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U.K. Bribery Act Could Mean Prosecution of Law Firm Practices
By Gina Passarella
April 4, 2011
The Legal Intelligencer
The U.K. Bribery Act set to take effect in 12 weeks will do more than present the opportunity for lawyers to advise clients on how the law interacts with the U.S. Foreign Corrupt Practices Act. It could force law firms to examine their own business practices when working in, or dealing with anyone from, the United Kingdom.
"It will have a fairly dramatic effect on law firms, both in the sense of them being law firms and in the sense of them being businesses that routinely entertain clients," Duane Morris London-based partner Jonathan P. Armstrong said.
Armstrong was in Philadelphia last week talking to a group of attorneys about the new act and was surprised how little is known about the act on this side of the pond. That could mean trouble for U.S. law firms with significant dealings in London.
The biggest impact of the new law that could affect law firms is its focus on hospitality and entertainment. While firms have spent decades advising clients on how to avoid running afoul of the FCPA when dealing with public officials, they will now have to be mindful of interactions with private companies and individuals, both for their clients and themselves.
The FCPA deals only with bribery of public officials, a very uncommon practice for a law firm, Armstrong said. But the Bribery Act criminalizes both the acceptance and the giving of a "lavish" gift to a private individual. The problem, he said, is that the guidelines issued on the law Wednesday by the Ministry of Justice don't put a dollar figure on what is lavish versus what are routine marketing expenses.
"So if a law firm takes a potential client out to a skybox of a football game, then that is within the scope," Armstrong said. "Bluntly, if the intention is not to get work, then they're a pretty dumb law firm and if it is to get work, then they are in the scope of the Bribery Act. Law firms are good at advising clients on how not to bribe people, but have not necessarily taken that pill themselves."
Armstrong said he thinks U.S. firms will have more of a problem than U.K. firms in adjusting to the new law. That is partly because a lot of U.K. lawyers have known for some time that the act is coming and have moderated their hospitality spending. In addition, Armstrong said, U.K. hospitality isn't generally as good as hospitality in the United States because U.K. lawyers tend to not spend so much on marketing activities.
Armstrong said U.K. juries are historically known for consisting of non-professionals because professionals tend to try to get out of jury duty. So a non-professional's definition of "lavish" might be different.
"So a jury may start off with a position of envy," he said.
A very common form of business entertaining in the United Kingdom is to take clients to a Formula 1 race. Just to park is £60 and the base level entry is around £350, Armstrong said. That is a total of between $500 and $600 and it is difficult to tell whether a juror would think that is lavish, he said.
The other change in the law is a switch of the burden of proof. Now, the defendant has to show the gift wasn't lavish rather than the prosecution proving it was, he said.
Law firms with large U.K. practices or a number of clients in the country are not the only ones at risk of running afoul of the Bribery Act.
"If a U.K. executive comes to the U.S., he carries the act in his briefcase," Armstrong said.
Wining and dining a U.K. citizen in the U.S. would be equally enforceable under the law, he said. And because acceptance of a gift can also be prosecuted, firms' acceptance of gifts from U.K. clients can be problematic as well, he said.
But there are some who think the law will not have the dramatic effect it initially promised. Reaction to the latest guidelines included criticism that the law was watered down.
Alexandra Wrage is the founder of TRACE, a nonprofit that provides anti-bribery solutions for multinational companies. She said in a statement Wednesday in response to the new guidance that the law was perhaps one of the broadest and most draconian in the world, but the new guidelines seem like an attempt by the government to "take the edge off" the act.
She said companies spend a fortune trying to determine "how expensive is too expensive" when it comes to hospitality.
"The U.K. law seemed to provide no minimum threshold and no safe harbor," Wrage said in the statement. "Now, however, we're hearing that gifts and hospitality that are 'reasonable and proportionate' are unlikely to be prosecuted. That may well be the best outcome, but it should have been in the law and not a subsequent guidance document. Companies are left with the overarching concern that promotional expenses may — or may not — be appropriate."
Wrage also said the jurisdictional reach of the act was thought to be broader. She said that was diminished, however, under purported pressure from the business community.
Secretary of State for Justice Kenneth Clarke wrote in his foreword to the latest guidance that he has spent time listening to the concerns from the business community.
"Rest assured — no one wants to stop firms getting to know their clients by taking them to events like Wimbledon or the Grand Prix," Clarke said in the statement.
. . .
Whether it affects firms or their clients, the new act does require a focus on private-to-private bribery that many aren't used to. The biggest surprise to many in the United States, Duane Morris' Armstrong said he found, was the scope of the law to include the private sector.
"People are in the mindset that it's only private-to-public," he said. "They haven't gotten their heads around what it means to those businesses if it includes private-to-private."
For 20 years companies have been drilling into employees' heads to only worry about the law when it's a public official. In just three months, they have to unlearn that, Armstrong said. The law takes effect July 1.
"It is a wholesale modernization, it isn't something that's brand new, but at the same time, I think it gives much more ammunition to the prosecution," Armstrong said, adding that means the volume of prosecutions is sure to rise.
This article originally appeared in The Legal Intelligencer and is republished here with permission from law.com.
