When a gift becomes a bribe

March 02, 2011
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Perhaps a goodie bag from a supplier at Christmas … maybe some mince pies, rum truffles, and Christmas cake … or a few Blu-ray and DVD discs to entertain the family on either side of the Queen’s speech. Such trivial gifts are not likely to influence most in the retail supply chain, but employers will have to consider at what point acceptable corporate hospitality becomes outright bribery and corruption when the Bribery Act 2010 comes into force later this year.

For companies throughout the entertainment supply chain, the conundrum lies in where to draw the line between normal social interaction and a deliberate attempt to pervert business relationships.

The “payola” scandal in the United States came to a head at the end of the 1950s, when radio and TV station management fired DJ Alan Freed for taking bribes from record companies to play records. Instead of making it illegal to “pay for plays”, the response from Congress in 1960 was to make mandatory the full disclosure of financial inducements. Now out in the open, payments continued to slip into the pockets of anyone able to influence the charts while the word payola passed into the dictionary.

The Foreign Corrupt Practices Act (FCPA) of 1977 went much further when it made bribery of foreign government officials a federal crime whether directly or through intermediaries. The Department of Justice interprets the term “government official” very loosely. For example, an employee of a Chinese company that sells DVD packaging materials might come into this category since most businesses in the PRC are ultimately state-owned or backed.

Following concerns that the FCPA could put American companies at a disadvantage in countries where lavish hospitality is not classed as a bribe and could even be tax-deductible, the US government lobbied for international agreement. At a meeting of the Organization for Economic Cooperation and Development (OECD) in November 1997, 34 countries signed an anti-bribery convention that incorporated many of the FCPA provisions.

The UK ratified this convention the following year and the government asked the Law Commission to submit proposals for the reform of British bribery laws dating back to the “Prevention of Corruption Acts” of 1889-1916, which were still in force. In 2000, the government released a white paper on the subject, followed by a draft bill in 2003, which Parliament promptly rejected.

Following a consultation exercise in 2005, the Law Commission eventually issued a further report on “Reforming Bribery” in November 2008, which included the draft of a “bill to make provision for offences relating to bribery and for connected purposes”.

Finally, the Bribery Act 2010 received royal assent last year in the dying days of the previous government. It was due to come into force in April but for a government-declared three-month moratorium in order to make it “comprehensible for business” although no new date has been set.

The CBI strongly supports the act, subject to the outcome of the review. Principal Policy Advisor Jim Bligh says, “This temporary delay will give the government more time to make sure the legislation is workable. It is far better to get the guidance right than it being a fudge that ends up harming UK competitiveness.”

He says he looks forward to what he describes as “a consolidated, simplified and modernised set of bribery laws,” though he warns that if agents, intermediaries, joint ventures or supply chains should take part in a bribery offence anywhere in the world, it could lead back to any company that is registered, operates or is based in the UK.

“Providing greater certainty in areas, such as hospitality and third-party services, will strengthen the act, and give companies the confidence they need to do business abroad. When this act comes into force, the UK will have a strong and comprehensive anti-bribery law in place,” says Bligh.

In a CBI video, Bligh recommends “companies should have an anti-bribery policy in place that everybody across the world knows about. They should make sure that somebody at board level takes the lead for this policy and ensure that it is being implemented effectively in every operation across the world.”

He advises that companies should have whistle-blowing policies in place to ensure that, once companies identify bribery, they deal with it and remove in the quickest possible way. The Act acknowledges that an acceptable defence is to demonstrate that “adequate procedures” are in place to prevent bribery taking place and companies must ensure that this is so, he says.

Despite this advice, a survey released by accountancy firm KPMG reveals that more than one in eight UK companies lacks a written anti-corruption plan. Forensic Practice Head Alex Plavsic says that businesses will need precise details of the circumstances under which a meal or gift could be considered a bribe in order to stay within the law.

The position of corporate hospitality gives rise to the greatest doubts about the implementation of the Bribery Act, with one executive remarking, “Walk around London and you’ll see the rules being broken everywhere.” Company boxes at Twickenham, Murrayfield and the Millennium stadium are among many sporting venues affected by the new act, if it goes ahead in its original form.

The Law Commission attempts to clarify the position in Appendix D to the Draft Bill: “Where entertainment is only one factor in the employee’s mind in favour of doing business with the supplier, placing business with the supplier is not bribery. If, however, the entertainment is the main factor in the employee’s mind, overwhelming all other considerations, it would amount to bribery because it would then be the primary reason for doing business with the supplier.”

Their lordships evidently envisage the employment of mind readers whenever the topic of entertaining arises.

Elsewhere in Appendix D, the Law Commissioners acknowledge that in “run-of-the-mill” cases, to give and receive hospitality remains outside the scope of the law. Even in a private sector context, however, “the provision of hospitality may be of such a nature or extent that it amounts to an inducement to employees or agents… to breach an expectation that they will act in good faith.”

They quote the example of “a lap dancing club, where the company providing the entertainment intends the employees to feel obliged to favour the company in case the nature of the entertainment they receive comes to the attention of their employer.” Whether this applies when a modern-day Erica Roe streaks across a rugby ground is not clear.

Lord Tunnicliffe, then “government Spokesperson for the Ministry of Justice”, said in a January 2010 letter, “Corporate hospitality would … trigger the offence only where it was proved that the person offering the hospitality intended the recipient to be influenced to act improperly. Obviously lavish or extraordinary hospitality may lead a jury to reach such a conclusion but, as the Director of the Serious Fraud Office told the Joint Committee, ‘most routine and inexpensive hospitality would be unlikely to lead to a reasonable expectation of improper conduct’.”

Anyone who hopes for examples of “improper conduct” at future corporate events is likely to be very disappointed when the Bribery Act 2010 becomes law.