Beware The Bribery Act 2010: Its Potential Bite is Bigger and Teeth Sharper than the FCPA

This article was first published in Next Generation Pharmaceutical in July 2010

Pharmaceutical companies with activities in the US and in other countries around the world are, or ought to be, aware of the US Foreign Corrupt Practices Act (FCPA). Some very substantial fines indeed have been handed out for pharmaceutical companies found to have been operating in breach of the FCPA. The UK Bribery Act 2010 (the Act), which became law in April 2010 and is expected to come into force on 1 October 2010, has the potential to go even further than the FCPA in the activities which might be found to breach its terms. Coupled with the recent appetite shown by the UK’s Serious Fraud Office (SFO) to pursue executives caught up in bribery, reaching through to capture activities of middle-management, there are real reasons for pharmaceutical companies to look closely at the detail of the Act and to whether their current compliance policies are adequate enough to keep this new ogre at bay.

Companies within the Jurisdiction of the Act

The jurisdiction of the Act is wide. Its net will be thrown not only over companies which are incorporated in the UK, but also any companies which carry on a business in the UK. What constitutes “carrying on a business” in the UK has not yet been tested, but it could be a low threshold, perhaps requiring as little as a single sales agent or representative in the UK. This means that companies with any reach into the UK should be aware of its scope.

The corporate offence under the Act will also apply to any act of bribery wherever it takes place in the world. The Act therefore raises the spectre of prosecution in the UK of a non-UK based company for bribery which takes place wholly outside the UK, if that company has the merest business link to the UK.

What constitutes Bribery under the Act?

Active and passive bribery

Active bribery occurs if, directly or indirectly, an individual or company offers, promises or gives an advantage to another, intending to induce that other person to do something improper or to reward them for behaving improperly. The key elements are that there must be a financial or other advantage linked to improper performance of a relevant function or activity. Financial or other advantage is not defined in the Act but it will include anything of value. Clearly there is no need for money to change hands for an offence to be committed.

It also constitutes bribery if someone directly or indirectly, offers, promises or gives a financial advantage to another person and he knows or believes that the acceptance of the advantage would itself constitute improper performance of a relevant function or activity.

The Act defines relevant functions or activities to include any function of a public nature, any activity connected with a business, trade or profession, any activity performed in the course of a person’s employment, and any activity performed by or on behalf of a body of persons whether corporate or unincorporated. Essentially all activities performed in a business context (which includes hospitals), whether in the public sector or the private sector, will be caught. This goes very much further than the FCPA which applies only to a limited population, namely foreign public officials.

However not every defective performance of one of these functions for financial advantage engages the law of bribery. There must be an expectation that the functions are to be carried out in good faith, or impartially, or the person performing it must be in a position of trust. Improper performance is then defined as the performance which breaches that expectation or that trust. In order to ensure that the offence still bites where bribes are paid in jurisdictions where it is culturally acceptable to do so, the Act imposes a UK standard of “expectation”. Accordingly UK standards of behaviour are imported into the determination of improper performance for the purposes of establishing liability.

In addition to the active bribery offence, an individual or entity in receipt of a bribe will also be guilty of an offence of passive bribery. The passive bribery offence is essentially a mirror image of the active offence, and requires the same constituent elements, namely, a financial or other advantage, and improper performance of a function or activity. So, for example, a recipient in the UK who is bound by the GMC code on good medical practice will arguably commit an offence by accepting hospitality breaching that code, even if the hospitality is outside the UK, and even if he is unaware that he has breached the code.

Bribery of a Foreign Public Official

Like the FCPA, the Act includes a specific offence of bribery of a foreign public official. To be guilty of an offence under this section, the giver of the bribe must intend to influence the recipient acting in his capacity as a foreign public official and must intend to obtain or retain a business advantage. The offence is not committed if the law applicable to the foreign public official permits the payment, but the law has to be written, and custom will not suffice. In addition, unlike the FCPA, there is no carve out for facilitation payments. This is a strict liability offence which puts the onus firmly on the individual or entity making any payment, however small, to ensure that it is legitimate. Pharmaceutical companies which are reliant upon foreign governments to allow their products to be trialled, imported into, promoted, sold and used in a country, will want to be aware of this in their dealings with anyone who may constitute a foreign public official, including regulatory authorities, ethics committees and hospitals. As “custom” is no defence there may be no substitute for obtaining a local legal opinion as to what payments are permitted by the local “written law” in order to ensure that an offence is not inadvertently committed. The more so, when considering the penalty for this offence, and the other offences in the Act, is up to ten years imprisonment for an individual, and an unlimited fine for companies.

Failure to prevent bribery: the strict liability offence it is possible for companies to commit without knowledge of any bribe

The most controversial area of the Act is new corporate offence of failing to prevent bribery. This is a seismic shift in the law. Under existing bribery laws, it was exceedingly difficult to convict a commercial organisation under corporate criminal liability principles. The fault element of the offence had to be attributable to someone who was at the relevant time the ‘directing mind and will’ of the company. However, under the Act, an offence will be committed by a commercial organisation when:

(a) a person performing services for the commercial organisation bribes another person (by way of active bribery or bribery of a foreign public official); and

(b) the bribe is in connection with the commercial organisation’s business;

In order to successfully launch a defence against such a charge the commercial organisation will have to show that it had in place ‘adequate procedures’ designed to prevent bribery being committed on its behalf.

The extra territoriality of the offence is particularly worrisome. An offence is committed irrespective of whether it takes place in the UK or abroad. So, if an agent, for example in the Middle East made payments styled as “professional education” to a healthcare professionals in the Middle East, the agent’s principal could potentially fall foul of the provisions if it could be shown that it did not have adequate procedures in place to prevent such a payment being made. The penalty for the corporate offence is an unlimited fine. Big teeth indeed.

Under the second limb of this offence, liability will arise from the activity of those “performing services”, and those persons may be outside the practical control of the commercial organisation. The Act stipulates that the capacity in which a person is ‘performing services’ does not matter. The person may be an employee, agent or subsidiary, but these are just examples. There is a presumption that an employee will be performing services, but beyond that the Act makes it clear that the issue will be determined by reference to all the relevant circumstances, and not merely the nature of the relationship with the company. It will not be possible, therefore, to identify any particular class and determine in advance whether that class will be deemed to be performing services or not. Consequently, the position will need to be considered on a case by case basis, and clearly has the potential to include the activities of third parties whose activities the pharmaceutical company does not control on a daily basis.

The “Adequate Procedures” defence

It is likely that in order to demonstrate adequate procedures a commercial organisation will need to show the following:

• That it has an anti-corruption culture across the whole business, supported from the top;
• That it has assessed the risk areas in its business, and reflected them in its approach;
• That it has a written anti-corruption policy;
• That the policy has been disseminated across its business, and is understood;
• That it undertakes due diligence on relationships with third parties;
• That it has systems in place to monitor compliance.

Clearly a one size fits all approach will not suffice. Different businesses will be faced with different risk profiles, and will have to tailor their approach accordingly. For pharmaceutical companies there would appear to a number of factors which put many in the sector into a high risk category. First, companies are often selling into countries which are known to be susceptible to corruption. Secondly, the nature of the market means that companies frequently interface with foreign public officials. Thirdly, there is much use of agents (whose activities will be imputed to their principal for the purposes of the Act). Fourthly, the market is unusual in that those who assist in development may also be customers of the end product, thereby greatly increasing the scope for corruption.

Consideration will also need to be given to the interface between procedures that are put in place for the purposes of the Act, and any existing codes or guidance. In particular, pharmaceutical companies which adhere to the ABPI Code will be faced with reconciling that Code with the provisions of the Act. Unlike the Code, the Act has no de minimis approach; any financial or other advantage can trigger liability if it’s linked to improper performance. There is a danger that if the Code does not mirror what would objectively be considered as “improper” under the Act, that compliance with the Code could trigger criminal liability. Guidance from the government on the interaction between industry codes and the Bribery Act would be helpful.

Companies which also need to be compliant with the FCPA will face the additional burden of reconciling the requirements of the Act and the requirements of the FCPA. An obvious conflict is that the FCPA expressly carves out “facilitation” payments, the Act does not. Pharmaceutical companies with activities potentially caught by both pieces of legislation are likely to have to review their compliance codes with this in mind.

Self reporting

The SFO have indicated that whilst having procedures in place is key to any decision to prosecute, they will also be greatly influenced by whether the alleged bribery comes to their attention as a result of self reporting rather than as a result of an investigation initiated by the SFO. The incentive to self report is the prospect of being dealt with more leniently: the SFO say that they will resolve such cases through a civil settlement “wherever possible”. A civil settlement also avoids the prospect of a ban from public procurement in the EU which would follow from a criminal conviction for bribery.

The SFO’s civil strategy initially met with success, with a number of self reporters, notably Amec and Balfour Beatty agreeing to civil penalties. In more serious cases, where the SFO considered a criminal conviction was required, it also began to develop US style plea bargains, agreeing the penalty as part of a criminal “settlement”. Initially successful, it has now come unstuck as a result of judgments in the criminal and appellate courts in the cases of Innospec and dePuy. In the Innospec case a plea agreement was reached with the US and UK authorities. The settlement involved a guilty plea by Innospec of conspiracy to corrupt and payments of $40 million in fines to the US and UK authorities. The settlement was subject to court approval. Lord Justice Thomas reluctantly approved the settlement terms but emphasised that the “SFO had no power to enter into the arrangements made and no such arrangements should be made again” and that “the SFO cannot enter into an agreement...with an offender as to the penalty in respect of the offence charged.”

The Court of Appeal affirmed this in considering the dePuy case. In that case despite Mr Dougall being a middle manager at dePuy who cooperated fully with the SFO, the court declined to endorse the 12 month suspended prison sentence agreed by the SFO. Although his sentence was reduced on appeal, management of pharmaceutical companies still need to alive to the fact that assisting authorities in the UK will not necessarily reduce a prison sentence imposed under the Act.

The message is clear: with the expected 1 October 2010 implementation date for the offences under the Bribery Act on the one hand, and the limited scope of the prosecuting authorities for leniency on the other, it is essential that pharmaceutical companies take steps now to review current compliance codes to meet the more stringent requirements and to ensure that they have adequate procedures in place to reduce their risk of being caught in the far reaching jaws of the Act.

Tony Lewis is head of the Fraud & Anti-Corruption Group and Alison Dennis is head of the Life Sciences Group at Field Fisher Waterhouse LLP.