A recent survey by the Institute of Directors (IoD) has revealed that SMEs are less likely to export than larger companies, with Alexander Ehmann, head of regulatory policy at the IoD, stating confusion over the Bribery Act discourages exports.
The report found only 55 per cent of SMEs export, compared to 63 per cent of large companies.
Exporting offers enormous growth opportunities for SMEs, but while countries such as Brazil, China and India offer some of the greatest prospects for UK businesses, they also rank highly on the government’s corruption index.
This creates a risky balancing act which companies must negotiate – making the most of growth opportunities while carefully weighing up all risks. Failing to spot and stop corruption can carry a hefty fine which would be devastating to a small company. This danger, along with other issues such as language barriers and differing laws, customs and practices mean that many SMEs operating with a tight cashflow and small team, hold back from exporting perceiving the risks as outweighing the opportunities.
However, with a basic knowledge of the Bribery Act and how it works in practice along with how to mitigate risk, SMEs do not need to see this as a hurdle to growing their global sales.
The Bribery Act
The Bribery Act came into force on 1 July 2011 to ensure the UK’s laws matched the strict Foreign Corrupt Practices Act in the US. Sections 1 to 5 of the Act set out the basic bribery offences of making and receiving bribes and these cover all commercial dealings and not just those involving public officials. The standard of conduct to be applied is that which would be expected within the UK and not by the standards applying in any foreign jurisdiction where the bribery may take place unless the bribery is permitted under that jurisdiction’s written law.
Under section 6 of the Act bribery of foreign public officials is a distinct offence. A person commits an offence if they promise, offer or give a financial or other advantage to a foreign public official, either directly or through a third party, where such an advantage is not legitimately due. A foreign public official is defined as ‘an individual holding legislative, administrative or judicial posts or anyone carrying out a public function for a foreign country or the country’s public agencies or an official or agent of a public international organisation’. The provision is therefore quite wide ranging and the inclusion of ‘through a third party’ is intended to prevent companies using stooges to commit their bribery.
However, if the written law of the country of the foreign public official permits the official to accept the advantage offered, no crime will be committed.
Under section 7 of the Act, a business will also commit a bribery offence if they fail to prevent bribery being committed on their behalf. This offence can be committed by both the organisation itself and its officers and employees. The offence is one of strict liability without the requirement to prove any guilty intent.
If this is not concerning enough for SMEs, what has caused the most angst is that section 8 extends the section 7 offence to include acts committed by an ‘associated person’ and it is these two sections that SMEs need to take particular note of. The section 7 and 8 offences cover not only acts committed by employees, agents and subsidiaries but anybody providing services to the company and could include consultants, franchisees, distributors and others. A company can be guilty of an offence even if the associated person is not convicted and regardless of whether the company was itself aware of the corrupt conduct. There is a defence if the company can show that, notwithstanding the bribery, it had in place adequate procedures designed to prevent persons associated with the company from undertaking such conduct. The burden of proof in this situation is on the company on the balance of probabilities.
This month the spotlight shone on the dangers of failing to comply with the Bribery Act as the Serious Fraud Office brought its first prosecution – four individuals were charged in connection with a £23 million fraud at Sustainable AgroEnergy.
If convicted under the Bribery Act, individuals can face prison sentences of up to ten years and businesses face an unlimited fine and could be barred from all public contracts. This is understandably a huge mark in the ‘cons’ column when SMEs are weighing up whether to export, to a new jurisdiction. However, with thorough due diligence the risks of failing to comply with the Bribery Act can be managed in a relatively easy and quick way.
What SMEs need to do
To ensure businesses always have a robust defence to any claims of bribery, particularly under section 7 they must prove they had adequate procedures designed to prevent its own employees and its associated persons from committing acts of bribery.
The Ministry of Justice has produced simple and accessible guidelines which outline the initial steps businesses should take to ensure their procedures and plans adequately address the Bribery Act.
While businesses should always tailor these plans to suit their own size and level of risk, these points are a helpful starting point, especially for SMEs unsure of the legislation.
In brief, companies should carry out thorough due-diligence on all individuals classed as an ‘associated person’ and ensure all these persons are made aware of and regularly updated on the company’s bribery prevention policy. Businesses also need to carry out a risk assessment and regularly monitor and review their policies to ensure they continue to comply with current good practice.
SMEs should not see the Bribery Act as a barrier to growth – indeed it was in part introduced to help put SMEs on a more level playing field and stamp out corrupt practices which damage law abiding businesses.
With careful planning and a little time taken to understand how the Act works and how to mitigate risk, SMEs can ensure they are in a strong position to export. If in doubt, it is always advisable to seek professional advice from a lawyer when drafting policies and contracts.