Don’t get caught out by the Bribery Act

Insurance brokers may think nothing of taking a client to watch tennis at Wimbledon or rugby at Twickenham. But the introduction of new anti-bribery legislation in April may cause them to think more carefully about the corporate hospitality they lay on for clients.

The Bribery Act 2010 consolidates existing anti-bribery legislation and introduces a corporate offence of “failing to prevent bribery”.

DLA?Piper senior professional support lawyer Deborah Baynham says the act has led to uncertainty over whether the way companies entertain clients will fall foul of the new rules. She says: “A lot of people are concerned about the issue of corporate hospitality. Will it be allowed?”

To compound brokers’ concerns, a report published earlier this year by the FSA concluded that there were “significant weaknesses” in the systems brokers used to prevent bribery and corruption.

So, with doubts about whether corporate hospitality will constitute bribery, as well as concerns about brokers’ ability to prevent bribery and corruption, what do brokers need to know to avoid being prosecuted under the legislation?

1. Don’t assume the act doesn’t apply to you. It does

“Take advice on the Bribery Act and do it quickly because the act comes into force in April,” says Baynham. She adds that complying with the act should be relatively straightforward for brokers already regulated by the FSA. In January 2009 the regulator fined Aon £5.25m for failing to “establish and maintain effective anti-bribery systems and controls”. Reynolds Porter Chamberlain partner Steven Francis says: “There shouldn’t be any brokers thinking ‘Oh my god’ because of the Aon case. [The need for anti-bribery systems] should be known about.”

2. Brokers operating overseas could be particularly vulnerable

Graham Ludlam, senior associate with law firm Davies Arnold Cooper’s insurance and reinsurance group, says brokers operating in the London market that have subsidiaries in other jurisdictions are at risk. “It doesn’t matter if it’s a joint venture, a subsidiary or a branch office , you are responsible for the activities of an associate office under the Bribery Act”, he says. Ludlam says it may be common in emerging markets, such as China, Nigeria and Brazil, for insurers to agree to write an unattractive piece of business in return for a broker guaranteeing them three or four more attractive pieces of business in future. But this is no excuse, Ludlam warns. “Even if it is standard conduct, that will be of no relevance [in a defence],” he says.

3. Prosecutors will be more likely to bring bribery cases when the act is introduced

“The codifying of the existing law focuses the minds of prosecutors on the tools they have available,” says Ludlam. He cites the case of former PWS chief executive Julian Messent, who last year was sentenced to 21 months in prison for making corrupt payments to Costa Rican officials. “That case was an example of falling foul of the old law – and it’s only going to get worse,” he says.

4. Make an assessment of where your business may be vulnerable

“Have a look at how your business gives and receives business,” says Reynolds Porter Chamberlain’s Francis. This could include stipulating how much money can be spent on client lunches, for example. When you’ve finalised your anti-bribery policy, make sure staff are aware of it. “It needs to be put to employees and agents,” Francis says. He recommends the use of online programmes that test employees’ awareness of a company’s anti-bribery policy. He adds: “Make sure the arrangements are auditable.”

5. The board should sign off the company’s anti-bribery policy

Brokers can defend themselves in bribery cases if they can demonstrate they have “adequate procedures” to prevent bribery. Baynham says: “Most people are concerned about ‘adequate procedures’ – what does it mean?” According to Francis, brokers will be able to decide on their appetite for risk depending on their business model. He says some may feel they need to take more risks than others in order to win business. But he adds that the board must make this decision because if things go wrong “it is board members who will be questioned in the police station”.

6. Put measures in place to enable staff to report suspected bribery

Ludlam recommends brokers establish “a reporting and investigation procedure that enables whistleblowing”. In addition, he says, there should be a member of staff who is given responsibility for the firm’s anti-corruption policy.

7. There are several sources of guidance on the Bribery Act

A spokeswoman for BIBA says an official guidance note on the act will be available “at the end of January”. In the meantime, the following organisations have published information about the new legislation:

• the FSA;
• the Ministry of Justice;
• the Organisation for Economic Co-Operation and Development;
• the Association of General Counsel and Company Secretaries of the FTSE 100;
• Transparency International; and
• the Serious Fraud Office.

8. Get professional advice on the act

Consulting a solicitor or an accountant on your firm’s anti-bribery measures could pay off if you are prosecuted. Jardine Lloyd Thompson head of management liability Mike Lea advises: “Seek out advice from accountants and law firms as you could mitigate exposure by saying: ‘We received this advice from a professional body’.”

9. Not complying could prove costly

If found guilty of failing to prevent bribery, the financial penalties could be huge. Ludlam highlights the massive costs incurred by engineering firm Siemens after it was charged with bribery. The US Securities & Exchange Commission ordered it to pay $1.6bn (£1.03bn) in 2008 after using bribes to secure public works contracts.

10. The legislation will not affect your ability to get liability cover

The signs are that the Bribery Act is not having an impact insurers’ appetite for writing liability risks. “We haven’t seen any insurers putting in bribery and corruption exclusions. The insurance market is very soft and there’s plenty of capacity,” says JLT’s Lea. IT