Practical Law

This summer marks the first anniversary of the coming into force of the Bribery Act 2010 in the UK. Many contractors and others within the construction and infrastructure sectors have reviewed their compliance systems since the introduction of the Bribery Act.

With the emphasis in the Government Guidance on taking a risk-based approach, how might organisations use anti-corruption clauses effectively in their contracts with their supply chain and sub-contractors? What level of protection is provided by such clauses? Where are the potential pitfalls?

The new offences

The Bribery Act 2010 introduced four new corruption offences: paying bribes, receiving bribes, bribery of a foreign public official, and failure by a commercial organisation to prevent bribery. The key development is the new corporate criminal liability for failure to prevent bribery.

Under the key new offence, a commercial organisation is now criminally liable where someone associated with the organisation (an associated person) bribes someone else, intending some form of business advantage for the company. The only defence for the organisation is to demonstrate it had “adequate procedures” to prevent bribery.

Adequate procedures and the Government Guidance on contractual provisions

So what are “adequate procedures“? The Government Guidance of March 2011 sets out six principles for a company to consider: proportionate procedures, top level commitment, risk assessment, due diligence, communication (including training) and monitoring and review.

In relation to anti-corruption contractual provisions, the Guidance states:

“The principal way in which commercial organisations may decide to approach bribery risks which arise as a result of the supply chain is by employing the types of anti-bribery procedures referred to elsewhere in this guidance (e.g. risk based due diligence and the use of anti-bribery terms and conditions) in the relationship with their contractual counterparty, and by requesting that counterparty adopt a similar approach with the next party in the chain.”

However, the Guidance does not go in to exhaustive details about anti-bribery terms and conditions. It is clear that contractual protections alone will not be sufficient under the Bribery Act (and similarly, where an organisation has simply introduced a new anti-bribery policy, that alone is very unlikely to suffice, given the six principles in the Guidance).

Exercise caution before relying too heavily on the Guidance’s suggestion that compliance can just be cascaded down the contractual chain in all cases. There will be circumstances where a contractor needs to go further. Here, take note of the broad definition of associated persons in the Bribery Act: a court will look at all the relevant circumstances of a relationship to determine whether a party is performing services for or on behalf of another, so potential liabilities will extend beyond contractual counterparties.

Therefore, compliance steps may need to follow suit, for example, where there are particular higher risks or where a contractor is aware of previous issues involving the wider supply chain.

A possible approach

A number of organisations have chosen to adopt a tiered approach to anti-corruption contractual protections. This can result in groupings of standard clauses, deployed according to different risk categories. In the most straightforward case, dependent on the scope of the contractor’s business in the UK and elsewhere, this might create as few as two tiers. For example:

• Standard terms for lower risk relationships. (For example, UK supply chain partners to whom the Bribery Act also applies and have their own adequate procedures in place.)
• Enhanced terms for higher risk relationships. (For example, joint ventures, contracts involving agents, intermediaries, sponsors and consultants, all contracts involving public bodies/governments/state controlled agencies outside of the UK.)

This tiered approach has the benefit of simplicity and proportionality and is risk-based. However, it must be suitable for the contractor’s spread of business dealings and must have additional flexibility to cater for higher risk contracts. In a higher risk scenario, bespoke fine-tuning will often be necessary, notwithstanding the risk-based tiers.

Live by your own standards

Examine proposed clauses to understand whether their implementation is proportionate and achievable. If not, an organisation will be open to criticism that it did not live by the standards it set itself in the contract.

Some organisations decide it is better to adopt a smaller number of anti-corruption contractual controls and enforce each of these effectively, rather than having a wide suite of rights or protections that may never be exercised or properly reviewed. For example, where a contract provides for a party to have access to another’s books and records to conduct an anti-corruption audit, a regulator will be interested to learn if no audits have in fact taken place in the term of the contract.

Some key questions for anti-corruption clauses

Turning to the scope of different types of clause, this checklist provides a non-exhaustive list of issues to consider:

• How does your anti-corruption clause set the parameters of bribery? For example, does it take account of previous corruption laws, given activities prior to 1 July 2011 could give rise to a corruption investigation in future? Does it need to include reference to any other international anti-corruption legislation, such as the US Foreign Corrupt Practices Act?
• Are warranties necessary from contracting parties on the following:
  • that they have in place adequate procedures and/or specific policies and procedures designed to prevent bribery;
  • that they or their associated persons have not breached any relevant anti-corruption laws, are not under investigation, or have not been investigated or convicted for any bribery-related offence;
  • the identity and ownership and control of a counterparty (for example, in respect of influence or connections to foreign public officials); and/or
  • that accurate books and records are maintained?
• Are there rights to review the contract periodically during its lifespan, to consider any corruption concerns that have arisen?
• Are there termination rights for a breach of the anti-corruption clause and what are the triggers to exercise these? If a party would need to be convicted of a bribery offence before termination rights accrue for the other, this may be considered ineffective given the length of time before any corruption investigation or prosecution would normally be concluded.
• Are there obligations on parties to report bribery-related issues to their counterparties? Are these drafted in terms that comply with all relevant other laws, such as money laundering laws on “tipping off”?
• On a risk-based analysis, are enhanced protections required to allow a party to conduct an audit; oblige a party to undertake training; or cooperate with another party during an investigation?
• What obligations are imposed on a party to conduct anti-corruption due diligence on its sub-contractors, agents, and other intermediaries?
• Does the clause require compliance with a party’s own anti-bribery policy or a policy containing similar or equivalent provisions?
• Are any indemnities contrary to public policy and unenforceable? For example an indemnity for criminal fines and penalties.

Start by undertaking a risk assessment and decide whether the relationship requires a standard or more enhanced contractual provision. This will ensure a proportionate approach is taken and unnecessarily burdensome obligations are not included. Through design of a suitable tiered approach, contractors can also avoid the cost and inconvenience of bespoke provisions on all occasions.

This post is a different version of on article published in JCT Magazine earlier this year.