So What’s Their Excuse?

April 1st, 2011

In the spring of last year, the United Kingdom passed the Bribery Act of 2010, which the Ministry of Justice hoped would reform “the criminal law to provide a new, modern and comprehensive scheme of bribery offences that will enable courts and prosecutors to respond more effectively to bribery at home or abroad.”  Before the creation of this Act, the UK’s policy on anti-bribery was based on a body of three laws: the Public Bodies Corrupt Practices Act 1889, the Prevention of Corruption Act 1906 and the Prevention of Corruption Act 1916. David Aaronberg, a UK criminal attorney, has described this body of laws as “inconsistent, anachronistic and inadequate to comply with the UK’s obligations under international anti-corruption conventions.”

The new Bribery Act created several new offenses which closed loopholes that existed in the previous disarray of legislation.  For example, it would now be an offense for a commercial organization to “prevent a bribe being paid for or on its behalf” and a discrete offense if a bribed is paid to a foreign public official.  Jack Straw, who at the time was the UK’s Secretary of Justice, said of the bill:

Bribery eats away at the heart of both business and public life and has no place in British commerce. It blights free and fair competition and adds to the cost of doing business. It is particularly harmful to trade and development in the fragile economies of the developing world… These new laws, which modernise and simplify existing legislation, play an important part in the UK’s contribution to the global fight against bribery.

He was not alone in his positive assessment.  Heather Lowe, Legal Counsel and Director of Government Affairs at Global Financial Integrity, called the legislation “iron-clad” and that it should “put UK and U.S. companies on a level playing field when it comes to preventing bribery and corruption.”

But this week the Ministry of Justice released the Guidance to the Bribery Act, which is intended to “explain the policy” and “help commercial organizations of all sizes and sectors understand what sorts of procedures they can put in place to prevent bribery.” Unfortunately the Guidance goes beyond this stated objective by undermining the legislation itself.

As Heather Lowe points out, “the Guidance…sends a clear message to businesses that unless the bribes under investigation are of a significantly large amount, there is little reason to fear prosecution under the Act.”  Global Witness, an advocacy organization that campaigns against natural resource-related conflict and corruption, also berated the bill, noting:

The guidance opens a huge loophole that would allow companies to use subsidiaries to pay bribes to foreign public officials. Whilst the Act is clear that companies are liable when their subsidiaries pay bribes, the guidance seems to contradict this. This is of concern as companies have, in the past, used subsidiaries to pay bribes.

As Eric Gutierrez, Senior Advisor on Governance at Christian Aid, said: “A bribe is a bribe. At the very least, this statement creates wiggle room that enables parent companies to avoid liability for the bribery done by its subsidiaries.”  And then a statement by his organization called the Guidance “emasculating.”

Several anti-corruption organizations warned these significant revisions came on the heels of a lobbying campaign by business groups to weaken it. Lowe also noted the Guidance accommodates “the cries of UK businesses that have enjoyed little regulation with respect to their overseas business practices.”

When the United States implemented its forceful Foreign Corrupt Practices Act in 1977, the business community also cried wolf, claiming it would “put U.S. companies at a competitive disadvantage.”  At the time it was completely unique worldwide and so U.S. businesses had a legitimate concern that it would result in a competitive disadvantage; that is, that the U.S. industry would experience a negative impact relative to Japanese and European competitors, who continued to freely pay bribes.

Even at that time, when the U.S. stood completely alone in its legislative quest to curtail foreign bribery, the catastrophic scenario did not materialize.  As the Government Accountability Office (GAO) noted four years after the implementation of the FCPA in a study called the Impact of the Foreign Corrupt Practices Act on U.S. Business: “claims that U.S. companies have lost sales…are difficult, if not impossible, to substantiate and quantify.”

Three years later, however, a paper published in the Journal of International Business used recently published data to test the competitive disadvantage theory and found that “the FCPA has not negatively affected the competitive position of American industry in the world marketplace” (emphasis mine).  Even at this time, when the American industry was the only one worldwide facing these kinds of restrictions, anti-bribery laws did not negatively impact their export performance or market share.

Of course, today, UK business have no similar pretext to complain.  In fact, until last year, they faced some of the most lax and discontinuous anti-bribery laws in the developed world.  So what’s their excuse?  My bet is on greed.

Written by Ann Hollingshead

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