Depending on who you are and what your principal interest is in the Farnborough air show, you might adopt any number of euphemisms to describe the chalets and exhibition halls of the world’s foremost aerospace event.
You might hear the sound of cash registers ringing up sales if your focus is on breaking the record $72 billion in orders and commitments signed at Farnborough 2012.
Your ear might be more attuned to the pop of the 3,500 or so champagne and wine corks, or the sizzle of choice cuts of beef if you are a caterer – or indeed a guest in one of these cocoons of warmth and welcome.
These traditional interpretations are now joined by a new observation that as yet has little to define it. This is the interest of law enforcement agencies in sniffing out and prosecuting companies and individuals who take hospitality too far.
With their responsibility for enforcing provisions of the UK Bribery Act 2010, these agencies view the Farnborough chalets as potential opportunities for dealmakers to overstep the mark with corporate largesse, to the point that it becomes bribery.
What everyone wants to know is this: how far is too far, and how much is too much?
The answers commentators are likely to get this year shed little more light on the subject than former Justice Secretary Ken Clarke’s comments in mid-2011: "The guidance makes clear that no-one is going to try to stop businesses getting to know their clients by taking them to events like Wimbledon, Twickenham or the Grand Prix.
"Reasonable hospitality to meet, network and improve relationships with customers is a normal part of business."
The Act, when it came into force in 2011, was greeted by dire warnings for the future of UK business – the doom and gloom merchants suggesting its draconian measures to curb corruption would harm competitiveness. Two new provisions of the Act caused the greatest alarm – the introduction of a corporate offence for companies which allow corruption anywhere in their supply chain, and an offence for offering inducements to foreign officials.
But while the Act was intended to clarify old laws considered out of date and confusing, it had the immediate effect of troubling businesses that their corporate hospitality – boxes at Wimbledon and chalets at Farnborough – would henceforth be illegal.
When UK Ministry of Justice (MoJ) guidance on the interpretation of the Act appeared, it sought to reassure companies – but did not spell out, as some might have wished, where the actual boundaries between legal and illegal lie. Instead, it said only that the Act should not stop companies from entertaining customers and contacts: "Bona fide hospitality and promotional, or other business expenditure which seeks to improve the image of a commercial organisation, better to present products and services, or establish cordial relations, is recognised as an established and important part of doing business, and it is not the intention of the Act to criminalise such behaviour.”
Separate guidance from the Serious Fraud Office and Director of Public Prosecutions said much the same thing. They added that the Act is not designed to stop hospitality that seeks to improve a company’s image, as long as it is reasonable, proportionate and made in good faith.
Excessive hospitality is another matter – but what amounts to excessive varies from sector to sector. Familiarisation flights in corporate aircraft may be par for the course in aerospace, for example, but not in fast-moving consumer goods. Both sets of guidance say that “lavish” hospitality might amount to an offence, especially if it was unconnected with the company’s business.
The biggest challenge may be where to draw the line between generous – which is allowed – and extravagant, which is not. So far, with no prosecutions on the books, there is no precedent for lawyers to refer to when advising their clients. This is a situation that nobody likes.
“The important thing is not to be complacent,” says Clive Snowdon, chairman of Shimtech Industries, a manufacturer and supply of shims to the civil and military aerospace markets. “I think people in the UK and USA take this seriously,” he says. “The risk is not just the company getting fined – individuals involved can go to jail. Ignorance of the laws no defence.”
Shimtech, with a blue-chip customer base, has put a suite of policy documents in place, and had them independently audited and translated into the languages of the countries in which it operates. “As long as you show due diligence and due process, that’s all you can do,” Snowdon says.
For corporate hospitality to stray into illegality, the MoJ says, there has to be the intention to induce improper conduct. The more lavish the hospitality, the greater the inference that it is indeed intended to encourage or reward such behaviour.
In the run-up to the London 2012 Olympic and Paralympic Games, sufficient disquiet was expressed by companies wishing to offer corporate hospitality for the Serious Fraud Office to need to clarify its position. In a response to questions from the thebriberyact.com website – which is run in association with law firm Pinsent Masons – the Office said it would be looking for five factors in considering whether hospitality was reasonable and proportionate:
Whether the company has a clear issued policy regarding gifts and hospitality.
Whether the scale of the expenditure in question fell within the confines of the policy and, if not, whether special permission for it had been sought at a high level within the organisation.
Whether the expenditure was proportionate with regard to the recipient.
Whether there is evidence the expenditure had been recorded by the company.
Whether the recipient was entitled to receive the hospitality under the law of its own country.
International law firm DLA Piper says the circumstances surrounding giving or receiving hospitality and gifts are a key factor. Its experts suggest in a briefing paper that individuals should ask themselves a number of questions: “Think carefully about the underlying intention. Would you be happy to justify your actions to others – colleagues, family or friends? How would you feel if you read about it in the paper?”
DLA Piper suggests a common sense approach by those offering corporate hospitality. Companies should reflect on a number of practical considerations, including whether the recipient would be able to reciprocate hospitality to a similar standard, whether the hospitality was extended to a contact’s family members and whether the provider of hospitality expects something in return, and is trying to outdo its competitors in order to win business.
“If the answer is ‘yes’ to any of these questions, proceed with caution, as there is an increased risk profile for bribery,” says DLA Piper.
So, what are companies allowed to do at Farnborough without worrying if their collar will be felt by the long arm of the law?
The key is keeping hospitality above-board, open and transparent. Companies should take their lead from David Green, director of the Serious Fraud Office, who was quoted as saying: “The sort of bribery we would be investigating would not be tickets to Wimbledon or bottles of champagne. We are not the ‘serious champagne office’.”
Source: Flight International