UK Bribery Act 2010: Corporate Hospitality - or When is a Beer a Bribe?

The UK's Bribery Act 2010 (the "Act") will come into force on 1 July 2011. The accompanying guidance from the Ministry of Justice (“MoJ”), Serious Fraud Office (“SFO”) and Director of Public Prosecutions (“DPP”) was published on 29 March 2011. Many companies’ minds will, therefore, now focus on its implications for day-to-day business. In order to prepare suitable guidelines for employees, and to establish a consistent policy for compliance, it is inevitable that much discussion has focused on what can truly be considered unacceptable conduct under the Act. Perhaps unsurprisingly, the area causing the most consternation, and creating the most column inches, is the issue of corporate hospitality or, more precisely, at what point does a beer become a bribe? Some reassurances as to what is acceptable, and what might attract enforcement action, have been included in the MoJ’s final guidance. As this alert will show, however, the MoJ’s comments simply confirm the position as it has always been based on the wording of the Act itself.

In the UK, and elsewhere, corporate hospitality is an accepted part of business life and culture. Major sporting events overflow with corporate tents plying the guests with food and drink. Many meetings are conducted in the comfort of restaurants, and deals are still undoubtedly sketched out on the back of beer mats. There has been, however, a mounting fear voiced in the press that the Act might put an end to all that, as companies take an excessively conservative approach to compliance, with resultant negative effects for the economy and competitiveness of British business. Indeed, this appears to have been a driving force behind the decision that the Government should look once again at the Act as part of its general Growth Review.

It is undoubtedly true that if a form of corporate hospitality is used with the corrupt intent to induce someone to behave improperly, then it can be considered a bribe and criminal and civil penalties may follow. It is, however, scaremongering to suggest that the only suitable response to this Act is to adopt a zero tolerance approach and bring an end to all client entertainment forevermore. This position has now been confirmed by the MoJ in its guidance. Many have pointed to the fact that the US’ equivalent of the Act, the Foreign Corrupt Practices Act (“FCPA”) has what is known as an “affirmative defence” that applies to legitimate promotional expenses. If US companies have this get out provision, why should the Act be more draconian? That, however, is a too simplistic view. The reality is that the promotional expenses affirmative defence has rarely been used and is widely viewed as mere window dressing. For the expenditure to constitute a bribe in the first place, there needs to be some corrupt intent. If the expenses are legitimate and bona fide, it is highly unlikely the corrupt intent element of the offence will be satisfied.

That same analysis is true for the Act. For an act of corporate hospitality to be caught as a bribe, there needs to be an intent to induce improper conduct, and there needs to be a link between the entertainment and the inducement. This means that rather than adopting a blanket policy on corporate hospitality, a case-by-case approach is more appropriate.

That said, a workable compliance policy will need sensible guidelines that can easily be applied and followed by all employees. These guidelines should be appropriate in the context of where the business is active, and what is generally seen as acceptable in the relevant industry. The key message from the MoJ’s guidance is that policies should be proportionate. They need to be sufficiently clear to enable employees to decide what they can and can’t do, when approval from senior management is required and what records should be kept.

As such, one pragmatic solution may be to select a value limit, above which all hospitality will need to be cleared in advance with a senior management figure. Other steps to monitor potential troublesome hospitality should be put in place. Any gifts received, or given, should be logged in a register which is subject to regular audit to pick up any concerning trends.

Whilst this might sound like a lot of work, the likelihood is that most companies will already have procedures in place that perform most of these functions. For instance, it may be possible to simply tweak expense approval procedures in order to achieve the twin aims of financial accountability, and ethical compliance.

It is a given that any form of corporate hospitality is offered with the hope of building relationships and winning work at some point in the future. The tipping point, however, with regards to the offences under the Act, occurs when it is the intent of the host to influence the activities and decisions of his guests by virtue of the specific act of hospitality. As such, the lavishness of the hospitality, and its proximity to big decision making on the part of the guests, will be crucial factors.

Ultimately, the compliance framework should be established, and will undoubtedly evolve on, a common sense basis. For example, it is intuitive to declare that cash gifts will always be unacceptable. Likewise, it is easy to understand that that the relationship building benefits that flow from taking a contact to a sporting event are more questionable if you simply give them the tickets to go by themselves. So, will the Act be the death knell for corporate Christmas gifts? Possibly, but did a bottle of champagne ever achieve that much more than a handwritten personal message in a card? Real development of relationships comes from personal interaction, and that is not being outlawed by the Act, regardless of what some cynics might suggest.

As we try to shake off the negative effects of the economic crisis, it is understandable that business leaders will want to speak out against unnecessary beaurocratic burdens placed on them by Government which genuinely restrict their ability to be competitive. Compliance with anti-bribery and anti-corruption measures should, however, be viewed positively, rather than railed against. If implemented sensibly and sensitively, with an embedded understanding of the practical and commercial realities faced by the company, a compliance policy and procedures that meets the standards required by the Act is achievable and, ultimately, should be positive for the company’s profile and reputation and business in the sector as a whole. With a focus on proportionality, and the MoJ’s guidance confirms that some of the alarms bells had been ringing prematurely.