The Bribery Act 2010 received the Royal Assent on 8 April 2010, replacing a ragbag of laws dated 1889-1916. What do advertisers and agencies need to do now to ensure compliance with the new law? Nick Johnson identifies the key changes and action points.
Topic: Regulatory
Who: UK Parliament
Where: Westminster, London
When: 8 April 2010
Law stated as at: 5 May 2010
What happened:
The Bribery Act 2010 received the Royal Assent on 8 April 2010, replacing a ragbag of laws dated 1889-1916.
The Act is expected to come into force by Autumn 2010. It replaces existing bribery legislation with some more straightforward but much more wide-ranging offences. These include the offences of offering a bribe, receiving a bribe, bribery of a foreign official and, importantly, a new offence of failure on the part of a commercial organisation to prevent bribery.
The Act raises the maximum prison term for individuals convicted of bribery offences from 7 years to 10 years. Businesses convicted of failing to prevent bribery face the potential for unlimited fines. The offences apply to British companies, British citizens and UK residents regardless of where the offending activity took place.
The Secretary of State is due to publish illustrative guidance for businesses as to what procedures may be adequate for the purposes of the Act.
Why this matters:
The changes are potentially relevant to just about any business in any industry sector – see Osborne Clarke's Businesses need to act now to ensure compliance with the Bribery Act 2010 for more details.
But there are also three specific ways in which the new legislation may affect advertisers and agencies.
1. Corporate hospitality
Businesses will need to be much more careful as to how they use, and the circumstances in which their people accept, corporate hospitality.
In the course of the Act's passage through Parliament, the Government's spokesman for the Ministry of Justice, Lord Tunnicliffe confirmed in an open letter the Ministry's view that because "lavish corporate hospitality can … be used as a bribe to secure advantages … the offences in the [Act] must therefore be capable of penalising those who use it for such purposes".
The Act does not include any specific defence for reasonable corporate hospitality. So corporate hospitality will always be at risk of challenge under the Act in any circumstances where it can be shown that the person offering the hospitality intended the recipient to be influenced to act "improperly". And businesses will be at risk if they fail to have in place adequate procedures to prevent corporate hospitality being used inappropriately.
As a result we are likely to see a significant shift away from lavish corporate entertainment. In light of the Director of the Serious Fraud Office's stated view that "most routine and inexpensive hospitality would be unlikely to lead to a reasonable expectation of improper conduct", it is likely that those businesses who have not already set tight limits on the nature and value of corporate hospitality that can be offered or accepted will soon fall into line.
We may also see a small industry arising around the need to benchmark hospitality/entertainment activities against industry peers, so as to ensure your business does not step out of line.
2. B2B incentive schemes
The Act potentially impacts on business-to-business incentive schemes, where a retailer's or re-seller's staff are offered incentives by a particular supplier. The supplier may for instance offer prizes or rewards for staff who achieve the highest sales of a particular product.
Under the old legislation, if the employer of those staff had consented to the activity then that would be sufficient to avoid it giving rise to an offence. Under the new Act, it is arguable that even with the employer's consent this kind of activity could amount to illegal bribery if it leads to relevant employees performing their duties in breach of a "relevant expectation" on the part of customers, eg any reasonable expectation as to the employee acting impartially or in good faith in advising on the relative merits of competitor products.
Unless official guidance provides adequate comfort on this point, businesses who have historically allowed their employees to participate in supplier incentive schemes may wish to review their position on these. It may be prudent to discontinue involvement in certain kinds of incentive scheme and/or to ensure that adequate disclosures are given to customers as to any relevant incentive arrangements.
In any event businesses will need to ensure that they have in place clear and effective policies and procedures in relation to incentive schemes.
3. Supplier rebates, volume discounts, unbilled supplies etc
One of the most significant changes in the new legislation is that it does not just cover bribery of employees and agents. Principals acting as independent contractors are also within the Act's remit.
This means that the new law will potentially give advertisers additional grounds on which to challenge arrangements under which their UK agencies may make additional revenue in the form of rebates, discounts etc from their suppliers. (See here for our coverage of the recent German judgment on these issues in the Danone v Aegis case.)
Advertising and media "agencies" in the UK have traditionally acted as principals rather than as agents, so are not subject to agents' duties, including the duty not to make a secret profit. However, if it can be shown that an agency would reasonably be expected to act impartially and in good faith in the performance of its services and had failed to do so by consequence of its commercial arrangements with its suppliers, then the offences under the Act could be argued to apply.
Advertisers may wish to consider reviewing their agency agreement templates and working in some additional "good faith" and "impartiality" language. (This could potentially help in shaping a case under the Act in terms of what a reasonable person in the UK would expect of the agency, bearing in mind what the contract says. Although it must be added that it is far from clear that a court would be persuaded to take the contract's contents into consideration in applying the expectation test under the Act.)
Agencies may wish to consider any relevant commercial arrangements in light of the new regime under the Act. They should also ensure that they have in place suitable policies and procedures in relation to supplier commissions, discounts and unbilled supplies.
Key action points
- Ensure your business has suitable guidance on corporate hospitality and adequate internal communication, training and procedures to back this up.
- Keep a register of gifts/hospitality and require employees to complete it.
- Ensure staff know where they can refer queries.
- Review any incentive schemes that your business may operate or that your people may participate in.
- Consider amending supplier agreements to add or amend anti-bribery provisions.
- Review commercial practices generally to assess potential risk under the new legislation.
