Associate and commercial litigation specialist at Shoosmiths Erica Simpson points out the potential risks trustees face following the introduction of the Bribery Act.

When the Bribery Act 2010 came into force on 1 July 2011 it opened up a potential liability for individual trustees, corporate trustees and sponsoring companies alike. Despite this, a recent survey found that 51% of pension schemes have no formal policies or guidelines in place to deal with the acceptance of hospitality and the receiving of gifts by trustees.

In the last few weeks, the FSA imposed a fine of £6.895m on Willis Limited for failing to organise an adequate risk management system and the High Court ordered MacMillan Publishers to pay more than £11m for unlawful conduct in this area. Given these recent decisions there has never been a more important time to consider the issues presented by the Bribery Act and to take preventative action.

The Act

The Act creates four criminal offences, three of which are relevant for trustees of pension schemes and sponsoring employers. The first two of these offences are the general offences of bribery (bribing someone or being bribed) and the third is a new corporate offence of failing to prevent a bribe occurring.

The General Offences
Individual trustees and corporate trustees must ensure that they are not guilty of the general offences of either giving or receiving a bribe. A bribe is widely defined as “a financial or other advantage” and so can include such matters as corporate hospitality or gifts. Both individual trustees and corporate trustees can be guilty of committing the general offences. For example, if they accept particularly excessive hospitality which was intended to induce the trustees into acting in bad faith, then they may have committed an offence.

The Corporate Offence
The corporate offence is designed to catch commercial organisations who fail to prevent bribery by those associated with them. This third offence will certainly catch professional corporate trustees and sponsoring companies, but the position is less clear for non-professional corporate trustees who may well be caught if it is found that a corporate pension scheme trustee is deemed to be a “commercial organisation”.

The Ministry of Justice (MOJ) has published guidance designed to help provide some further detail for such organisations on applying the Act. The MOJ’s guidance says that an organisation will be a commercial organisation for the purposes of the Act if it engages in commercial activity, irrespective of the purposes for which profits are made. Our advice is therefore that corporate pension scheme trustees should assume they are caught within the ambit of the Act and could be found guilty of the corporate offence.

The sole defence available for corporate trustees or sponsoring companies against the corporate offence is for it to show that it had adequate procedures in place designed to prevent bribery occurring by the persons associated with it. Whilst such procedures should be proportionate to the risks involved in each particular case, the fine imposed by the FSA on Willis Limited shows that having a procedure in place can, in itself, be insufficient. Drafting “adequate procedures” is not a tick box exercise and should be considered in light of the individual risks and circumstances encountered.

What should Trustees do?

The ethos of the Act is not entirely new for trustees who are bound by strict fiduciary duties and already held to account by reams of regulation. In addition, the MOJ guidance made it very clear that it is not the intention of the Act to stop ordinary and proportionate hospitality from taking place. Instead the Act seeks to prevent improper behaviour and corruption that has the sole intention of gaining or retaining a business advantage.

Trustees should ensure that they have procedures and protocols in place to avoid and, if necessary defend, serious allegations that they entered into a particular course of action as a result of inducements falling foul of the Act. As a matter of good practice we recommend that trustees consider taking some or all of the steps below:

• As a minimum trustees should take time to understand and record their own approach to corruption and bribery;
• In the Pensions Regulator’s Code of Practice on Internal Controls the need for trustees to identify, document and mitigate key risks is highlighted. As a result of this code most trustees should now have a risk register. The register should be updated to take account of the bribery risk assessment carried out (and regularly monitored) by the trustees;
• Review and update conflict of interest policies to ensure they contain measures to guard against bribery;
• Look at what bribery risks trustees face and put in adequate bribery prevention procedures and policies. We would expect a bribery policy to have a zero tolerance of any attempts to bribe an individual or acceptance of a bribe and to detail acceptable forms of hospitality (perhaps by value etc);
• Ensure procedures involved in awarding contracts and negotiating terms with third parties on behalf of the scheme are transparent and open;
• Create a hospitality/gifts register. Keeping records of hospitality/gifts and declaring any benefits before taking relevant decisions will help trustees to demonstrate compliance with the law;
• Request a copy of associates' anti-bribery policies and get confirmation in any engagement letters of their anti-bribery stance, e.g. external scheme administrators;
• Ensure that policies are in place for reporting and investigating a potential bribe.

The Act makes companies liable for bribery by its employees, agents or other more loosely connected parties. It is therefore important that sponsoring companies of pension schemes also take responsibility for ensuring that trustee boards take adequate steps.

Given the dim view already expressed by the Pensions Regulator on this topic, any sponsoring companies considering inducement based liability programmes (i.e. enhanced transfer values, pension increase swaps etc) should ensure that their offers are framed clearly and transparently to members so they are free to make informed choices.

The Risks

The potential penalties under the Act are high: for an individual on conviction, up to a maximum of 10 years' imprisonment and/or an unlimited fine; and for a company, unlimited fines can be imposed on both the company and its individual directors.

In reality, the risk for trustees in falling foul of the Act is low and as such the action to be taken needs only to be reasonable and proportionate to the risk involved. Notwithstanding this the Willis case demonstrates that no one can afford to be complacent.

Trustees and sponsoring companies alike should give some consideration to the risks they face and what can be done to reduce those risks; failing to do so can be costly as both Willis and MacMillan Publishers have found out.

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