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The Success Of “Soft Enforcement” In The U.K.


As distinguished from “hard” enforcement of a law by enforcement agencies, “soft” enforcement generally refers to a law’s ability to facilitate self-policing and compliance to a greater degree than can be accomplished through “hard” enforcement alone.

Those subject to the law, whether a traffic law or otherwise, comply with the law’s prohibitions because they “could” be found to be in violation of the law, even though the prospect of “hard” detection and enforcement of the violation is low.

Indeed, one of the most notable statements from the FCPA’s legislative history was made by the Chairman of Lockheed who stated:

“So it is true that we knew about the practice of payments on some occasions to foreign officials. But so did everyone else who was at all knowledgeable about foreign sales. There were no U.S. rules or laws which banned the practice or made it illegal.  […] If Congress passes laws dealing with commissions and direct or indirect payments to foreign officials in other countries, Lockheed, of course, will fully comply with them.” (See Lockheed Bribery: Hearings Before the S. Comm on Banking, Hous., and Urban Affairs, 94th Cong. (1975).

In passing the FCPA, Congress anticipated that the “criminalization of foreign corporate bribery will to a significant extent act as a self-enforcing preventative mechanism.” (See S. Rep. No. 93-114, at 10 (1977). Likewise since the FCPA’s earliest days, the DOJ has recognized that the “most efficient means of implementing the FCPA is voluntary compliance by the American business community.” (See “Justice Outlines Priorities in Prosecuting Violations of For. Corrupt Practices Act,” The American Banker (Nov. 21, 1979).

In this regard, a former DOJ prosecutor responsible for investigating and prosecuting FCPA cases rightly observed that “this new era of more aggressive [FCPA] prosecution has, in turn, encouraged corporations to pay even greater attention to their internal compliance programs, matching the ‘hard’ enforcement with ‘soft’ enforcement.” (See Philip Urofsky, et al, “How Should We Measure the Effectiveness of the Foreign Corrupt Practices Act? Don’t Break What Isn’t Broken—The Fallacies of Reform,” 73 The Ohio Law Journal 1145 (2012).

Against this backdrop, the U.K. government recently released this “Impact of the Bribery Act 2010 on SMEs” (as in small and medium size enterprises). In examining the findings of the report, it is important to be mindful that the report categorizes medium sized enterprises as having between 50 to 250 employees; small enterprises as having between 10 to 49 employees; and micro enterprises as having less than 10 employees.
According to the report:

Two-thirds (66%) of the SMEs surveyed had either heard of the Bribery Act 2010 or were aware of its corporate liability for failure to prevent bribery. Awareness was greater among SMEs exporting to regions that are less developed, including the Middle East, Asia, Africa and South and Central America (68%) compared to those companies only exporting to developed regions including Europe, North America and Australia (56%).

The proportion of SMEs that had heard of the Act by name increased with business size. Only 42% of micro sized companies had heard of the Act compared to 54% of small companies and 78% of medium sized companies. Furthermore, those exporting to higher risk regions, as defined by the Corruption Perception Index (including the Middle East, Asia, Africa and South and Central America), were more likely to have heard of the Bribery Act (58%) compared to those companies only exporting to regions at less risk including Europe, North America and Australia (41%)

In addition to whether SMEs had heard of the Bribery Act by name, SMEs were asked whether they were aware of the corporate failure to prevent bribery offence at section 7 of the Act (as described in the introduction). Just over half of all SMEs (53%) were aware of it. Awareness was linked with company size with only 39% of micro companies being aware, compared to 53% of small companies and 73% of medium sized companies.

SMEs were also asked if they had sought any professional advice about the Bribery Act or about bribery prevention. Around a quarter (24%) of SMEs who were aware of the Bribery Act or its corporate failure to prevent provisions had sought such advice, which was most commonly offered by legal professionals (54% of those seeking professional advice).

Around four in ten SMEs (42%) said that they had put bribery prevention procedures in place; defined as anything that they thought helped prevent bribery. Among SMEs that did have procedures in place, these procedures were most typically financial and commercial controls such as bookkeeping, auditing and approval of expenditure (94%) or a top level commitment that the company does not win business through bribery (88%). Just under half of those with procedures in place had written staff policy documents about bribery prevention which are signed by staff (48%) or raised awareness and provided training about the threats posed by bribery in the sector or areas in which the organisation operates (44%). Again, SMEs exporting to the less developed export regions (45%) and especially China (59%) were more likely to have bribery prevention procedures in place.

Those more likely to have bribery prevention procedures in place included: Medium sized companies (60%), compared to small companies (43%) and micro companies (29%).

To some, the above numbers represent a failure of the U.K. Bribery Act (such opinions have mostly been from Bribery Act Inc. participants who have used the report to market their compliance services).

However, the above number represent the success of “soft enforcement” of the Bribery Act in the U.K.

Consider these facts: the U.K. Bribery Act only went live in July 2011 and there has not yet been any enforcement of the FCPA-like provisions in the U.K. Bribery Act.

The relevant analogy would be how many U.S. small to medium size enterprises during the first five years of the FCPA’s existence had heard of the FCPA and developed and put in place preventative procedures?

Fast forward today and query, if one would survey SME managers, nearly 40 years after the FCPA was enacted against the backdrop of the current enforcement climate what the numbers would look like?

Would nearly 70% of U.S. SME managers be aware of the FCPA? Would nearly 40% of managers of micro companies (those with less than 10 employees) be aware of the FCPA? Would 60% of medium size companies, approximately 45% of small companies, and nearly 30% of micro companies have pro-active preventative procedures in place?

I highly doubt it.

Thus, what the recent U.K. report demonstrates is that even in the absence of any “hard” enforcement of the FCPA-like provisions of the U.K. Bribery Act, the U.K. Bribery Act – no doubt because of its adequate procedures defense – is having, even at this early stage, a positive impact of “soft enforcement.”

And kudos to the U.K. government for recognizing this.  The report rightly notes that the purpose of the adequate procedures defense is “to influence behaviour and encourage bribery prevention as part of corporate good governance.”

There are several commentators who are opposed to an FCPA compliance defense.  However, noticeably absent for the critiques is any discussion of how a compliance defense can have a positive impact on “soft enforcement” of the FCPA.

As highlighted in my article “Revisiting a Foreign Corrupt Practices Act Compliance Defense” and numerous posts thereafter (hereherehere and here), a compliance defense might very well lead to a minor reduction in “hard enforcement” of the FCPA,” but the expected increase in “soft enforcement” of the FCPA makes a compliance defense sound public policy.

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