Out-Law Analysis 4 min. read
26 Oct 2021, 11:38 am
The guidance sets out a practical, risk-based definition of public officials for the purpose of ABC compliance.
The guidance is likely to become a sector benchmark and reference point that firms will need to consider as part of ABC risk assessments on cases involving public officials.
Firms should ensure that their approach to public officials as a matter of ABC compliance dovetails neatly with anti-money laundering policies governing ‘politically exposed persons’ where appropriate
Although a number of legal conventions specifically prohibit the bribery of public officials, there is no international consensus around who constitutes a ‘public official’. Definitions have been set down in various pieces of legislation, such as the US Foreign Corrupt Practices Act 1977 (FCPA) and the UK Bribery Act 2010 (UKBA), as well as in guidance issued by non-governmental and international organisations such as the Organisation for Economic Cooperation and Development (OECD), Transparency International, and the Wolfsberg Group.
The definition of a foreign public official in section 6(5) of the UKBA is particularly wide, encompassing an individual holding legislative, administrative, or judicial positions; anyone carrying out a public function for a foreign country or for the country’s public agencies or enterprises; or an official or agent of a public international organisation.
Accordingly, the boundary between those who do or do not constitute a public official is not always clear cut, especially when dealing with public services outsourced to private contractors or quasi-state structures such as sovereign wealth funds.
A lack of consistency as regards the definition of a public official makes it more difficult for companies, particularly multinationals, to ensure that they have appropriate compliance measures in place to prevent bribery and corruption within their business.
UK Finance published its anti-bribery and corruption compliance guidance (21 page / 490KB PDF) on 30 September 2021 following an internal assessment that the UKBA definition of ‘public official’ was “very wide reaching and generic” and left “considerable ambiguity for firms seeking to define their risk appetite and refine their monitoring and controls.”
In summary, the guidance proposes a three-step approach to deciding whether someone is a public official:
The guidance sets out key decision-making criteria for organisations to consider in relation to each step, and also includes a non-exhaustive exclusion/inclusion list to which firms are expected to apply their own ABC risk appetite and treatment standards as well as particular provisions under applicable local laws.
While it is correct that the UKBA applies a wide definition of ‘public official’, the government’s statute-mandated guidance acknowledges that the exact nature of the functions performed by public officials is often very difficult to ascertain with any accuracy. A broad definition is therefore designed to capture as many functions as possible. The government’s guidance also devotes a chapter to unpacking how firms should manage their dealings with public bodies, and there is a wealth of explanatory material on the subject, as the UK Finance guidance acknowledges. Firms are therefore able to call on a wide range of resources when determining whether and how to treat counterparties as public officials.
UK Finance’s guidance is nevertheless a useful attempt to encourage a measure of consistency across the financial services sector and will likely become a reference point for firms as they navigate what can be tricky relationships.
The guidance is also a helpful reminder that firms should not assess their treatment of public officials in isolation but rather profile these relationships in the context of their financial crime frameworks and risk appetite as a whole. In particular, firms should ensure that their approach to public officials as a matter of ABC compliance dovetails neatly with anti-money laundering (AML) policies governing ‘politically exposed persons’ (PEPs) where appropriate. Although PEPs are more narrowly construed under AML legislation, being restricted to more senior officials, there is significant potential for overlap and the regulatory authorities will want to see firms reading risks across their compliance environment.
One of the difficulties with having a broad definition is that it creates uncertainties and grey areas, particularly in cases where the boundary between the ‘public’ and ‘private’ sectors is blurred. Transactions involving state-owned enterprises and sovereign wealth funds are possible examples.
What is particularly helpful in UK Finance's guidance is the gap analysis comparing section 6(5) of the UKBA with other key public official definitions. The subtle differences between, for example, the definitions in the UKBA and the FCPA, highlights the importance of companies seeking specialist legal advice on these issues – both when designing their ABC compliance programmes and when transacting with individuals/businesses in high-risk cases.
Co-written by Jonathan Flynn, a criminal law expert at Pinsent Masons, the law firm behind Out-Law.
15 Mar 2019