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ARC: A WORLD OF RISK: MANAGING FOREIGN BRIBERY AND CORRUPTION EXPOSURES

U.K. bribery law expands corporate exposures

Government sets out expectations to firms on risk assessments

LONDON—Businesses that operate in the United Kingdom should have a risk assessment process in place to address bribery risks and avoid penalties under an updated U.K. anti-corruption law that goes into effect July 1, experts say.

The U.K. Ministry of Justice published guidance on the Bribery Act approved last year, which updates and replaces bribery laws dating back to 1889.

Aside from offenses that could result in an individual or company being found guilty of bribery previously, the new law adds the offenses of offering or receiving a bribe, bribing a foreign public official and even failing to prevent a bribe being paid on an organization's behalf.

The scope of the law extends not only to employees, agents or subsidiaries of a company but also to cases where bribery committed by or on behalf of suppliers and joint ventures directly benefits the company. It also applies to any act of bribery committed anywhere in the world by, or on behalf of, a company that carries out business in the United Kingdom.

While corporate hospitality is allowed under the law, companies must be able to demonstrate that such hospitality is bona fide, a business norm and not extravagant, according to the Ministry of Justice.

Penalties for violating the Bribery Act include fines for companies and individuals that are unlimited and jail terms of up to 10 years.

Most criminal fines are not covered by directors and officers policies and insurers are not allowed to write the coverage.

In its guidance at www.justice.gov.uk/guidance/docs/ bribery-act-2010-guidance.pdf, the Ministry of Justice said companies would be expected to carry out periodic bribery risk assessments and keep records of the processes and conclusions they reach.

“Businesses now need to use the next three months to revise their anti-bribery policies (to be) ready for the act's implementation,” Katja Hall, chief policy director at the London-based Confederation of British Industry, said in a statement.

“It is now more important than ever that companies ensure that they have a robust risk assessment process in place,” said Kirsty Searles, a partner in the anti-bribery and corruption controls team at Deloitte L.L.P. in London.

“Ethical trading and reputational risks are high-profile” for U.K. risk managers, said Paul Hopkin, technical director of the London-based Assn. of Insurance & Risk Managers.

The Justice Ministry Bribery Act guidance is “quite pragmatic,” Mr. Hopkin said, and will be welcomed by risk managers trying to ensure that their company complies with the new rules.

Risk assessment is one of six principles outlined by the 45-page guidance.

Risk managers at U.K. companies should facilitate workshops and discussions among different areas of their organizations, such as sales and marketing departments, to ensure the risk assessments are robust, according to Mr. Hopkin.

Aside from risk assessment, the other five principles the Ministry of Justice outlined are:

c An organization's anti-bribery principles should be “clear, practical, accessible, effectively implemented and enforced.”

c Senior managers must be committed to tackling bribery.

c Due diligence of “associated persons,” such as agents, should be part of bribery risk assessment and should reflect a “proportionate and risk-based approach.”

c Anti-bribery policies must be communicated effectively within a company and externally.

c Anti-bribery policies and processes must be monitored and reviewed.

“Taken together, the six principles embody the key facets that well-run companies will already have in place, and which will enable and accelerate business success in overseas markets,” said John Conyngham, group legal counsel and global director of corporate investigations for London-based consultant Control Risks Group Ltd.

Businesses in the United Kingdom must ensure that they have adequate processes and policies in place before July 1 to protect themselves from violating the law, said Steve White, head of compliance and training at the London-based British Insurance Brokers' Assn.

The fact that overseas companies may fall under the scope of the U.K. Bribery Act means they also must make sure they comply with the law, experts say.

Even so, the Ministry of Justice said “combating bribery is about common sense, not bureaucracy” and a company's anti-bribery policy “should be proportionate to the size and nature of the business.” For example, small companies “can rely heavily on simply telling staff verbally,” according to the guidance.

There are several differences between the U.K. Bribery Act and the U.S. Foreign Corrupt Practices Act, said Rachel Cropper-Mawer, legal director at law firm Clyde & Co. L.L.P. in London (see box, page 3).

While the FCPA covers bribery of foreign public officials by companies and individuals, the Bribery Act also covers any other form of bribery that leads to any business advantage by companies or individuals, she said.

In addition, facilitation payments—monies paid to speed up functions or services to which the payer is legally entitled—are, in some cases, permitted under the FCPA, but not under the Bribery Act, she said.

Another major difference between the two laws is that fines are capped at $250,000 under the FCPA, but they are unlimited under the Bribery Act.

While criminal fines are not insurable under D&O policies, individuals may be able to recover some of the costs of defending bribery-related cases until the case is completed, provided they are named on the policy, said Kurt Rothmann, a partner in the financial risks division of JLT Specialty Ltd., a unit of London-based brokerage Jardine Lloyd Thompson Group P.L.C.

Only in cases where fraud or dishonesty is proven would insurers be able to seek repayment of any defense-related monies they paid out, he said.

Companies should review their D&O coverage to examine the exclusions and ascertain whether local policies are in place in territories where nonadmitted insurance is not permitted and companies cannot indemnify directors and officers, Mr. Rothmann said. Because the scope of the act extends overseas, and any alleged bribery may become highly politicized, individuals could be detained abroad and need access to local insurance policies to cover defense costs, he explained.

JLT is seeing more client inquiries seeking clarity on the insurance implications of the Bribery Act ahead of its July implementation, he added.

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