The Bribery Act's operation has uncertainties particularly for insurers


In a presentation at Lloyd's Old Library, Maxine Cupitt, partner in the law firm's contentious, regulatory and disputes group, spoke out shortly after the government announced that it would be consulting on the guidance for corporates to ensure they had adequate procedures in place designed to prevent bribery being committed on their behalves, the defence to the strict liability corporate offence under the Act. The guidance, it is planned, will be published early in 2011 to allow businesses a familiarisation period before all offences under the Act come into force in April 2011.

The Bribery Act, which received royal assent in April this year, creates new statutory general offences of bribing, and being bribed, in circumstances that involve the improper performance of a relevant function. The Act creates new statutory offences of bribing a foreign public official and the corporate strict liability offence, which makes corporates automatically guilty of an offence when someone performing services on their behalf and intending a business advantage for the corporate commits an active general bribery offence or bribes a foreign public official.

According to Cupitt, this leads to uncertainty. "What, for instance, is a relevant function? It is as yet unclear, especially in the private sector. It is likely a body of case law will be needed over time to provide clarity." Another area of uncertainty concerns facilitation payments, where the government has stated that there will be zero tolerance. The government will not seek to provide exemptions for such payments, unlike US legislators. "In practice, however, prosecution will follow only where there is a realistic prospect of successful conviction, and it is in the public interest. Businesses may therefore be reliant on prosecutorial discretion in determining their business practices. This is not a satisfactory state of affairs."

There is further uncertainty. For instance, under the Act, the corporate offence will apply when an act of bribery is committed that involves a company that "carries on a business, or part of a business" in the UK and by a party that performs services on the company's behalf in any capacity. Cupitt said: "The UK branch office of a foreign company would be caught under this offence, but it is unclear what else would fall into this category. There is no definition of 'part of a business' and no guidance." The meaning of "performing services" is unclear. "This clearly covers employees but who else is also caught by this description? Agents, joint ventures?"

Cupitt said that the Act gave rise to issues affecting the whole market, including broker remuneration, corporate hospitality and adequate procedures. For the market, the Act should be considered not as out-of-the-blue but rather as a continuation of established regulatory interest in anti-bribery issues and with a wider regulatory context. Brokers were clearly seen as in the front-line in terms of payments to third parties. "From an organisational and a regulatory perspective, insurers and reinsurers should take a close interest in what payments were made to whom, given their regulatory obligations and that, as a matter of mechanics, they are part of an insurance chain. This becomes, therefore, a matter for the whole market."

Remuneration: bribery risks

Cupitt said that, in the wider context, the Financial Services Authority was giving a lot of attention to remuneration, although no market-specific remuneration code had yet been issued. In its May 2010 report on anti-corruption measures in commercial brokers, the FSA highlighted the need to minimise bribery risks through appropriate remuneration structures.

The report expressed concern about payment of large bonuses to producing brokers as a direct reward for premium income or business volumes, particularly when the winning of business involved payments to third parties, as this could increase bribery risks.

The FSA will be reviewing the payment of commission during 2010/11, just as the Bribery Act comes into force. Cupitt said: "Commission payments have been an area of focus for the FSA in the context of the potential for conflict of interest, and of transparency. Contingent commissions where the broker is, for instance, rewarded by the insurer for volume of business placed, give rise to additional issues, since they bring increased potential for conflict and there are different views in the market as to their appropriateness."

She said that the Act itself did not render such arrangements proper or improper. "My view is that if arrangements in place were improper before the Bribery Act, then they will remain improper once the Act enters force and, importantly, vice versa. The difference is that the Bribery Act criminalises the misconduct." She said that such arrangements were likely to face increased scrutiny. "It is very important for brokers and insurers to consider what is appropriate and decide what their policies will be on contingent commission. They would do well to document those policies and the rationale for them, and to ensure the policies are followed and that any such arrangements are made transparently with the insured."

Corporate hospitality

Cupitt also noted uncertainties as to how the Bribery Act would apply to corporate hospitality. She queried what, in the context of corporate hospitality, constituted the giving of an advantage in circumstances that involve the improper performance of a business activity? "Despite words of reassurance from the government, as the bill passed into law, that the government was not seeking to discourage corporate hospitality 'to the extent that reasonable hospitality is a normal part of business', the position remains entirely unclear. It is most uncomfortable for businesses to rely on prosecutorial discretion when planning their corporate hospitality policies, and there is currently no intention to provide further guidance in this area."

In relation to the corporate offence under the Act, the defence is where a company can show that it had adequate procedures in place to prevent bribery. Cupitt said that, for regulated entities, "adequate procedures" should not be an alien concept. "They are better equipped than non-regulated entities. They understand concepts such as the importance of having the procedures driven from the top, risk-based and actually implemented." The government is to launch a short consultation on what constitutes adequate procedures in September this year, with a view to publishing broad statutory guidance in early 2011.

Cupitt said that to consider the FSA May 2010 report was a good practical place for the market, insurers and reinsurers as well as brokers, to start when reviewing current procedures. The report did not purport to set out what constituted adequate procedures.

Cupitt said, in summary, that the insurance market needed to comply with the Bribery Act but very much as part of the wider regulatory picture. "The UK is not as clear of corruption as one would want it to be, judged on Transparency International's Corruption Perceptions Index 2009, and there has, perhaps, been a degree of complacency about these issues in the UK."

According to Cupitt, for the insurance market, the Bribery Act is simply another part of a continuum: "Get involved in the September 2010 consultation and don't wait for the 2011 guidance before ensuring your 'adequate procedures' are in place.

I'd strongly advise acting now, if you are not already, to get in shape."

For more information, visit CMS Cameron McKenna's Anti-Corruption Zone.