REFLECTIONS FROM YOUR AVIATION LAWYER

In this first of a regular series Gates and Company discuss the The Bribery Act 2010 – Is the airline and travel industry prepared?

The Bribery Act 2010 (the “Act”) came into force in the United Kingdom on 1 July 2011 amid a fanfare of publicity as to how it will impact businesses in the future. Whilst the Act is a piece of UK legislation it has extra territorial application and is important for both UK and international businesses.  The airline and travel industries conduct business in the international arena and should therefore be aware of how this could affect them going forward.

What does the Act cover?

The concept and offence of bribery is not new but the Act has identified four distinct offences which are fairly wide in their application. The offences are:

1. Bribing another person – (Active Bribery)
2. Being bribed – (Passive Bribery)
3. Bribery of foreign public officials
4. Failure of commercial organisations to prevent bribery

The most notable development is the new corporate offence in relation to the failure of a commercial organisation to prevent bribery.  It is a strict liability offence which in essence means that no evidence of wrongdoing on the part of the company has to be demonstrated in order for the offence to stand.  In addition the offence can be committed by a business in the UK or overseas and all that is required is a “close connection” with the UK.  Perhaps the most significant element of this offence is the fact that it can be carried out by a person “associated” with a business which could include employees, agents or subsidiaries.  Businesses are able to avail themselves of the “adequate procedures” defence which is usefully explained in the UK Ministry of Justice (the “MoJ”) guidance note which was produced in March 2011.

Broadly speaking a bribe is described under the Act as an offer, promise or giving of a financial or other advantage in order to encourage a person to perform a relevant function or activity improperly or to reward them for doing so. Similarly it will be an offence to request, agree to receive or accept a bribe as an inducement to act improperly.  As regards the offence of bribing a foreign public official, the offence will be committed if there is an intention to influence the official.

How could this affect the airline and travel industry?

It is important to understand that a bribe does not necessarily mean a payment in monetary terms; it could include gifts or corporate hospitality depending on the intention behind the gesture.  Invitations to corporate events, familiarisation trips and free airline tickets are not unusual in the tourism industry.  They are frequently used tools in the on-going promotion of new airline services, worldwide destinations and overall public relations between airlines, tour operators and travel agents.  The question that is frequently asked is whether these types of gestures will now be ‘caught’ by the Act.

The MoJ guidance clearly states that it is not the intention of the Act to prevent companies and individuals going about their business in the normal way.  Genuine gestures of corporate hospitality in the normal course of business are permissible in an effort to promote good public relations and will not be caught by the Act, provided there is no underlying intention to unduly influence anyone in order to obtain a financial gain or benefit.

For example, if an airline gave a group of travel agents free tickets on its inaugural flight to a new destination in the interests of promoting the route this would probably be fine.  Similarly, if a tour operator held a familiarisation trip to a new destination that consisted of a trip including flights and accommodation for one week with various tours of the destination, this should also be perfectly reasonable. 

The problems will undoubtedly arise if a business is tendering for a contract, perhaps to gain an exclusive hotel deal, where they ‘ramp up’ the hospitality for the hotel manager in an effort to try and secure the business; perhaps he would be offered a first class ticket on an airline to any chosen destination or an offer of ‘assistance’ to a member of his family.  Any gestures that were provided in an effort to ‘influence’ the hotel manager to sign the deal would inevitably be caught by the Act.  It is also important to note that a business does not need to have knowledge of the gestures provided in order to be caught by the Act as they can be made by an ‘associated’ person but the company will remain liable.  Therefore even if a local agent makes the offending gestures, the parent company will remain responsible and potentially liable under the Act unless they can demonstrate they had adequate procedures in place to prevent this type of activity.

The issue of ‘facilitation payments’ is another area where businesses may find themselves falling foul of the Act.  Also known as ‘grease payments’, facilitation payments are sums paid to local public officials in order to carry out their official duties.  For example it is not uncommon in certain jurisdictions to pay a local public official an additional sum to complete the renewal of a local operating licence.  These payments are not permitted by the Act and would therefore be an offence.  It is not entirely clear how businesses will be able to work around this issue where these types of payments are the norm in some jurisdictions, however the MoJ guidance reiterates that companies should have procedures in place to adequately deal with these requests. 

Businesses should therefore be aware of the proportionality and timing of any such corporate hospitality or gifts and whether such gestures are in keeping with the expectation of the parties.  Lavish or overly extravagant gifts, if they are out of the ordinary and disproportionate, may be caught by the Act where they do not meet the ‘expectation’ test and there is a connection between the influence exerted and the financial gain of a business.

How can businesses protect themselves?

Businesses must prepare adequately in order to avail themselves of the adequate procedures defence.  The MoJ guidance details six principles that businesses should follow in implementing anti-bribery measures which include putting in place proportionate procedures; carrying out appropriate risk assessments; carrying out appropriate due diligence; having top level commitment to the procedures put in place; communicating this to relevant staff and suppliers including training that may be required and keeping such procedures under constant monitor and review.

Preparation is not something that should be taken lightly as the criminal penalties are substantial.  Criminal sanctions under the Act include jail time and unlimited fines for individuals; unlimited fines for businesses and company directors may be disqualified from holding a company directorship.

Overall the Act is seen to support the Organisation for Economic Co-operation and Development (the “OECD”) recommendations in eradicating bribery and corruption worldwide. It is extremely wide in its application and will have far reaching implications for businesses both in the UK and abroad.  It is therefore imperative for businesses and individuals to ensure they are fully prepared for the Act and should take active steps to implement policies and procedures as identified by the six principles within the MoJ guidance.  Businesses should also train relevant staff, agents and suppliers in order to understand the reasons behind the procedures and in order for them to appreciate the potential international ramifications and relevance of their actions under the Act.

Sean Gates, Senior Partner – Gates and Partners
Joanna Kolatsis, Partner – Gates and Partners

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