The national integrity system (NIS) is a methodology developed by TI to analyse the effectiveness of a country's institutions in preventing and fighting corruption. It has been applied in more than 100 countries. The UK National Integrity System study assesses 12 institutional pillars in terms of their ability to act as effective bulwarks against corruption and support good governance. Each of these is assessed against a series of criteria, and then rated on a scale of very weak > weak > moderate > strong > very strong. The results were:

Table 3

The Act has three key features. First, it clarifies and places on a statutory footing the common law offences of bribery. Secondly, the Act introduces a number of novel corporate offences. Thirdly, it provides for long©\arm jurisdiction for offences committed abroad. It is this third, extra©\territorial, feature which makes the Act particularly relevant to the offshore world.

The UK Government has published Guidance Notes to help companies ensure they are in step with the new requirements ("the Guidance”). [1]

2.2.1 Individual Bribery Offences

There are three primary bribery offences for individuals: the offence of bribing another person ("Section 1 offence”); the offence of being bribed ("Section 2 offence”) and the offence of bribing a foreign public official ("Section 6 offence”). These place on a statutory footing the common law offences of bribery and can be considered a refinement of the current law.

A Section 1 offence is committed if a person offers, promises or gives a financial or other advantage to another person intending to induce the improper performance of any business or governmental function. Improper performance means performance which is in breach of a relevant expectation, which expectation is determined according to what would be reasonably expected by UK standards. A Section 2 offence is the receipt of a bribe.

A Section 6 offence is committed if a person offers, promises or gives any financial or other advantage to a foreign public official intending (1) to influence a public official and (2) to gain a business advantage. There is, however, no offence if the foreign official is required or permitted by written law to take the advantage on offer. Section 6 does not permit for exceptions such as facilitation payments, in contrast to the USA's Foreign Corrupt Practices Act. [2]

2.2.2 Corporate Offences

A major innovation of the Act is the introduction of new corporate offences. At common law, in order to establish the commission of an offence by a company, prosecutors had to prove mens rea on the part of a high level employee/agent of the company - what was often termed the "controlling mind” test. The Act makes prosecutions of companies far easier by introducing the new offence of "failing to prevent bribery" (the "Section 7 offence”). A UK company, or a company doing business in the UK, commits a Section 7 offence if a person associated with it commits bribes or receives a bribe (anywhere in the world) ©\ intending to obtain an advantage for the company. A UK company, or a company doing business in the UK, will therefore be guilty of an offence if an act of bribery is committed by anyone associated with it - whether or not the company asked that person to do so. The associated person does not need to be a controlling mind, nor an employee or agent. An associated person is anyone who performs services for or on behalf of the company - a wide definition, which is not specifically delineated by the Act, or indeed the Guidance. The Guidance does provide some assistance by delineating who is not an associated person - e. g., a subsidiary will not always be the "associated person” of its parent company (for example, if it merely remits dividends to its parent). It also explains that an organisation is only liable for the actions of its associated person if the bribe was intended (by such an associated person) to benefit the organisation directly. It clarifies that a bribe paid by an employee of a subsidiary is normally intended to benefit the subsidiary and not the parent company, even though the parent may benefit indirectly. Thus a parent will not always be caught by bribes paid by or on behalf of a subsidiary. The Act offers a complete defence to Section 7 offence if the company can show that it had in place adequate anti©\bribery policies and procedures at the time. Sensible UK companies will therefore be putting in place such policies and procedures in time for the 1 July 2011 deadline. The Guidance provides a list of six governing principles, alongside case studies, for anti©\bribery policies and procedures and is required reading for all companies wishing to reduce their exposure to Section 7 prosecutions. [3]

2.2.3 Senior Officer Connivance

A further innovation of the Act is the offence of connivance by a senior officer pursuant to Section 14. If a company commits any offence under Sections 1, 2 or 6, then a senior officer commits a separate offence if it is proved that (s) he consented to or connived in the company's actions, either actively or by his/her inaction to prevent bribery. This brings liability directly inside the board room.

Importantly, there is no offence in conniving in or consenting to a failure by a company to prevent bribery by an associated person - the company with which the senior officer is related must have actually bribed or been bribed. [4]

2.2.4 Penalties

The penalties under the Bribery Act are up to ten years in jail (for individuals) and unlimited fines (for companies). In addition, the UK authorities have at their disposal the Proceeds of Crime Act which provides for additional fines and penalties calculated on the basis of the value of a contract which was obtained through bribery. [4]

2.2.5 Extra-Territorial Effect

While UK criminal laws are generally domestic, the Bribery Act does not just apply to UK corporations and UK residents. The Act has broad extra©\territorial effect. There are two primary extra©\territorial features:

(1)"Connected persons" can be prosecuted in the UK for offences committed anywhere in the world. ? (2) Companies which carry out part of their business in the UK can be prosecuted for Section 7 offences committed anywhere in the world. [4]

2.2.6 Personal liability

Under the Act, an offence is committed if any act or omission forming part of the offence is committed in the UK, but Section 12 of the Act provides that an offence is also committed if a person does something abroad which would be an offence if committed in the UK and that person has a close connection with the UK. A close connection with the UK exists where a person (legal or natural) committing the acts, in the UK or in other jurisdictions, is domiciled or incorporated in the UK or is a UK citizen.

This has implications for all British citizens, UK residents and for nationals of overseas territories such as Bermuda. Under the Act, Bermudians have close connections with the UK and, accordingly, can be prosecuted in the UK if they bribe, or accept bribes, anywhere in the world. The Act therefore impacts the offshore world. Many offshore centres are British overseas territories. The citizens or nationals of those overseas territories are caught by the Act. To give a concrete example, if a Bermudian director of an offshore company was himself/herself implicated in bribery, anywhere in the world - for example by arranging payment of a bribe - then the director could potentially be prosecuted.

In practice, the Serious Fraud Office ("SFO”) and other UK prosecution authorities may not prioritise investigating or prosecuting minor cases of local bribery committed in overseas territories, leaving the policing and prosecution of these offences to local prosecutors and courts.

The risks to the offshore world presented by the Act cannot, however, be dismissed. In jurisdictions where it is commonplace for offshore citizens to act as directors of companies, there is a risk of prosecution in the UK if those offshore citizens carry out offences under the Bribery Act in the course of their directorships. An example may assist in terms of illustration. A Bermudian sits on the board of a construction company. The company is incorporated in Bermuda but its operations are in Azerbaijan, where corruption is endemic. The company needs to make a payment to secure a contract. The Bermudian arranges the payment to be made in Azerbaijan. The payment is a bribe. Under Bermuda law, since the payment was made in Azerbaijan, it is unlikely an offence has been committed in Bermuda. The Bermudian could, however, be prosecuted in the UK. Whether the Bermudian had the necessary knowledge, or mens rea, and should, for example, have known that the payment was a bribe will be a question for a UK jury.

The Act may have another, more local, impact upon offshore centres. In cases involving alleged high level corruption in overseas territories, where local prosecutors are either unwilling or unable to act, the British authorities now have the power to prosecute or threaten prosecution.

In summary, nationals of overseas territories and UK nationals who sit on the boards of offshore companies now have a direct interest under the Bribery Act in minimising the risks of those offshore companies engaging in bribery. Going forward, prudent directors of offshore companies will likely undertake additional due diligence when carrying out corporate acts. [5]

2.2.7 Corporate Liability

Unless an offshore company commits a bribe, or receives a bribe, within the UK, or that company also carries on business in the UK, the offshore company does not itself have the required "close connection”. The UK authorities have no jurisdiction to prosecute under the core offences of Section 1, 2 and 6 of the Act where there is no close connection. Further, in terms of senior officer connivance, senior officers of offshore companies cannot be prosecuted for Section 14 offences unless their company commits an offence within the UK.

Nevertheless, offshore companies do have exposure under the Act. This is because Section 7 applies to any company, wherever incorporated, which carries on business in the UK. The UK criminal courts, accordingly, have wide extra©\territorial jurisdiction over companies' failures to prevent bribery. Any foreign company "carrying on business or part of a business” in the UK can be prosecuted for a failure to prevent bribery under Section 7.

"Carrying on a business or part of a business” has the potential for wide application. As a result, until the UK courts give guidance, foreign companies with any UK presence may wish to err on the side of caution and assume that they are caught within the ambit of the Act and, if any associated person pays a bribe, the company is liable to prosecution for failing to prevent it.

The implications of Section 7 for offshore companies depend upon the relationship between the offshore company and the UK. It is helpful to consider such relationships under three broad headings:

• (1) Offshore companies with UK activities?An offshore company, wherever located, which carries on operations in the UK (and these may be quite nominal in practice - for example there is a debate as to whether a website pointed to the UK generating UK revenues would meet the criteria) should consider putting in place anti©\bribery procedures. Such a company can now be prosecuted under Section 7 if an associated person pays a bribe on its behalf anywhere in the world. ?Such companies may also want to consider altering their legal and operational structure to insulate the rest of the group from the UK operation. To minimise risk it may be advisable to incorporate a subsidiary and run UK operations through it, instead of using, say, a branch structure.

• (2) Offshore companies with subsidiaries in the UK?Offshore holding companies which own UK operating companies may take comfort from the Guidance which stresses that having a UK subsidiary does not itself mean that the holding company will be itself carrying on business in the UK. ?However, they will need to keep in mind the following:

(i) First, there may be additional factors to indicate that the holding company is carrying on business in the UK via its operating company.

(ii) Secondly, the SFO appears to be sceptical that subsidiaries will demonstrate the necessary level of independence required for an affiliated company (e. g., the parent) to escape liability under the Act. Whether the SFO is right or wrong on this will ultimately be decided by the courts, but it does highlight that it will be critical to ensure that ?the UK operation is legally and operationally independent.

In many cases it may be prudent for the holding company, rather than perpetually scrutinising its relations with its UK subsidiary, to adopt anti©\bribery policies for itself.

· (3) Offshore companies with subsidiaries in the UK and subsidiaries in high risk territories

What would the position be if the Russian operating subsidiary committed a bribe? Could this be laid at the door of the offshore holding company under the Bribery Act?

In most cases, the person paying the bribe in Russia will be doing so as part of providing a service to the Russian operating subsidiary and to benefit the Russian operating subsidiary. In the majority of cases, no service is being provided to the offshore holding company.

In our view the holding company should, in most cases, be protected from prosecution under the Act by a properly set up group structure and using legally separate companies that are also operationally and financially independent3. The offshore parent should, however, ensure that its group structure is set up to operate completely independently to successfully argue that the UK operation does not equate to the offshore company (or any of its affiliates)"carrying on business in the UK”.

Introduction of anti©\bribery provisions is prudent precaution. The safest course will in most cases be for the holding company, at a minimum, to put in place an anti©\bribery policy (if only for itself) to minimise such risks. Some multi©\national companies will no doubt go further and put in place group©\wide anti©\bribery policies, despite the costs and difficulties of their implementation.

The SFO have highlighted that they are interested in prosecuting overseas parent companies and testing the limits of the jurisdiction of the Bribery Act. The use of any structure to insulate a group from Bribery Act liability is at risk of being subjected to UK court scrutiny. Careful consideration will need to be given to it. [6]

2.3 US Foreign Corrupt Practices Act (FCPA) and the Bribery Act