April 05, 2011
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.
Robert Plotkin, head of McGuire Woods' SEC enforcement defense group in Washington, D.C., said it is difficult to predict how the law will be enforced.
"I would imagine there will be some element of common sense that goes with this," he said. "At some level, buying somebody a dinner or a drink or something like that would not rise to the level of a bribe, particularly if you did so on an occasional or one-off basis."
Sending expensive champagne or going out to frequent, lavish dinners, however, might up the ante in terms of enforcement, he said. But Plotkin said he doubts that will be the focal point of prosecutions.
He said the United States already has laws in place, or at least corporate ethics guidelines, that limit the types of entertainment and hospitality envisioned by the Bribery Act. An attorney in the United States who gives $5,000 to a general counsel in return for a piece of litigation could be prosecuted here or "at the very least" would be in violation of in-house rules, Plotkin said.
"I think that's already pretty much the practice and custom both here and in the U.K.," he said. "I wouldn't imagine that the new Bribery Act is going to change that custom very much."
Plotkin also pointed to the resource issue. Having the law encompass entertainment between private entities and actually prosecuting it are two different things.
"I don't think anyone is going to waste precious resources from the Serious Fraud Office to be going after lunches and dinners," he said. "They don't have the resources for that. They'll be lucky to investigate multimillion-dollar cases let alone worry about what lawyer is taking what GC to lunch."
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."