On 1 July 2011, the long-awaited UK Bribery Act will finally come into force, affecting not only UK companies but also all non UK-firms that have subsidiaries or other business relationships in the UK or with UK companies.
Passed in April 2010, during the dying days of the UK's last Labour Government, it constitutes one of the strictest anti-corruption laws in the modern age. Under the UK Bribery Act, companies can face liability if its executives commit crimes of bribery or if they are judged to have inadequate anti-bribery procedures.
Commercial organisations will have to implement so-called ‘Adequate Procedures' in order to prevent bribery on their behalf. Also, bribery that takes place in a third country and that is not necessarily linked to the UK, can be prosecuted under the new law. Failure to adapt could mean not only hefty fines, blacklisting from bidding on contracts and significant reputational damage, but also, most damagingly, the prospect of having top management tied up in endless investigations and prosecutions.
George Dallas, Director of Governance at F&C in London, commented: "The big question now is whether overseas companies are sufficiently aware of their potential liability to the UK Act. They will have to adapt to this new framework by implementing internal control mechanisms, risk management and transparent information flows."
This will affect companies across different sectors ranging from the German car industry to medium-sized companies, to Swiss banks with strong business relationships with the UK.
In March 2011, the Justice Ministry published a Guidance to try and clarify some open questions and legal ‘grey areas' around the new legislation. However, this Guidance caused concern among investors, including F&C, as it exempted overseas companies listed on the London Stock Exchange from the Act's purview, unless they had other business connections with the UK.
Dallas added: "This raises questions about why capital-raising in London is not regarded as ‘carrying out business' in the UK. We believe that capital-raising is integral to doing business and this last-minute retreat has fundamentally compromised the Act's purpose and effectiveness."
Despite the loophole caused by the Guidance, F&C believes that the Act marks a historic milestone in the UK's efforts to uphold high standards of corporate governance and use its role at the centre of global finance to drive global efforts to curb corruption.
Dallas concluded: "It is good news for investors who have been concerned by the escalating anti-corruption crackdowns and multi-million-dollar fines involving a growing number of blue chip names. F&C has played an active role in pressing for the passage of the UK Bribery Act and welcomes its implementation. Corruption will now swiftly move from being the tempting but morally-wrong thing to do to win lucrative contracts, to career and corporate suicide for any company or board that is foolish enough to indulge in it."
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