London 2012 and corporate hospitality: getting it right from start to finish

With the Opening Ceremony of the Olympic Games fast approaching, an increasing number of companies with corporate hospitality packages are asking questions as to how the Bribery Act 2010 might affect their ability to enjoy London 2012 with their business partners.

The Olympics represent a fantastic opportunity for companies to build relationships and educate clients about their services. But with the Opening Ceremony fast approaching, an increasing number of companies with corporate hospitality packages are asking questions as to how the Bribery Act 2010 (2010 Act) might affect their ability to enjoy London 2012 with their business partners.

Even before it came into force, the 2010 Act caused companies headaches about its potential impact on gifts and hospitality programmes. London 2012 has brought these concerns to the fore: the price of some Olympic packages and the difficulty of otherwise getting hold of a ticket has led some to conclude that an invitation to the Games could be deemed "lavish".

Many companies that have sent out invitations already are finding a significant number are being declined (particularly if addressed to government ministers and the like). The provision of exclusive corporate hospitality packages is viewed with caution, particularly in the current social and economic climate, where a focus on top-level executive perks and expense scandals has heightened concern.

Companies are right to take a cautious approach to Olympics packages in light of the 2010 Act. However, provided that invitations are subject to proper procedures, there is no reason why companies should not be able to make use of this excellent and unique opportunity to promote their businesses.

Legal position

The two offences in the 2010 Act that are relevant to the provision of gifts and hospitality in the corporate context are:

• Offering a bribe to an individual in the private sector, or to a UK public official (section 1).

• Bribing a foreign public official (FPO) (section 6).

On conviction of a section 1 or 6 offence, individuals will be liable to up to ten years' imprisonment, an unlimited fine, or both. Companies will be liable to an unlimited fine only.

As both offences refer to the provision of a financial or "other advantage", the buying of a dinner, giving of a gift, or invitation to a sporting event could all potentially be caught by them.

What distinguishes legitimate corporate hospitality from an unlawful attempt to bribe someone is the accompanying intent. Using the Olympics as an opportunity to explain a company's business plans to potential clients or to build the relationship is likely to be legitimate; providing an invitation in order to curry favour in a tender process is not.

So if hospitality is provided with the intent to induce or reward a person for the improper performance of their function, a section 1 offence will be committed.

Notably, the standard for section 6 is lower. In this case, if there is an intention to obtain or retain business or a business advantage, an offence will be committed if the hospitality merely influences the FPO. As a result, and as noted further below, many companies have opted for a different approach to FPOs in the context of corporate hospitality.

What are the risks?

The Ministry of Justice has sought to reassure businesses by commenting in its adequate procedures guidance on the 2010 Act that hospitality which is "commensurate with the reasonable and proportionate norms" of an industry sector is unlikely to be an issue (see box "Useful resources") (www.practicallaw.com/6-505-7347).

London 2012 will be, for many of those who attend, a once in a lifetime opportunity. The value that this unique experience will represent is compounded by the simple fact that Olympics tickets are worth a considerable amount of money. Some Olympic packages will therefore be vulnerable to the claim that they are "lavish". And as the joint prosecution guidance on the 2010 Act notes: "the more lavish the hospitality … the greater the inference that it is intended to encourage or reward improper performance or influence an official".

However, "lavishness" is not actually the test under the 2010 Act; instead, it is indicative as to whether an unlawful intention exists. According to the joint prosecution guidance: "lavishness is just one factor that may be taken into account in determining whether an offence has been committed".

Companies must therefore be able to demonstrate that they have taken appropriate steps to ensure that, to the extent that their hospitality packages are lavish, the risk of an adverse inference being drawn has been offset by a properly implemented series of processes and procedures.

Existing housekeeping

In allocating London 2012 packages, it is important to ensure that existing gift and hospitality policies are observed. Such policies are likely to take account of all of the following "best practice" questions:

• Is the gift or hospitality reasonable and proportionate?

• Is there a legitimate business purpose?

• Does the provision of a gift or hospitality clash with any key business decisions?

• What are other companies in the same sector doing?

• Would the gift or hospitality conform with the recipient's own internal rules?

• What is the general context? For example, has the invitee attended a lot of corporate hospitality events this year?

Further issues to consider

Companies that wish to allocate invitations to London 2012 will also need to consider the following:

Is the recipient an FPO or a commercial counterparty? As noted above, section 6 requires merely an intent to "influence" an FPO. Similarly, FPOs are also more likely to be subject to strict internal rules and enhanced public scrutiny around the acceptance of gifts and hospitality. Companies may therefore wish to consider whether invitations to FPOs are subject to an enhanced procedure.

Is the company subject to the US Foreign Corrupt Practices Act (FCPA)? Many major companies will be subject to the FCPA as well as to the 2010 Act. The impact of this legislation should therefore be considered carefully, particularly if a company is intending to invite significant numbers of FPOs or employees of state-owned companies (for example, national oil companies).

What is the recipient's role? An invitation to attend the Opening Ceremony may be appropriate for a CEO; it probably will not be for a junior government official. Packages must be proportionate to the seniority and status of the invitee. A company should be able to point to a clear business relationship between the person extending the invitation and the proposed recipient.

What is the status of business dealings with the recipient? Whether hospitality coincides with a key business decision or event should always be a prominent consideration for companies. However, it is particularly pertinent to the Olympics, given the potential for a time lag between an invitation to the Games and actual attendance.

What is the associated business content? As part of any allocation policy, consideration should be given to the business meetings that might be organised in conjunction with London 2012 hospitality (for example, to discuss relationships with existing clients, or to promote products and services to potential new clients). In that respect, companies should be conscious that it will be easier to demonstrate an appropriate level of business content if the recipient is accompanied by a contact at the company.

What about inviting spouses and accommodation and travel costs? Particular care should be taken here. For example, a company should consider whether the attendance of a spouse will call into question the business justification of an invitation. Companies may also wish to consider if it is more appropriate for an invitee to cover the costs of his or her accommodation and/or travel, particularly if he or she is an FPO.

If there is a need to depart from the company's existing standards, a clear rationale for this departure should be documented.

Is the invitation transparent? Invitations must be made openly and in a manner consistent with the recipient's own internal rules. To the extent that such rules are publicly available, some companies are reviewing these before extending invitations. It may also be appropriate to ask an invitee in the letter of invitation to confirm on acceptance that they are compliant with their own internal rules. In more difficult cases, it might also be worth notifying the recipient's supervising director or manager, in order to demonstrate the propriety of the invitation.

In summary

The Olympics are an excellent opportunity for companies to showcase their businesses. The 2010 Act is not intended to prevent this. But companies must ensure they ask themselves the right questions.

Matthew Bruce is a partner and Patrick Forman is an associate in the Dispute Resolution practice at Freshfields Bruckhaus Deringer LLP. Both are members of the firm's Global Investigations practice.