Despite the fact that the Bribery Act 2010 (the “Act”) came into force on 1 July 2011, a recent government study has found that only two-thirds of SMEs are aware of the Act or its corporate offence for failure to prevent bribery (under section 7 of the Act). Of those that were aware of the act, 74% were not aware of the Ministry of Justice’s (“MOJ”) guidance under the Act, published in March 2011. The Ministry of Justice has also published a Quick Start Guide.

This article will examine Section 7 of the Act – failure of commercial organisations to prevent bribery – and what SMEs should be doing to protect themselves, including when and where to seek advice along with details of the average costs involved.

SMEs

Small and medium sized enterprises (SMEs) play a vital role in the UK economy, making up more than half of employment in the UK private sector (in 2012). With an estimated 20% of these companies exporting, they are an essential part of the Government’s growth strategy. Many SMEs are however unaware of the Act or of what they need to do to comply.

How great is the burden under the Bribery Act?

The government are aware that there was initially concern amongst SMEs that the Act would impose costly and burdensome responsibilities on them. However, the statutory burden isn’t actually that great for most companies as the Act only requires adequate (i.e. proportionate) procedures to be put in place to mitigate the risks of bribery. When determining what constitutes ‘adequate procedures’, the macro risks (e.g. risk of country exporting to, or the market) should be considered along with the following micro characteristics of your business:

• size;

• management structure;

• corporate structure; and

• business model.

This means that, generally speaking, smaller businesses with smaller risks need to take fewer precautions. Some businesses may assess their risk as very low and be able to use this assessment to justify not putting any procedures in place.  Some may find that existing control measures (for example financial controls or contractual terms) are sufficient to control their risk of bribery.

Consequences for failing to comply

Although there haven’t been any SME prosecutions under the Bribery Act 2010 to date, SMEs should be aware of the consequences of failing to comply with the requirements, which, for a breach of section 7, include an unlimited fine. This highlights the importance of companies being aware of the act and the corresponding MoJ guidance.

The MoJ Guidance

As mentioned above, only 26% of SMEs surveyed in the recent government study were aware of the MoJ guidance and out of that 26%, only 75% had read it. Perhaps the most motivating statistic is that 89% of those that did read it found it useful or very useful. Only 3 companies found it of no use at all, and they all agreed that this was because they thought it adopted a common-sense approach.

Of those that were aware of the guidance, 76% had bribery procedures in place, compared to only 50% for those who were unaware of the guidance.

If in doubt, seek advice

A third of the SMEs that were aware of the Act or the corporate liability for failure to prevent bribery used other guidance, such as lawyers and business consultants. Almost all (96%) of those found that advice useful, and over a third said that the advice had enabled them to put a bribery policy in place.

The study found that in terms of annual cost of bribery prevention procedures, the median annual spend was £500. The study found that smaller companies typically spent less than the medium sized companies- again emphasising the proportionality element.  A quarter of SMEs interviewed quoted their annual spend at zero.

As shown above, the costs for protecting your company are minor when compared to the potential (unlimited) fine companies can receive for failing to take the appropriate measures.

Prosecutions are coming…

Although there have been very few prosecutions as of yet, as per our previous blog, the SFO is continuing to crack down on fraud and financial crime with increased vigour, therefore all companies including SMEs should be aware of the implications of the Act and what steps they need to take.