New law could inflate firms' compliance costs

Under the UK’s new Bribery Act, a “commercial organisation” will become criminally liable should any “associated person” offer or conduct a bribe designed to provide a business advantage for the commercial organisation.

The loosely defined “commercial organisation” may cover any private equity firm with UK sub-advisors or portfolio companies which operate or are domiciled in the UK, according to a statement from New York-based law firm Debevoise & Plimpton.

Bribery: A potential risk for keeping compliance costs in check

Private equity houses that “carry on business” in the UK “should be mindful of the recently enacted UK anti-bribery legislation, which may require some adjustment to their current compliance programs,” the firm stated.

The firm added it was important private equity houses are aware that not having knowledge of a bribe paid will not be accepted as a legitimate defence in courts, and that only proving “adequate procedures” were in place to prevent bribery will provide immunity. 

Many of the terms contained in the Act were “deliberately framed in a broad way” so prosecutors and courts are not constrained by any strict language, Debevoise added.

If convicted, private equity firms face an unlimited fine, and “it makes no difference whether the bribe was paid in the UK or anywhere else in the world”, stated Debevoise, “nor is it required that the associated person be convicted of a bribery offence where the activity occurred.”

The “bottom line” for private equity funds subject to the act is “that it is difficult to know when activity in one part of the world will be attributed to the fund or management entity by virtue of its far-flung ‘associated persons’”, Debevoise warned.

The act defines an associated person as one who “performs services for or on behalf of” of a commercial organisation, meaning the act could capture placement agents, employees, or a joint venture partner, among others.

The Bribery Act is expected to come into force as early as April 2011, with final guidance on what constitutes “adequate procedures” in preventing bribery expected to be published early next year.

The government has already issued draft guidance which provides an outline of how firms may be judged, including due diligence policies in place designed to prevent bribery, a gifts and hospitality policy, and anti-corruption training for employees, among other key criteria. 

Debevoise added firms which could be interpreted as a “commercial organisation” would be “well-served to review and, if necessary, overhaul their internal procedures” to ensure compliance across their global operations, especially considering the law often holds directors responsible for anticorruption policies “and because of the fact that private equity fund principals often serve on the boards of their portfolio companies, private equity firms need to satisfy themselves that all of their portfolio companies conducting any business in the UK have robust procedures in place to deter corruption”.