The Effect of the UK Bribery Act on Corporate Hospitality

The UK’s antiquated and fragmented law on bribery and corruption was finally consolidated when the controversial UK Bribery Act 2010 came into force on 1st July 2011. The Act is considered the high watermark of anti-bribery legislation, superseding the US Foreign Corrupt Practices Act in both legal scope and territorial reach.

One area of considerable concern to UK business was the apparently draconian restrictions on corporate hospitality; however, guidance published by the UK government in April 2011 has helped allay fears that legitimate activities might be classified as bribery. As stated in the foreword to the Guidance by the Secretary of State for Justice “Rest assured – no one wants to stop firms getting to know their clients by taking them to events like Wimbledon or the Grand Prix.”

The key message of the Act (and the Guidance) is proportionality. Promotional activity and hospitality that have a legitimate business purpose, such as developing relationships with clients, promoting its products and/or services, and improving the corporate image are likely to be treated as acceptable, provided that the expenditure is reasonable and proportionate.

The Guidance does not lay down any hard and fast rules for what is considered reasonable, but it does note that the more extravagant the hospitality, and the higher the expenditure on travel and accommodation, the more likely it is that the behavior will be interpreted as questionable. In order for such conduct to constitute a bribe, there must be an intention to induce improper conduct (in cases of commercial bribery) or influence a public official to secure a business advantage.

If the hospitality is given in the form of travel and accommodation costs to a public official, the guidance makes it clear that there is unlikely to be an offence if the public official’s government would have had to pay for those expenses anyway (i.e. rather than the official themselves). In other words, it makes no difference to the individual whether their employer pays, or the supplier pays.

Given the uncertainty and lack of clarity in the Act over what constitutes reasonable and proportionate hospitality, there are a number of practical steps a business can take to reduce the risk of prosecution, such as:

(a) Ensuring that any paid for travel or accommodation is consistent with its own internal travel policies. For example, if the company’s executives fly Economy class, rather than Business or First Class, then so should customers and officials; and

(b) Ensuring that travel and hospitality is for a legitimate business reason. For instance, paying for flights and accommodation to Orlando for a company partner conference, with a day trip to Disney would probably be acceptable, whereas flying the same person and their family to Orlando for an all expenses paid trip to the theme park is not.

The above examples are fairly obvious, but it is unlikely that most cases in the corporate world will be as clear cut. The main issue with this lack of certainty is that the decision on whether or not to open a case for bribery is entirely down to prosecutorial discretion. As such, until the Serious Fraud Office (which is charged with enforcing the Act) starts bringing cases to court, and the judiciary gets an opportunity to clarify some of the greyer areas of the Act, it would be prudent for business to act conservatively and with caution.