Thursday, March 31, 2011

The Clock Has Started Ticking: Guidance to the UK Bribery Act 2010 Published Today

The UK Government has today confirmed that the Bribery Act 2010 (the Act) will come into force on 1 July 2011 and has published the much anticipated final version of its Guidance for commercial organizations about how they can reduce their exposure to bribery offences under the Act. A Quick Start Guide has also been published that sets out the key points.

For the purposes of the Act, a bribe is effectively the giving or receiving (or the offer or promise to do so) of a financial or other advantage with the intention of bringing about the "improper performance of a function or activity". The Act consolidates existing offences of offering or receiving a bribe, bribery of foreign public officials and introduces a new corporate offence of failure by a commercial organization to prevent a bribe being paid or received on its behalf. It will be a defense for an organization to show that it has "adequate procedures" in place to prevent such bribery. The long-awaited Guidance is important as it provides clarification in relation to what will constitute "adequate procedures".

The final version of the Guidance is formulated around six general principles:

• proportionate procedures;
• top-level commitment;
• risk assessment;
• due diligence;
• communication; and
• monitoring and review.

These principles largely follow those contained in the draft Guidance, previously published. As emphasized by Lord Chancellor Kenneth Clarke in his announcement today, following these six general principles and combating bribery is very much about adopting a common sense approach to addressing the organization’s exposure to bribery.

The Government also appears to have heeded concerns raised in consultation on the draft Guidance and has attempted to minimize those concerns. The clear emphasis in the final Guidance is that a proportionate approach to the implementation of "adequate procedures" is very much all that is necessary. Small businesses and organizations operating in low risk areas will require only modest procedures to mitigate their risks under the Act. In contrast, large scale, multinational organizations operating in high risk areas will be under a more onerous obligation to ensure that their duty to implement adequate procedures is properly discharged.

Helpfully, the Government has also given further clarification in relation to the following areas:

Corporate Hospitality: One of the main criticisms leveled at the draft Guidance was that it did not provide clear advice on what level of corporate hospitality could be provided without exposing the organization to an investigation and potential prosecution. The final Guidance seeks to address these concerns and wants to reassure businesses that "bona fide hospitality and promotional, or other business expenditure which seeks to improve the image of a commercial organization, better to present products and services, or establish cordial relations" is not prohibited by the Act. The Government does not intend for the Act to prohibit "reasonable and proportionate" hospitality and promotional expenditure incurred in "good faith" for these purposes and that prosecutors would take into account the standards or norms applying in a particular sector when considering whether bribery had taken place. The Guidance makes clear however that it is still for businesses to establish and disseminate appropriate standards for hospitality and promotional or other similar expenditure. The Quick Start Guide states that tickets to sporting events, taking clients to dinner, offering gifts to clients as a reflection of your good relations or paying for reasonable travel expenses in order to demonstrate your goods or services to clients will not amount to bribery as long as they are proportionate to your business. Lord Chancellor Kenneth Clarke has assured businesses that the Act does not stop them getting to know their clients by taking them to events like Wimbledon, Twickenham or the Grand Prix.

Facilitation Payments: As widely anticipated, the final Guidance makes it clear that facilitation payments (small payments paid to facilitate routine Government actions) are still unlawful, but says that it recognizes the problems that businesses face in some parts of the world and in certain sectors. The Quick Start Guide states that businesses can continue to pay for legally required administrative fees or fast-track services as these are not facilitation payments. The Guidance also recognizes that the common law defense of duress is likely to be available where individuals are left with no alternative but to make payments in order to protect against loss of life, limb or liberty. Separate prosecution guidance has also been issued today, stating that prosecutions will normally be instigated unless there are public interest arguments to the contrary. Large or repeated payments, or payments that were planned for or were accepted as a standard way of conducting business are stated as factors tending in favor of a prosecution.

Commercial Organizations: Only a "relevant commercial organization" can commit the corporate offence under the Act. A "relevant commercial organization" is defined as a body or partnership incorporated or formed in the UK irrespective of where it carries on a business, or an incorporated body or partnership which carries on a business or part of a business in the UK irrespective of the place of incorporation or formation. The key concept here is that of an organization which "carries on a business". The Courts will be the final arbiter as to whether an organization "carries on a business" in the UK taking into account the particular facts in individual cases. As regards bodies incorporated, or partnerships formed, outside the UK, whether such bodies can properly be regarded as carrying on a business in any part of the UK will be answered by applying a common sense approach. The Government anticipates this to mean that organizations that do not have a demonstrable business presence in the UK would not be caught. It would not expect, for example, the mere fact that a company’s securities have been admitted to the UK Listing Authority’s Official List and therefore admitted to trading on the London Stock Exchange, would qualify that company as carrying on a business or part of a business in the UK.

Associated Persons: A company will only be guilty of failing to prevent bribery if a bribe was paid by a person associated with it. A person is associated with a business if that person performs services for or on its behalf, which is to be determined by reference to all the relevant circumstances and not just by reference to the nature of the relationship. The final Guidance seeks to address concerns that businesses could be liable for third parties over whom they have no control. It states that associated persons could include employees; agents; contractors; suppliers where they are performing services rather than simply acting as a seller; joint ventures where the bribe is paid for a member of the joint venture and with the intention of benefitting that member; and subsidiaries if the bribe was made to benefit the parent company. The Guidance makes it clear however that indirect benefit is not sufficient to constitute an offence.
The Guidance also provides 11 case studies to assist organizations to identify what procedures they should introduce to prevent acts of bribery within their organizations and for which they may be culpable.

Is the final Guidance helpful? I believe it is, and the risk-based approach will be welcomed by most organizations. However, it does not (and in all fairness, could not) provide all the answers. Businesses will still have to be pragmatic in their assessment of their risk and take a common sense approach to the adequate procedures that are required to minimize those risks.

The final Guidance places great emphasis on "proportionality", "common sense" and "public interest". As the cuts in public expenditures begin to bite, it is anticipated that "prosecutorial discretion" will be exercised sparingly to target the minority of organizations that are responsible for the most serious bribes or for allowing the continued practice of corruption to exist within their business. However, every organization that is touched by this Act needs to review its risk profile and decide upon the antibribery and corruption program it requires in order to protect itself from enforcement action.

Tuesday, March 22, 2011

Japan's Nuclear Woes Make Bi-Partisan Energy Bill Unlikely

Problems with nuclear power plants in Japan make it less likely Congress will pass significant energy-related legislation before the next election. Republicans and Obama found common ground on nuclear as part of energy policy, so it would have been critical for a bipartisan energy bill. However, in light of recent events in Japan, it will be much more difficult to promote the use of nuclear power.

Republicans have advocated streamlining the approval process for nuclear power plants, making them easier and cheaper to build. After what has transpired in Japan, it will be nearly impossible to advocate a less rigorous approval process. Nonetheless, Republicans in the House of Representatives have stated they will attempt to (A) pass individual, targeted bills rather than comprehensive legislation, and (B) bring to a vote bills to open more federal land and waters to oil and gas drilling, (C) promote the use of natural gas vehicles, (D) block a variety of EPA rules, and (E) obtain approval for the Keystone pipeline, allowing oil produced in Canadian oil sands to be transported to Gulf coast refineries.

Obama and the Democrats have adopted a “clean” energy standard that would require a shift away from coal to nuclear and renewable energy. Again, since nuclear was going to lay the groundwork for a bipartisan energy bill, the odds of grand bargain have diminished.

A factor that could raise the odds of an energy bill is higher gasoline prices. Gasoline prices have been on the rise and may reach levels where they become a political issue since many analysts tie presidential approval ratings (in part) to gas prices.

Friday, March 18, 2011

Offshore Safety: Repackaging RP75

Although most Americans don't know it, Macondo is nothing new and neither is the importance of safety as a driving force in offshore operations. A defining event for offshore safety management was the Piper Alpha incident that occurred in the North Sea in 1988. The loss of 147 lives and the destruction of the platform unequivocally demonstrated that the offshore industry needed to improve its safety management practices. The industry has been focused on improving safety ever since.

Yesterday the American Petroleum Institute (API) announced it is establishing a "Center for Offshore Safety" (to be based in Houston) upon the recommendation of the Presidential Oil Spill Commission.

The Center's purpose is to promote the implementation of "Recommended Practice for Development of a Safety and Environmental Management Program (SEMP) for Offshore Operations and Facilities" or "RP75".

RP75 was first issued in the year 1993 and the latest update was published in May 2004. RP75 is a recommended practice, not a regulatory requirement. It describes how offshore operators can create a Safety, Environmental Management Program. RP 75 incorporates input from many organzations including BOEMRE, the Coast Guard, the Offshore Operators Committee, the National Ocean Industries Association, the Independent Petroleum Association of America, and the International Association of Drilling Contractors.

RP75 was recently incorporated into federal regulations by BOEMRE.

To the public, the Center appears to be a hallmark of good government regulating an industry gone bad. In fact, the BOEMRE regulations adopt what has largely already been developed by industry in the form of RP75. The difference is that the elements of RP75 incorporated into the new regulations are no longer mere recommendations.

New regulations mean new compliance costs. The question is how much those costs will be and how will companies monitor and report on compliance? Will the Center step in to assist companies in doing so? That remains to be seen. It is still unclear what form the Center will take, how it will operate, and how it will be funded.

Does your company envision participation in or providing funding assistance to the Center? If so, what are your company's plans? Tell us what you think about the Center and the implementation of RP75 in the new regulations.