Chapter 4: Corporate hospitality
116.Corporate hospitality is a necessary and legitimate part of doing business, but it can also be taken advantage of by companies seeking to disguise bribery as legitimate corporate hospitality. Even seemingly unglamorous operations like potato buying are areas where hospitality can be abused for illegitimate means—in 2012 three men were jailed for involvement in a potato bribery scam, in which two directors provided gifts and hospitality to a supermarket potato buyer in return for contracts, resulting in Sainsbury’s being overcharged by £9 million.143 Therefore a balance needs to be struck between regulating corporate hospitality and allowing businesses to build relationships with clients. Above their legal obligation to obey the Bribery Act, certain ethical principles should guide companies; for example, the Committee on Standards in Public Life144 has recently extended the Nolan principles to private sector companies which deliver public services.145
Box 2: Hospitality in different cultures
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In certain cultures, such as in China, traditionally a different approach to hospitality has often been taken. Particularly prominent in Hong Kong corporate culture, mooncakes are a gift that is a symbol of building trust and friendship. These cakes can be expensive, with gold dusted mooncakes being a particularly lavish example.146 Similarly, ‘red envelopes’, traditionally containing money, are given as gifts during the Chinese New Year.147 When expected as a gift from UK business people, who must abide by UK bribery legislation, this can present a difficult choice between potentially damaging a business relationship and breaking UK law. In oral evidence, Lesley Batchelor, Director-General of the Institute of Export and International Trade, has stated: “as an individual I feel that this places people in a very awkward situation.”148 |
The Ministry of Justice Guidance
117.The Act itself contains no specific reference to corporate hospitality, although the Ministry of Justice statutory Guidance on the Bribery Act 2010 outlines how corporate hospitality should be approached. The introduction to the Guidance, by the Rt Hon Kenneth Clarke QC MP, then Lord Chancellor and Secretary of State for Justice, states:
“ … combating the risks of bribery is largely about common sense, not burdensome procedures. The core principle [the Guidance] sets out is proportionality. It also offers case study examples that help illuminate the application of the Act. Rest assured–no one wants to stop firms getting to know their clients by taking them to events like Wimbledon or the Grand Prix.”149
The Guidance is clear that the Act does not aim to stop corporate hospitality per se, but simply to prevent bribery under the façade of corporate hospitality.
118.Paragraph 20 of the Guidance explains this in relation to section 1 offences, stating that in order to proceed with a case based on an allegation that the “hospitality was intended as a bribe the prosecution would need to show that the hospitality was intended to induce conduct that amounts to a breach of an expectation that a person will act in good faith, impartially, or in accordance with a position of trust”, judged by what a “reasonable person” in the UK thought.150 To illustrate this, the Guidance provides the example of an invitation to foreign clients to attend a Six Nations match at Twickenham as part of a public relations exercise designed to cement good relations or enhance knowledge in the organisation’s field. Since there is “unlikely to be evidence of an intention to induce improper performance of a relevant function”, this example is “extremely unlikely” to engage section 1.151
119.Paragraphs 26 to 32 give many examples of how hospitality on the international stage would or would not infringe section 6 (bribery of a foreign public official). Like the introduction, this section emphasises that the aim of the Act is not to penalise “reasonable and proportionate hospitality and promotional or other similar business expenditure” intended to “improve the image of a commercial organisation”, while accepting that hospitality and promotional or other similar business expenditure can be employed as bribes. As with section 1, section 6 requires an intent to bribe, or in other words an intent to gain “a financial or other advantage to influence the official in his or her official role and thereby secure business or a business advantage.”152
120.The prosecution must then show that “there is a sufficient connection between the advantage and the intention to influence and secure business or a business advantage.” The evidence for this connection would include matters such as “the type and level of advantage offered, the manner and form in which the advantage is provided, and the level of influence the particular foreign public official has over awarding the business.” The lavishness or expenditure of corporate hospitality is not in itself an issue; expenditure should only become problematic when there is an evidential link to an intention to bribe. However, generally the more lavish or expensive travel expenditure or corporate hospitality is, “the greater the inference that it is intended to influence the official to grant business or a business advantage in return,” although differing ‘normal’ expenditure between sectors may be relevant.153
Uncertainty surrounding the Guidance
121.Despite the Guidance, companies are fearful of hospitality contravening section 1 or section 6, and compliance regimes are often too strict. Evidence received from companies and organisations such as the Association for Financial Markets in Europe (AFME) has shown that companies are uncertain “on the application of the Act to the acceptance of corporate hospitality.” 154 Likewise, the Aerospace Defence Security and Space Group, while praising the Guidance as a whole as “relatively clear and concise”, stated in written evidence that greater clarity is needed around the provision of hospitality, which they believe “is still causing some confusion in certain circles, both within the hospitality Industry as well as wider.”155
122.In particular, there is uncertainty on two questions. First, given the “greater inference” that expensive or lavish hospitality is intended for a business advantage, can it ever risk contravening sections 1 or 6? Secondly, what constitutes ‘normal’ expenditure within a given sector? As suggested in the OECD Phase 3 and Phase 4 Reports,156 the meaning of “reasonable and proportionate hospitality” in paragraph 26 and the “standards of norms applying in a particular sector” in paragraph 29 of the Guidance are unclear.157
123.In written evidence Pinsent Masons LLP drew attention to the vagueness of some of the Guidance, especially around gifts and hospitality in the Introduction to the Guidance and in paragraphs 26 to 30. Pinsent Masons claimed this could lead to companies “adopting an overly cautious approach to gifts and hospitality in low risk settings which the Guidance notes was not the intention of the Government.” However, they also noted that “There is a bizarre and potentially dangerous example of acceptable hospitality given at paragraph 31 of a UK company paying for a public official and the official’s spouse to meet in New York and attendance at a baseball match and fine dining.” Despite being given in the Guidance, many anti-corruption practitioners would disagree with it “being acceptable for a UK company to pay for a foreign public official, let alone the official’s wife, to meet in New York.”158 In written evidence Fieldfisher LLP noted that clear guidance is especially important without a body of case law.159
High Risk Sectors
124.Certain sectors seem to be particularly affected by unclear guidance. For example, as argued in oral evidence by Chris Blythe, CEO of the Chartered Institute of Building (CIOB), the construction sector is fragmented and has long supply-chains, making enforcement of hospitality policy difficult.160 Research by the CIOB from 2013 looked at the use of corporate hospitality within the sector. The CIOB noted that there was considerable confusion within the industry regarding how hospitality was considered in the Bribery Act, and it was seen as a grey area in general, with respondents indicating that the issue of hospitality was subjective. The report stated that:
“A number of respondents feel that gifts and corporate hospitality have led to the blurring of boundaries. They believe these issues create confusion and an environment for shady business practices that should be avoided at all costs. Some respondents even suggest that practices often seen as common courtesy, such as refreshments at meetings or business lunches, can be interpreted as a possible bribe or a way to influence a decision.”161
125.Event and sports organisation is another sector adversely effected. The Major Event Organisers Association (MEOA), while praising the Guidance, raised concerns about the lack of “common sense” used when attempting to tackle bribery masquerading as legitimate corporate hospitality:
“There were concerns within the events industry at the time of the introduction of the 2010 Bribery Act, although the particularly helpful foreword to the Guidance for the Act from the then Secretary of State for Justice, Kenneth Clarke MP, was very useful clarification for all parties on how the Bribery Act was to be interpreted in relation to events and hospitality … However, in recent years it appears that this common sense interpretation is no longer being followed. This has been exacerbated by the introduction of MiFID II162 at the start of 2018 and the interpretation by compliance officers of the guidance from the FCA. The impact is not only being seen in the hospitality area of business but also increasingly sponsorship, as hospitality is usually a significant element of any sponsorship package or partnership agreement … ”163
126.We were told that stakeholders in sports sponsorship rarely explicitly cite the Bribery Act as a reason not to renew or partake in hospitality or sponsorship of a sport event, but that several firms have cited “legislation”. Moreover, stakeholders have reported a decline in acceptance of hospitality invitations in the UK since the introduction of the Act. In many cases this has “necessitated combining the sponsorship of sporting events with the introduction of business conferences/seminars in order to facilitate attendance from both the public and private sectors, particularly where strict rules have been introduced to ensure compliance with the Act.”164
127.Companies should bear in mind that certain sectors must abide by legislation which goes beyond the Bribery Act. For instance, companies involved in financial services are affected by MiFID II, EU legislation that regulates firms who provide services to clients linked to “financial instruments” (shares, bonds, units in collective investment schemes and derivatives), and the venues where those instruments are traded.165 The FCA takes a stern line on hospitality, believing that hospitality should be “conducive to business discussions”, a criteria not met by “sporting or social events, e.g. golf, tennis, concerts”. The FCA also states that certain activities like evening dinners, playing golf and attending rugby games, provided after participation in training events or conferences, are often not appropriate.166 Regulated firms and their compliance officers therefore have no choice but to observe these guidelines.
128.MEOA have drawn attention to various instances where legislation has prevented members from undertaking corporate hospitality, with the sport industry presented as being especially affected. In one instance, the title sponsor of a major televised sporting event gave the receipt of a letter from the FCA warning about the giving of hospitality as the reason for not renewing their sponsorship. According to the MEOA, sports and arts event organisers are having to replace lost business “with their hands proverbially tied behind their back because of the attitudinal change to hospitality and sponsorship driven by compliance officers.”167 The MEOA cited the “overreaction” from compliance officers in implementing legislation, meaning event organisers are “suffering from significant unintended consequences of the 2010 Bribery Act and MiFID II” and would “greatly benefit from some further clarification, such as that provided by Kenneth Clarke in 2010.”168
129.We are not aware of any judicial interpretation of sections 1 or 6 from a hospitality point of view. Although the Guidance is to some extent useful, this is not a substitute for judicial interpretation, and we sympathise with organisations which must decide for themselves where to draw the line between legitimately oiling the wheels of commerce and attempting to gain an unfair business advantage. As noted by the Joint Committee on the Draft Bribery Bill, businesses will often have to rely on prosecutors using their common sense in deciding what is legitimate and what is not.169
130.It may help if businesses look at the situation from the point of view of the recipient of hospitality: would the guests expect to be treated in this way whatever decision they might reach on the business in question, or would they believe that the level of hospitality offered was an attempt to influence them improperly into taking a decision which they might not otherwise have taken? Businesses might also consider what a reasonable member of the public, properly informed, might think of the hospitality they are proposing to offer. On a level closer to businesses, we encourage professional organisations and trade associations to provide sector specific guidance on where their members should draw the line.
131.We believe the attempts in the Ministry of Justice Guidance to explain the boundary between bribery and legitimate corporate hospitality are as clear as can be expected in the absence of any judicial interpretation of these provisions. Nevertheless, initially the Act may have had an overly deterrent effect. The Ministry of Justice should consider adding to the Guidance clearer examples of what might constitute acceptable corporate hospitality.
143 ‘Sainsbury’s potato bribe scam: Three jailed’, BBC News (22 June 2012): https://www.bbc.co.uk/news/uk-england-cambridgeshire-18547086 [accessed 7 January 2019]
144 Lord Stunell, a member of this Committee, is also a member of the Committee on Standards in Public Life.
145 The Nolan principles include selflessness, integrity, objectivity, accountability, openness, honesty, and leadership. Committee on Standards in Public Life, The Continuing Importance of Ethical Standards for Public Service Providers (May 2018), p 6: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/705884/20180510_PSP2_Final_PDF.pdf [accessed 14 February 2019]
146 ‘Mooncake season strikes again in Asia’, BBC News (8 September 2014): https://www.bbc.co.uk/news/av/business-29103438/mooncake-season-strikes-again-in-asia [accessed 10 January 2019]
147 ‘China media: Lunar New Year goes global’, BBC News (23 February 2015): https://www.bbc.co.uk/news/world-asia-china-31582484 [accessed 10 January 2019]
149 Ministry of Justice, The Bribery Act 2010: Guidance about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing (March 2011) p 2: https://www.justice.gov.uk/downloads/legislation/bribery-act-2010-guidance.pdf [accessed 7 January 2019]
150 Ministry of Justice, The Bribery Act 2010 Guidance, p 10
151 Ibid.
152 Ministry of Justice, The Bribery Act 2010 Guidance, p 12
153 Ministry of Justice, The Bribery Act 2010 Guidance, p 13
156 Organisation for Economic Co-operation and Development Working Group on Bribery, Phase 4 Report on Implementing the OECD Anti-Bribery Convention in the United Kingdom (March 2017), p 98: http://www.oecd.org/corruption/anti-bribery/UK-Phase-4-Report-ENG.pdf [accessed 8 January 2019]
157 Ministry of Justice, The Bribery Act 2010 Guidance, pp 12-13
161 The Chartered Institution of Building, A report exploring corruption in the UK Construction Industry (September 2013), p 11: https://www.ciob.org/sites/default/files/CIOB%20research%20-%20Corruption%20in%20the%20UK%20Construction%20Industry%20September%202013.pdf [accessed 7 January 2019]
162 The Markets in Financial Instruments Directive and Regulation: see Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU OJ L 173/349 (12 June 2014), implemented by the Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017 (SI 2017/701), the Data Reporting Services Regulations 2017 (SI 2017/699), and the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2017 (SI 2017/488); and Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No 648/2012 OJ L 173/84, (12 June 2014)
164 Supplementary written evidence from Michelle Crotty, Deputy Legal Secretary and Head of Operations at the Attorney General’s Office, and Nicola Hewer, Director of Criminal and Family Justice Policy at the Ministry of Justice (BRI0049)
165 Financial Conduct Authority, ‘MiFID II’, (May 2016): https://www.fca.org.uk/markets/mifid-ii [accessed 14 January 2019]
166 Financial Conduct Authority, ‘Inducements and conflicts of interest thematic review: key findings’: https://www.fca.org.uk/publications/thematic-reviews/inducements-and-conflicts-interest-thematic-review-key-findings [accessed 10 January 2019]
169 Joint Committee on the Draft Bribery Bill, Draft Bribery Bill (First Report, Session 2008–09, HC 430–I, HL Paper 115–I) p 52