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Wednesday 17 January 2018

BREAKING NEWS

A selfless act?

Written by Peter Davy
July 2011

Lack of preparation in the run up to the deadline for the Bribery Act is not only a shock to industry commentators but a high risk strategy for those firms that fall into this astonishing majority, says Peter Davy

That UK companies are not prepared for the UK Bribery Act, which came into force at the beginning of July is unfortunate, but probably not surprising. After all, the UK has leapt from being the bane of the OECD for its failure to live up to the requirements of the anti-bribery convention, to adopting some of the toughest legislation in the world.
However, that almost a third of British respondents in KPMG’s survey published in June said they did not have a working knowledge of the Act does come as more of shock.

“It’s astonishing,” says Norman Marks, vice-president of governance, risk and compliance, for SAP’s BusinessObjects division, particularly given that the respondents were heads of compliance or legal, CFOs, internal audit chiefs or others identifying themselves as having high-level responsibility for day-to-day anti-bribery and corruption matters.

The survey made clear the scale of the challenge. Nearly three quarters of the UK respondents said corruption remains endemic in certain areas of the world, yet a third had not designed and implemented a risk-based compliance programme to deal with it. And without one it will be a real struggle for companies to demonstrate they are complying with the new law.

The Act introduces a new offence of failing to prevent bribery which makes companies liable for the actions of “associated persons” including employees, agents, contractors and at least some suppliers; and applies worldwide to any company that does business in the UK.

That last point could prove a problem for more than half of the US respondents to the KPMG survey that had never heard or knew nothing about the Act. Overall, it should make it considerably easier for prosecutors to secure convictions.

“It’s one of the strictest pieces of this sort of legislation in the world,” says Eoin O’Shea, head of the anti-corruption group at law firm Lawrence Graham and author of The Bribery Act 2010, A Practical Guide, published by Jordan Publishing in June. And the Act comes at a particularly bad time for companies. Ernst & Young’s survey, published only one month before, suggested cuts to compliance departments due to cost pressures meant companies were unusually exposed. Twice as many employees of multinationals had no anti-fraud measures in place compared with 2009.

The global report also suggests almost one in five employees, regardless of grade, considered it acceptable to pay bribes to win or retain business. In the UK, it was only a little better: one in seven. Further, little more than half are aware of an anti-bribery policy in place at their firm.
“The figures suggest it needs a lot to change the culture in which that’s acceptable and to do that you need to invest a lot of money to find out what the issues are and put in place proper investigation, reporting and remediation,” says John Smart, head of fraud investigation and dispute services at Ernst & Young. “I don’t think companies currently have the appetite to do that.”

Scaremongering

It is possible to overstate the impact, however. There has been some scaremongering in the press, particularly around corporate hospitality, which may be misplaced since the Ministry of Justice (MoJ) published guidance on the Act at the end of March.
Serving to soothe some of the worst fears over application, this saw the Act “sprinkled with the risk-based approach fairy dust”, as David Clark, head of financial crime intelligence and analysis at Barclays Wealth, put it at an industry conference in June.

The result is both to stress that businesses response is expected to be proportionate, and to remove some of the ambiguities. It should have put to bed some of the more “hysterical” reports, says O’Shea, who argues that despite the Act’s strength, the media have over-egged it.

“Asking whether tickets to Wimbledon will be illegal makes a good headline, but the answer in most cases is almost certainly ‘no’.”

And, of course, businesses most affected are unlikely to be entirely unprepared. Many, for instance, will already come under the US’s Foreign Corrupt Practices Act (FCPA).

A majority of the requirements under the Bribery Act requirements are similar to those of the FCPA, according to Kevin Robinson, head of regulation and enforcement at law firm Irwin Mitchell, and meeting the American regulation’s requirements, he believes, will likely get companies three quarters of the way towards compliance with the UK’s more recent Act.

Cause for concern

There are a number of reasons that the UK Act should prompt companies to look at their systems again, however. First, the new Act does go further than existing legislation and certainly beyond the FCPA’s. The latter, for instance, only applies to bribing foreign officials while the Bribery Act applies to all bribes; and the FCPA also requires evidence of corruption, while the law introduced by the UK Act is a strict liability offence.

“All the prosecutor has to prove is the bribe emanated from the company,” explains Duncan Wiggetts, a partner at DLA Piper specialising in corporate governance.

Finally, the FCPA allows “facilitation payments” – those given to speed up the work of foreign officials in issuing a permit or clearing a cargo, for example, where that permission would be granted anyway, albeit more slowly. Not only does the Bribery Act not allow this but, since facilitation payments under the FCPA have to be documented and internally recorded, compliance with the US legislation could provide evidence to prosecute under the UK Act.

“Companies need to look at their existing systems and training and make it quite clear that no money should be paid to facilitate anything that could potentially fall foul of the new Act,” says Wiggetts.

Nor is the guidance from March necessarily helpful. Anti-corruption group Transparency International has criticised the MoJ for weakening key provisions of the Act by, for example, suggesting that businesses listed in the UK but not doing business there could be outside its scope.

“That will seem extraordinary to most people who think that raising capital in a country is obviously doing business there,” says Robert Barrington, director of external affairs.
But the guidance seems to do no favours for companies, either.
First, British-based businesses face seeing competitors raise capital in London, use the money to pay bribes overseas and avoid prosecution. Second, by undermining the Act in this and other areas the guidance has created uncertainty.

“It’s created confusion rather than clarity,” he insists. Robinson agrees, though says it was perhaps inevitable: “The guidance is intended to cover every business with a UK presence – from five million
SMEs up to the FTSE 100, with businesses employing 45 people up to 45,000 people all trying to get guidance from the same language.”
More fundamentally, however, this latest piece of legislation is another reflection of growing international pressure on UK businesses.

Look to the US, for instance, and FCPA fines last year, at US$1.8 billion, were more than double the previous record of US$890m in 2008, and of the
23 enforcement actions, six were among the ten largest settlements of all time.

Meanwhile, there has been new legislation in Spain at the end of last year and reform in Sweden, China and Russia this year. France, Norway and Germany are expected to follow suit and in June the EU commission also set out proposals to develop a new anti-corruption reporting mechanism for the Commission to be able to review the actions of member states.

“It is not just the UK Bribery Act,” says Smart. “There’s an increased level of enforcement and rapidly changing legislative climate around the world.”
If this is not enough, though, there are existing reasons for businesses to address the risk, says Marks.

“Ethics is a big issue and this is only a part of it,” he points out. Companies that don’t have good ethics when it comes to bribery are probably not going to have good ethics when it comes to environmental compliance, and the people that will bribe will steal in many cases or fabricate financial or operational results to get a bonus, for example. It is in companies’ interests to sort this out. Ultimately, those that do not could be only cheating themselves.


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