When the UK Bribery Act was passed in 2010 it was widely heralded as the toughest anti-corruption legislation in the world, and some businesses were very worried that its uncompromising approach, extra-territorial effect and strict liability offence would make it hard for them to do business in some parts of the world. Nine years later, a thorough Parliamentary review of the Act has been extravagant in its praise, concluding that it is an “excellent piece of legislation” and an exemplar both for other countries, and for the future UK approach to corporate crime. British private equity firms and their portfolio companies – who invested significant resources in preparing for the Bribery Act – should take note.

The Bribery Act was indeed a comprehensive response to criticisms of the UK’s somewhat ineffective laws on corruption, a patchwork of overlapping rules that had been developed, first by the courts and then by Parliament, over centuries. The “clear and concise” principal offences laid out in the Bribery Act were a crucial step forward, but so too was its approach to corporate liability. Historically, UK law had required that a prosecutor find a “directing mind” (usually the board of directors) of a company with the necessary intent to justify a criminal conviction. That was often very difficult to establish and made it hard to bring a successful prosecution. The innovation of the Bribery Act was to establish a strict liability corporate offence of “failure to prevent bribery”, but with a defence available to a company that could show that it had implemented “adequate procedures” to prevent bribery.

There were questions about the scope of this offence and the corresponding defence, of course. For example, the phrase “adequate procedures” was criticised on the basis that a procedure could not, by definition, be “adequate” if it had failed to prevent a bribe being paid. The recent Parliamentary report is very helpful in that respect, having taken considerable evidence on the point and devoting several paragraphs to their findings. Their view is that “adequate” must mean “reasonable in all the circumstances” and they recommend that the government issues guidance to that effect. Further, the report proposes that the current Ministry of Justice guidance be expanded to include examples of procedures that are likely to provide companies with a good defence.

The report also helpfully comments on another question frequently raised by companies: what is acceptable corporate hospitality? Here, again, the report does not believe that any change is needed to the legislation itself, but suggests that more specific examples of acceptable corporate hospitality be included in the guidance. And on “facilitation payments” – small sums, usually paid to officials to induce them to perform their duties or to do so more quickly – the report clearly recommends against any changes to the current (strict) position, arguing that the Act was right to outlaw these, and noting that the international trend is to follow suit.

UK private equity-backed companies spent significant time and money in the early part of this decade putting anti-corruption policies and procedures in place, perhaps confirming the now widely-accepted view that the Bribery Act has provided an effective incentive for boards of directors to take action. To some extent, they went through a similar exercise a few years ago, when the Criminal Finances Act introduced the corporate offence of “failure to prevent the facilitation of tax evasion”. That law used the Bribery Act’s model, although it specifically provides that a company has a defence if it has procedures that are “reasonable in all the circumstances” (rather than “adequate”). The government at the time took the view that other offences applying the same model – particularly ones focused on fraud, money laundering and false accounting – should be introduced and a call for evidence was issued in 2017. This new Parliamentary report commends that proposed approach, and urges the government to get on with it.

A new UK offence of failure to prevent economic crime, with a strong incentive for companies to get their policies and procedures in order, therefore seems more likely than ever. Private equity fund managers would be wise to ensure that investment documentation anticipates this, and gives investors – particularly minority investors – the power to require that reasonable procedures be put in place. In the meantime, the report also makes recommendations designed to ensure that the Bribery Act offences are better understood, including by small and medium-sized businesses – and suspected infringements are investigated more quickly. Companies might therefore expect a renewed focus on anti-corruption and it may be timely for boards to review the policies they have in place and, crucially, the way in which they are being implemented. Having a written procedure designed to prevent bribery is not enough: boards should have good grounds to believe that it is being rigorously applied throughout the organisation and its supply chain.