partner of Allen & Overy, Moscow, about The UK Bribery Act and how it will affect business in Russia: one has to be sensible and not overreact to the UK Bribery Act.

James Roe

Allen & Overy
+7 495 725 7900

The Bribery Act has been described as "the toughest anti-corruption legislation in the world". If we put it into perspective and compare with similar laws in other countries, like for instance the US Foreign Corrupt Practices Act, how really tough is this British anti-corruption law?

The new law is far reaching. Firstly, it applies in both in the public and private arenas. If you were to commit bribery in a business or an employment context then, subject to the jurisdictional element, you can potentially be committing an offence. So, in that respect it is broader than the US rules, which only apply to bribery of foreign public officials.

It is broad in another important respect. There is a new offence of "failure by a commercial organisation to prevent bribery". It is possible for a person who performs services on behalf of a commercial organisation to cause that commercial organisation to commit an offence if the person bribes a third party and, in doing so, intends to obtain a business advantage for the commercial organisation. Person's who perform services on behalf of a commercial organisation may include joint ventures and third party contractors. It is not necessary that the commercial organisation even knows about the bribery. You therefore, if subject to the act, a commercial organisation needs to be careful about and diligence persons it contracts with if they are performing services on behalf of it.

There is an important defence to this offence – that the commercial organisation has put in place adequate procedures to prevent bribery. These procedures don’t actually have to prevent bribery, but they have to be adequate.

What would happen is the prosecutor would first need to demonstrate that the offence has been committed. Then it is up to the commercial organisation to demonstrate to the court that it has put in place adequate procedures to prevent bribery. If the commercial organisation can demonstrate that it has adequate procedures, it will not be committing an offence.

It is also important, when discussing the Bribery Act, not to forget the jurisdictional scope of the rules, and the need to demonstrate that the relevant act falls within the jurisdiction of the Bribery Act. There are four separate offences: the offence of bribing, known as active bribery; the offence of receiving bribes, known as passive bribery; the offence of bribing foreign public officials, which is not dissimilar to the US offence; and an offence we’ve just been talking about, which is failure by a commercial organisation to prevent bribery.

For the first three offences you’ve got either to commit part of the offence in the UK or you’ve got to be an entity incorporated in the UK or, effectively, a British citizen. For many Russian companies, it should be fairly straight forward to determine whether it or its employees potentially fall within the scope of these rules. Let’s take an example of a Russian company that operates only in Russia, and has no other obvious connection with the UK. Even if it or its employees are giving or receiving bribes (as defined in the Bribery Act), it is unlikely that it will fall within the jurisdiction of the Bribery Act.

There is greater uncertainty with respect to the fourth offence, the failure of a commercial organisation to prevent bribery. For this offence to be committed, the commercial organisation needs, in essence, to be incorporated in the UK or carry on a business or part of a business in the UK. If it is so incorporated or does so carry on a business, then it does not matter where in the world the bribery occurs. The question is what does it mean to carry on a business in the UK? If the commercial organisation has a subsidiary or a branch in the UK, will it be carrying on a business in the UK? If the commercial organisation obtains a listing in the UK, will that be sufficient for it to carry on business in the UK? These questions have, in part, resulted in the act being described as wide and sweeping.

There is an additional layer which needs to be considered – whether or not prosecution in the UK is likely.

Before a prosecution will be brought, the persons with authority in the UK to bring a prosecution, will need to be satisfied that (a) there is a sufficient evidence to bring a prosecution and (b) that it is in the public interest to bring a prosecution. If those two tests are not satisfied, then, in principle, a prosecution will not be brought. In determining whether or not to bring a prosecution, the persons with authority to bring a prosecution will have regard to a number of factors including the feasibility of collecting sufficient evidence, where the bribery is purported to have occurred, and the nature of the purported bribery in question.

Would you agree that the law puts British companies operating in Russia in a disadvantageous position?

No. It means that commercial organisations who are British or employ British citizens or commercial organisations incorporated in other jurisdictions which have the necessary connection with the UK, need to ensure that they comply with the Bribery Act and that they establish adequate procedures. Whether or not you see this as a disadvantage, depends on your view point. There are a number of advantages for operating a business in this manner – for example, counterparties themselves may themselves have anti-bribery policies.

Undoubtedly there will be situations where such a company is at a competitive disadvantage to other companies, and the rules may result in British companies not competing for certain work or, potentially, not expanding into certain geographic regions which are perceived to be of higher risk.

One also has to be sensible and not overreact to the UK Bribery Act. As I have just said, when bringing a prosecution there has to be sufficient evidence and there has to be public interest. So, it is likely that minor or unintended infractions won’t be prosecuted. You also have to draw a distinction between public and private companies. A public (i.e. listed) company is potentially more likely to be prosecuted than a private company, given the responsibilities that come with being a public company.

You’ve also got to bear in mind that the UK Bribery Act has to be seen in a wider global context. Other countries may adopt similar legislation in the future, although for now they may watch and learn from the UK Bribery Act. The OECD has supported the UK Bribery Act and it or other factors may in the future result in other countries to adopt similar legislation.

So, in a wider context, the law may even help British business?

It’s difficult to say whether it helps or harms British business. This depends on whether you regard bribery as acceptable and, obviously, I will not say that that it is.

What it means is that British companies will have to implement procedures for preventing bribery by people performing services on their behalf, including contractors and joint venture parties. The same will also apply to non-UK commercial organisations that carry on business in the UK. The same may also apply to other non-UK commercial organisations that do not carry on business in the UK, but whose counterparties (in particular in international trade) or investors require adherence to such standards.

On the transactions we work on, we often undertake some form or anti-bribery diligence, whether on a company which is about to be acquired or invested in, the counterparty to a joint venture, a company wanting to borrow money, or a company which is looking to access international capital markets. This practice will not be materially changed – both in terms of the decision whether to undertake it or not and the scope of the exercise. We would expect companies to be more alert to the risks of bribery, given all the press that the Bribery Act has received.

Let’s try to see the world after July 1 through the eyes of a company affected by the law. Will such a company be more inclined to hire a UK law firm or a company from a country where similar anti-corruption laws exist rather than a Russian firm?

No, I don't see any significant impact. Firms, whether international or Russian, are hired because of the expertise they possess and their general reputation. In terms of whether it may prevent us from taking on a mandate, all international law firms operate ‘Know Your Client Procedures’ that are rigorous. I don’t think that the Act will change our business practices in any material way.

As a British citizen and working for an organisation which operates in the UK, I am subject to the UK Bribery Act. I could therefore commit an offence in circumstances where a Russian lawyer acting for a Russian firm may not. But, I would hope the Russian lawyer acting for the Russian law firm not to be giving or receiving bribes in any event. We work with highly respectable lawyers from Russian law firms.

I don’t think that the very fact that a law company is based in or managed from the UK, the US or Russia will have a significant impact on the decision of the buyers of legal services, at least in those areas of law where we operate. Clients we work with are unlikely to think consciously about choosing between law firms in order to give themselves comfort that they weren’t inadvertently breaching the UK Bribery Act. That is because such clients are only likely to approach law firms which adhere to all round high standards.

In addition, given the services we perform, there are not likely to be many situations where we are performing services on behalf of a client, such that the client may be liable for our actions under the fourth offence (i.e. that of failing to prevent bribery).

Russia’s reputation regarding corruption isn’t very good. How big, do you think, is the element of a myth in such perception? Is the situation getting better?

It is a very well publicised issue indeed. A widely perceived weakness of Russia is corruption and failure to combat it effectively. For as long as that perception, or reality, exists, it will have a negative impact or drag on Russia’s competitiveness in the global marketplace and negatively impact its efforts to become a leading global financial centre and to attract international investors.

Regarding companies wishing to access international finance or capital markets - if a company operates in a territory or a sphere where bribery is a problem, it should have in place procedures to address these problems irrespective of the UK Bribery Act. Those are the standards of behaviour which the companies are expected to adhere to if they wish to access such markets. The banks on the transaction will seek assurances that companies do have these procedures in place.

We deal with very well run and respectable Russian companies and I can’t therefore judge whether the situation with respect to corruption in Russia as a whole is getting better or not.

The message that I would like to convey though, as a summary, is that we are very committed to this market. It is very important to us. We do not think that the Bribery Act will impact the ability to do business here. And we do not think that its introduction gives us advantage over other law firms. It’s business as usual.