UK Bribery Act: Threat or Opportunity?

At a time when the country is debating the Lokpal Bill, an extremely important event took place last week in the global arena of the fight against bribery. A landmark piece of legislation, the UK Bribery Act, came into effect from July 1, 2011.

It is significantly different in both scope and approach from its forerunner, the Foreign Corrupt Practices Act (FCPA) of the US. As a commonwealth nation that largely follows the British legal system, this legislation is of particular significance to India and our anti-bribery initiatives.

The UK ranks very high in the Corruption Perception Index issued annually by Transparency International, falling within the top 20 cleanest nations in the world. It, therefore, begs the question as to why the UK should come out with a law to curb bribery.

The guidance note issued by the Ministry of Justice of Britain explains this lucidly — “Bribery undermines democracy and the rule of law and poses very serious threats to sustained economic progress in developing and emerging economies and to the proper operation of free markets. At stake is the principle of free and fair competition, which stands diminished by every bribe offered or accepted.”

The Act, therefore, is a strong affirmative commitment demonstrated by the UK in its fight against global bribery and corruption. The way the Act and the Guidance thereof have been framed is an excellent example of placing emphasis on substance rather than process. This is the key underlying difference between this law and the FCPA.

The Act makes the giving or acceptance of bribes an offence as long as it is related to any activity that is connected with a business or is performed in the course of one's employment or is performed by or on behalf of a body of persons or is of a public nature. Therefore the law is almost exclusively focused on business-related bribery. The Act also identifies specific offences involving bribery of foreign public officials and corporate liability for failure to prevent bribery indulged on behalf of a commercial organisation. While the FCPA applies primarily to bribery of foreign officials by listed US companies, the UK Bribery Act is far more comprehensive and applies to both public and private sectors, covers bribery within the UK as well as overseas, and applies equally to listed and unlisted commercial establishments.

Implications for India

At a global level, the new law has three important implications. First, it is very probable that the UK will insist on similar laws being enacted by those countries that are its major trade partners. This might well become a pre-condition for future bilateral trade treaties in order to ensure a level playing field for British business firms. Second, future FDI flows from the UK may be strongly guided by the track record of the destination country vis-à-vis corruption, forcing the latter to move up the corruption index.

As Great Britain is a key business partner for India, these two implications are significant for our economy. Third, the law is a strong recognition of the fact that a large part of global corruption is linked to business or commercial dealings. It aims at achieving maximum results with optimal effort by focusing on registered commercial establishments, which are relatively easier to hold to account. This is a refreshing approach to tackling bribery and may point to the shape that future global anti-bribery efforts will take.

At an operational level, this Act will have significant short-term implications for businesses in the UK. They will have to comply with the new law without seriously impairing business continuity. Boards and Audit committees will also have to keep a close tab on risks in this domain. New structures will have to be put in place to ensure that the corporate liability linked to the failure to prevent bribery is avoided. It would be extremely interesting to see how different businesses cope with this new law.

Large business would have challenges of complexity and a global footprint to contend with. Smaller businesses would be constrained by the cost of complying with the new law, coupled with their limited ability to persuade their business associates in third world countries to fall in line. One may see British firms exiting risky countries and replacing agency arrangements with arms' length transactions; some may opt for 100 per cent subsidiaries where they have greater control on business conduct.

UK vs developing countries

A definite spin-off would be on the way business is done by British firms with developing countries. These companies would carry out stringent due diligence before accrediting business partners in higher risk geographies such as India. The due diligence would cover different types of business partners, such as agents, customers, vendors, consultants, etc. Audits of supply chain partners will go beyond the traditional aspects of quality, safety and employment practices. It is quite conceivable that bribery ratings come into force, say, BAAA for highest safety.

The inclusion of facilitating payments as offences makes compliance more challenging. A UK-based departmental store chain sourcing from an Indian manufacturer may insist on the latter proving beyond reasonable doubt that no facilitating payments have been made to customs authorities at Indian ports. It would indeed be interesting to see whether a British firm would like to do business with an overseas business partner that is not totally bribery-free, but clean only to the limited extent of the dealings with it.

A contrarian view is that this offers a great opportunity to Indian businesses. By demonstrating effective anti-bribery structures and performance, they can hope to gain market share from other geographies and countries where achieving the same may be far more difficult. Having an Indian business bribery law would strengthen this further. We are looking at, therefore, for the first time in Indian business history, a real scenario where bribe-free becomes a strategic differentiator for a business firm. This correlation can potentially be a greater driver of change in India than other anti-bribery initiatives.

(The author is a consultant in Corporate Governance and Risk Management.)

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