Digital, Commerce & Creative 101: How can I comply with regulatory laws affecting my supply chain?

The key ones which we will focus on in this article are:

• Bribery
• Duty to prevent tax evasion;
• Duty to prevent fraud (coming, but not yet in force); and
• Modern slavery

Bribery

The Bribery Act 2010 introduced several bribery offences, including a strict liability offence for companies and partnerships of failing to prevent bribery. Section 7 says that a company is held criminally liable for the actions of its staff, agents or other persons associated with it, unless it can demonstrate it had reasonable "prevention procedures" in place. This places the burden of proof on companies to show they have adequate procedures in place to prevent bribery. The Act has wide jurisdictional reach and covers conduct both in the UK and overseas.

Facilitation payments are illegal under the Act.  A facilitation payment is an unofficial, usually small payment made to foreign officials for the performance of routine actions. They are quite normal in some jurisdictions which make the prohibition a problem for UK organisations.  Another aspect which can be problematic is gifts or hospitality.

Individuals found guilty of a bribery offence could receive a maximum penalty of ten years' imprisonment or an unlimited fine for all the offences. Commercial organisations will receive an unlimited fine. The sentencing court must also consider the relevant sentencing guidelines for bribery offences when passing sentence.

Tax evasion

The Criminal Finance Act 2017 (CFA) created two new offences for companies of failing to prevent facilitation of tax evasion, both in the UK and overseas. It aims to hold companies criminally liable where they fail to prevent those who act for them, or on their behalf, from criminally facilitating tax evasion. It places strict liability on companies for failure to prevent facilitation of evasion. The only defence is that the company had in place reasonable procedures designed to prevent persons associated with it from facilitating tax evasion. As with the Bribery Act, the CFA also has wide jurisdictional reach, covering UK based companies and foreign companies with a UK office, and criminalises the conduct of individuals anywhere in the world.

The HMRC produced guidance for companies with six guiding principles: risk assessment, proportionality of risk-based prevention procedures, top level commitment, due diligence, communication (including training); and monitoring and review.

Duty to prevent fraud (due to come into force 1st September 2025)

The Economic Crime and Corporate Transparency Act 2023 says an organisation is liable where a specified fraud offence such as fraud, obtaining services dishonestly or fraudulent trading is committed by an employee or agent, for the organisation’s benefit, and the organisation did not have reasonable fraud prevention procedures in place. It does not need to be demonstrated that company bosses ordered or knew about the fraud. The offence leads to prosecution, resulting in financial penalties of potentially unlimited fine in addition to reputational damage, regulatory scrutiny and loss of business opportunities.

Organisations will be able to avoid prosecution if they have reasonable procedures in place to prevent fraud. There may also be circumstances where it is reasonable to have no fraud prevention procedures in place (for example, organisations where the risk is extremely low). This offence is not yet in force, and only applies to larger companies.  Government guidance was published on 6 November 2024: watch this space for our take on it. It says that the offence will come into effect nine months after the publication of the guidance, to allow organisations to develop and implement their fraud prevention procedures. For more information about the Act, see here and here.

How can I ensure that our company doesn’t get involved in any of this?

We recommend that companies do the following:

• Risk assess their activities – eg are you doing business in territories where fraud or bribery are commonplace?What levels of corporate hospitality are found?Are facilitation payments common?
• Review, or consider implementing, a code of ethics to ensure that the anti-bribery/fraud/tax evasion message is clear.
• For bribery, review related policies such as conflict of interest, gifts and entertainment policies. Consider inserting specific maximum limits on expenditure and a prohibition on entertainment at certain times or circumstances (eg when a pitch is underway). Consider applying these policies to contractors by having appropriate clauses in your contracts.
• Check that disciplinary rules cover bribery, fraud and tax evasion and that the consequences of breach are clear.
• Review employment contracts. Consider inserting an express obligation to disclose wrongdoing and, depending on the potential risk, introducing an annual self-certification process.
• Review the whistleblowing policy. Consider whether this is adequate for the risks faced, and whether it should be extended to those who are not just employees but who provide services on behalf of the organisation.
• Review remuneration and commission arrangements to ensure that they do not pose a risk or encourage risk taking which may provide incentives to commit an offence.
• Review and introduce training where appropriate, which should be supported by senior management. Ensure that guidance is available for those who may face circumstances which are prohibited by the legislation.
• Issue a top-level statement both internally and on the website, confirming the commitment of senior management to measures to prevent criminal offences.

Modern slavery

Under the Modern Slavery Act 2015, a person commits an offence if they hold another in slavery or servitude or require another person to perform forced or compulsory labour.

Large commercial organisations that carry on business in the UK and have a total turnover of £36 million or more must prepare a slavery and human trafficking statement for financial years ending on or after 31 March 2016. The guidance advises that you cover these areas in your statement:

• Organisation structure and supply chains
• Policies in relation to slavery and human trafficking
• Due diligence processes
• Risk assessment and management
• Key performance indicators to measure effectiveness of steps being taken
• Training on modern slavery and trafficking.

Increasingly, larger companies ask for assurances from business partners that they and their supply chains are free from modern slavery, and that they have appropriate policies in place.

In October 2024, the House of Lords Modern Slavery Act 2015 Committee published a report about the 2015 Act, which made several recommendations for improvement, including to reinforce company accountability for modern slavery in their supply chains.

It is worth noting that as well as these requirements, a new duty to prevent sexual harassment came into force on 26 October 2024. We have written more about those requirements here and discussed the guidance from the Equality and Human Rights Commission here.