Corporate directors, already laboring under the weight of expanded regulatory reach in the United States, will soon have more regulation to deal with. The much-debated U.K. Bribery Act could take full effect by September, says Debevoise & Plimpton LLP European Chair of Litigation Lord Peter Goldsmith, and directors are right to be concerned. Goldsmith should know a thing or two about the Act since he was U.K. Attorney General during its initial formation. Some simple preparations will avert most problems for American corporate board members, Goldsmith said. Better still, years of experience under the Foreign Corrupt Practices Act (FCPA) may put U.S. firms at an advantage.
The Act is not going to go away. Of this Goldsmith is certain. Many business leaders both here in the U.S. and overseas have seen the delay in its release as an opportunity to lobby the government to change or scrap the rule. They fear its broad scope will significantly damage the ability of companies to do business and exposes directors and management to undue risks. “The legislation will not be changed,” he says. “That is not going to happen. It would take too long to do. The guidance is plainly in draft already—we know that.”
When will final guidance be released? Goldsmith expects the government to act this spring followed by a three- or four-month grace period. The delay is, in his eyes, understandable: “The legislation took a long time to build and certain elements, mainly the new provision making it a corporate offense to prevent bribery, were controversial. It was partially sold on the grounds that the government would provide adequate procedures and guidance but when they got into it the guidance was a lot tougher to write than anyone thought. So they are rightly taking their time with it.”
The focus of complaints from business leaders is that the rule is too broad. Unlike the Foreign Corrupt Practices Act (FCPA), which applies specifically to payments made to government officials, the U.K. Bribery Act applies to any individual or group and to almost any type of payment made to encourage someone to conduct business with a company.
The problem, according to opponents, is that there are many legitimate business payments and activities that could fall under the rule. When the rule first emerged, many companies completely ceased the practice of corporate hospitality. Is that a legitimate concern? While sensitive to the concern, Goldsmith does not believe so. He cites the example of a U.K. company that, in the natural course of doing business, brings a potential investor or partner to the U.K. to visit a production facility in the Midlands. The company provides airfare, lodging, food and other related expenses for the duration of the visit. “This would probably not be a problem,” he says. But if the company was to bring the entire family and put them up in a fancy, five-star, no-expenses-spared luxury London hotel, “Well, that will not work,” he says. The obvious problem is that there is so much in between. And, it is exactly this “in between” that managers are concerned about.
“I can understand the concern because the guidance is not there. What is being said is that reasonable and proportionate hospitality is fine but what does reasonable and proportionate mean? That is one of the big issues that the guidance has to deal with and I think it is going to be quite difficult for them [the U.K. government] to deal with it.”
Given the very real likelihood the official guidance will be at best vague on this issue, Goldsmith suggests some simple tests to apply to corporate entertaining expenses:
Be reasonable – would a reasonable person question the size or type of spending? Is it the sort of thing that your auditor will pass without raising an eyebrow? Is it something you could justify easily in public?
While companies are very worried about the potential impact of the Act, Goldsmith points out that perhaps the most important precaution for a company, and especially its board of directors, to mitigate the risk of falling afoul of new laws is to formalize a compliance program. “In short, it is about preparation,” he explains.
Richard Alderman, director of the U.K.’s Serious Fraud Office, has told companies that “if we can see a company that has thought about this and has produced a policy that is internally consistent and that they actually apply then we are very unlikely to criticize them for what they are doing.”
Goldsmith agrees: “Preparation of a robust compliance program is going to be the best defense against all of this”
This is good news for U.S.-based companies that are used to dealing with the FCPA as many of them already have robust compliance and fraud detection programs in place. That takes them a long way down the road to full compliance with the U.K. law. What might be even more important is that, unlike in the U.S. where a compliance plan is not a defense but may garner leniency at sentencing, the mere existence of a compliance program could well be an affirmative defense in the U.K.
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