The UK Bribery Act 2010 incorporates Section 7 entitled "Failure To Prevent Bribery." This section has been established with the purpose to set out company liability for corrupt activity committed by their employees or associated persons, which demonstrates the intention to create an advantage in the conduct of business for their organisation. If an organisation can prove that they have implemented adequate procedures to protect against bribery and corruption, then they will be protected, if they cannot demonstrate this, then they will be at risk of an unlimited fine. Therefore, sound understanding of Section 7 of the Bribery Act 2010 is essential.
How does Section 7 of the Bribery Act work?
The Ministry of Justice has published guidance on the new Bribery Act 2010, as it anticipated confusion surrounding the new reforms. However, most of this confusion is directed at Section 7 of the act, as this has been newly introduced.
Section 7 states that a commercial organisation will be found guilty of a bribery offence if a person associated with the organisation has been found guilty of bribing another individual with the incentive to:
- Obtain or retain business for their organisation
- Obtain or retain a business advantage for their organisation.
The penalty which will be administered to the organisation will consist of:
- The individual (employee or associated person of the organisation) liable on conviction on indictment to a fine.
- The organisation will also potentially face an unlimited fine.
The only way that an organisation could protect itself from this risk, is through implementing adequate procedures, which are stated in the Bribery Act 2010 as:
1) Proportionate procedures. This states that the organisation's procedures, which are intended to prevent bribery offences, are proportionate to the bribery risk which the organisation could potentially face.
2) Top-level commitment. This is a demonstration of an organisation's board of directors' commitment to preventing bribery and the creation of an environment which does not tolerate bribery and corruption.
3) Risk Assessment. An organisation needs to demonstrate that they have conducted an assessment to analyse the potential outlets which could create a risk, this risk assessment needs to take place periodically.
4) Due diligence. The due diligence procedures conducted by organisations need to be proportionate and risk based, in respect of the individuals who will be performing services for the organisation.
5) Communication. It is expected that communication and training on bribery offences are conducted, to ensure that bribery prevention is well understood and known across the whole organisation.
6) Monitoring and review. This is the demonstration that an organisation regularly reviews and updates their bribery prevention policies and procedures to ensure they are still appropriate.
Why is Section 7 incorporated into the Bribery Act 2010?
The rate of bribery offences and avoidance of bribery and corruption law has been increasing, and therefore there needed to be a concerted effort by legislative bodies to respond to this issue. Therefore, through holding companies liable for corruption exercised by their employees, it will promote a culture which is conscious of anti-bribery and corruption.
The reaction to Section 7:
The reaction to Section 7 has certainly been mixed. The "failure to prevent" model, which Section 7 is based upon, has been regarded as widely attractive, and this model has now formed the basis of other legislations in the UK, for example the "failure to prevent" facilitation of tax evasion. Moreover, Ireland and Australia have exposed how they are considering similar legislation to this, and Kenya has even adopted "failure to prevent" corporate offences.
However, Section 7 is not so popular amongst the business sector, as they have had to tackle the confusing aspect of this new reform. For example, there has been suggestions that Section 7 violates the principle of fair warning, and organisations are entitled to have this fair warning. Furthermore, there has been questioning over what defines "failure" of prevention.
Ultimately, organisations will have to comply with the Bribery Act 2010, and subsequently Section 7 of this act, if they want to avoid prosecution. Therefore, education and training of how to implement Section 7 properly, will be beneficial to organisations if they want to create a fair business culture.