04 January 2011

Art and cultural asset news - autumn: the Bribery Act and the payment of commission — a new danger zone


Kenneth Mullen
Partner | UK

The new Bribery Act stands as a warning to art market professionals to reflect on the long-standing practice of paying and receiving commission in return for new business. The art market is particularly exposed because the payment of commission is widespread, and payment is often made without any understanding of the legal implications of such payment. Whilst the payment of commission remains a perfectly legitimate business practice, the days when commission is paid or received without consideration of the nature of the relationship between the payer, the payee and the other parties to the transaction may well be over.

The offences under the Act

The Act introduces five offences:

1   giving bribes

2.  accepting bribes

3.  bribing a foreign public official

4.  a corporate offence of failing to prevent bribery

5.  a senior company officer offence of consenting to, or conniving in, bribery by the company.

For each offence, prosecutors must prove that transgression has been committed ‘beyond reasonable doubt'.

A bribe is often understood as being an illicit cash payment to a public official – the so-called ‘brown envelope'. The Act is far broader: a bribe consists in any financial or other advantage given or received in a business context which constitutes or induces the ‘improper performance' of a business activity. The Act provides that improper performance is performance (or non-performance) that breaches the expectations of good faith or impartiality, or breaches a position of trust. This is an objective test based on what a reasonable person in the UK would expect in relation to the performance of the relevant activity.

The general offences will capture the payment of commission to intermediaries owing a duty of trust and confidence to art collectors, in return for the opportunity of dealing with the art collection or adding to the collection, without the collector's consent to such payment. For example, you pay a commission to the decorator of Mr Well-Known-Collector because the decorator assisted you in selling a painting to Mr Well-Known-Collector who is not aware that you are paying a commission to the decorator. The decorator, if based abroad, may not be committing an offence because he may not be subject to the Act but if you are based in the UK, you may well commit the offence of ‘bribing another person'.

The Act applies not only to the payment of money, but to practices such as excessive corporate entertainment, which the art market may not necessarily think amounts to a bribe. Art market professionals will have to evaluate whether the level of entertainment is appropriate in the circumstances, or whether it risks inducing the recipient to act improperly

New corporate offence

The introduction of a new strict liability offence for companies of ‘failure to prevent bribery' is a significant departure from the current law. A company (or partnership) will commit the offence if an associated person performing services on its behalf bribes another person in order to obtain or retain either business or business advantages for the company.

It is a strict liability offence because the prosecution does not have to prove fault, negligence or intent. The only defence available to the company is proving that it had adequate procedures in place designed to prevent bribery from being committed by those performing services on its behalf. Once the prosecution has proved that the bribe was paid for the benefit of the company, the burden of proof will shift to the company to demonstrate that it has adequate procedures in place to prevent bribery.

The corporate offence is triggered by the acts of those associated with the company. Under the Act, a person is associated with a company if he/she performs services on its behalf. This is clearly wide enough to cover employees, agents, intermediaries and introducers. In fact, there is no requirement for any form of contract between the representative and the company, nor is there any requisite degree of control.

The definition is likely to include persons retained by art dealers and galleries to drum up business for them abroad. If the gallery's representative (whether or not he/she is or may be prosecuted) meets the conditions of the offence of bribing another, the dealership or gallery business may well commit the offence of ‘failure to prevent bribery'.

Given the strict liability nature of the corporate offence, and the broad test of association, the defence of adequate procedures is likely to assume particular significance. The Act requires the government to publish guidance on procedures companies can put in place to prevent bribery, but that guidance has not yet been published and, even when it is, is likely to be abstract and high level. Art market businesses would be well advised to carry out a detailed assessment now of where bribery risks may arise in their business, and put clear anti-bribery policies and internal guidelines in place. Consideration should be given to circumstances when commission is paid or received, who within the organisation gives or receives commission and their connection with the business, the relationship between the person receiving the commission and the person whose business is being introduced, and crucially, your disclosure obligations.

The ability to show that these policies are monitored and enforced will be critical in the event of prosecution. This will require education and training. Any company that finds itself caught up in an investigation will find it difficult to show that they have adequate procedures if they have neglected the basic step of educating and training their staff.

There is no suggestion that the Act equates commission with bribe. The payment of commission remains perfectly acceptable, provided that certain conditions are met. It is the blind payment of commission without considering who pays, who is paid, for what services and without disclosure that has become high risk and potentially attracts criminal liability.

Penalties

There is a maximum penalty of ten years' imprisonment for all the offences, other than the corporate offence, which will carry an unlimited fine. The courts have indicated that they view bribery as an extremely serious offence, and corporate fines are likely to be very high.

Geographical reach

The new corporate offence applies to any UK incorporated entity (or UK registered partnership), and any overseas entity which carries on a business or part of a business in the UK. The government has left it to the courts to interpret ‘part of a business'.

Precedents in other contexts suggest that the phrase may be given a broad meaning, perhaps including just a single transaction. Crucially, the associated individual or entity that carries out the act of bribery on behalf of the company or partnership does not need to have any connection to the UK.

The jurisdictional scope of the Act suggests that art businesses established outside the UK but who conduct business in the UK would do well to consider its implications. This includes US businesses with a UK presence because the scope of the Act is in some respects wider than the US Foreign Corrupt Practices Act.

Senior Officer Offence

The Act provides that a senior officer of a company may be liable if it can be shown that the company committed one of the three main offences (bribing, receiving bribes or bribing a foreign public official) with the officer's consent or connivance. ‘Senior officer' is defined broadly as a director, manager, secretary or other similar officers. The senior officer must be British or ordinarily resident in the UK.

The Bribery Act received the Royal Assent on 8 April 2010. The coalition government has indicated that it supports the legislation and the Act will be brought into force in April 2011.

Category: Article