November 15, 2012
Bribery and Corruption Update
When the U.K. government introduced new anti-bribery legislation last year, there was some cynicism and much scaremongering over the impact it would have on U.K. business. There was particular concern among U.S. companies with offices and/or operations in the United Kingdom, as well as those who employ individuals from the United Kingdom. Some business leaders said it would be impossible to operate in certain countries unless they turned a blind eye to bribery. Others thought it an unnecessary burden that would introduce more red tape. Stories abounded of corporate hospitality being outlawed. Our view was that companies that conduct themselves with a philosophy based on integrity in all business dealings should have nothing to worry about and this has so far proved to be the case.
Since Protiviti’s The Bribery Act 2010 - Frequently Asked Questions1 was circulated, there have been no changes to the legislation, and none is expected. There have, however, been press reports regarding changes in the attitude of prosecution authorities toward bribery offenses and changes to guidance issued by the Serious Fraud Office (SFO). We thought it would be helpful to provide the following that builds on our last FAQs document, which still applies.
Have there been any recent developments?
Yes. The U.K. government has announced that Deferred Prosecution Agreements (DPAs) are expected to come into force during 2014-2015, subject to final Parliamentary approval. They will be made available in England and Wales to allow prosecutors to deal with unacceptable corporate behavior and economic crime. DPAs are already a familiar and widely used tool in matters involving U.S. enforcement of the Foreign Corrupt Practices Act.
The new DPAs will allow organizations to admit to wrongdoing voluntarily and take necessary measures to put things right only if the prosecution authorities agree that a DPA is appropriate. It is intended that agreements will be made in open court and details of the wrongdoing and sanctions published. DPAs would allow a company to reach an agreement to settle an “economic crime” case, such as bribery, fraud, money laundering, etc., with the courts and prosecution authorities without having to face trial.
Depending on the circumstances of the case, a DPA may include payment of substantial penalties, the need to compensate victims, and an agreement to submit to regular reviews and monitoring. Firms could also be ordered to take measures to prevent the conduct in question from occurring again.
The proposal follows the out-of-court settlements used in the United States for similar types of offenses. It will, however, still be incumbent on the prosecution authorities to demonstrate that they have sufficient evidence to pursue cases to a criminal standard. If offenses are sufficiently serious, prosecutors are still likely to elect to go to trial.
Also, the SFO has recently announced a review of its prosecution guidance, which is now considered out of date. This is not to be confused with the “Adequate Procedures” Guidance issued by the Ministry of Justice (MOJ Guidance), which remains as before. The new SFO director has indicated that there will be a more hard-edged approach to prosecutions that is likely to focus on major fraud and corruption cases.
Have there been any corporate prosecutions under the new Act?
No. Since the enactment of the U.K. Bribery Act just over a year ago, there have been no prosecutions of any corporation.
The only prosecution under the Act was of a court official, who used his privileged access to the court system to help more than 50 offenders avoid having penalty points placed on their drivers’ licenses in exchange for sums of up to £500. He was sentenced to six years imprisonment, which was later reduced to four years on appeal – an indication of how seriously the courts will treat acts of bribery.
We understand that the SFO is working on a number of bribery cases. The Organisation for Economic Cooperation and Development (OECD) bribery report on the United Kingdom indicated that there were 11 active bribery cases and a further 18 under consideration at the beginning of 2012. Some of these will include investigations for offenses falling under the new Act involving corporations.
How has the business community reacted to the Act?
The main purpose of pressure brought about by the OECD is to strengthen anti-bribery legislation, not to seek out potential criminal prosecutions. It is intended to create a culture change among major trading nations that corrupt behavior will not be tolerated. In that respect, the initiative has already been effective, as many organizations have reviewed and strengthened their anti-bribery policies, procedures and controls.
We now have policies and guidance in place to prevent bribery – will they protect our business from prosecution?
No. Those who read our last FAQs will note we stated that the MOJ Guidance has no basis in law. This message was recently reinforced by the OECD, which has noted that U.K. judges are likely to make only limited use of this guidance. In the view of judges, because the guidance was not issued by Parliament, it has no more relevance in law than any other academic document. U.K. judges have commented that “a company could be convicted under the Act even if it acts in accordance with the Guidance.”
How can I protect my business?
Preventing a prosecution should not be the motive for putting anti-bribery measures in place. It is critical for organizations to create a culture of compliance within – and across – its locations and operations.
If the board (the controlling mind) of the business is and always has been committed to honesty and integrity in all of its business dealings, and it reinforces this philosophy among all employees and those with whom it comes into contact, it is unlikely that it would be subject to prosecution if the commitment is genuine and reasonable steps are taken to enforce controls. The cultural commitment to integrity must be enshrined within the business and this will be a major factor that prosecutors and, ultimately, the courts will take into account in a bribery case.
If, despite a company’s best efforts to enshrine integrity, a rogue employee or third party acts in a manner that runs contrary to corporate philosophy and an illegal act takes place, a corporation would still need to demonstrate it did everything it realistically could to have prevented it from happening. This is why the MOJ Guidance was issued. We would recommend that on the assumption corporate integrity is already enshrined, a risk-based approach is adopted using the MOJ Guidance as leading practice. This approach should also broadly satisfy the requirements of most international anti-bribery legislation.
The board should be confident that controls are in place to prevent, deter and detect corrupt business practices and that what they have in place is sufficient and effective.
Does “non-financial bribery” exist?
Yes. An entrusted person with a duty of good faith and impartiality who makes decisions mainly based on patronage, nepotism, cronyism, revolving doors, favoritism and reciprocation is involved in corrupt practices or “non-financial (invisible) bribery.” When undertaking a review of your business to determine where bribery risks could occur, it is first necessary to consider where potential corrupt relationships could exist and the impact they could have.
If there is a party willing to entice someone into a corrupt relationship, there could be another who holds an entrusted position that is susceptible to temptation. If an overseas agent won a contract as a result of a returned favor rather than on merit, the original favor could be construed as an improper benefit and thus a potential bribe, albeit not an obvious one. If the agent had intentionally failed to disclose the favor as a potential conflict of interest (especially if there is a requirement to do so), then a corrupt relationship is likely to exist. Bribery occurs when a relationship has become corrupted. Corrupt relationships are usually hidden in secrecy and can be difficult to detect.
Thorough due diligence and conflict checks are important when developing any business relationship, but they may not uncover the risk of invisible bribery if the party subject to the checks has deliberately concealed improper relationships. The continuous reinforcement of a corporation’s integrity program and philosophy are as important as anti-bribery controls.
We have recently acquired a company and discovered a history of bribery. Are we liable?
Yes. The SFO has indicated that companies acquiring businesses that have subsequently been found to have paid bribes could face prosecution post-acquisition. It recommends that pre- acquisition due diligence should include a thorough review and investigation into those aspects of a business where there could be a risk of bribery. It also recommends that a company should engage with the SFO when issues are discovered during due diligence so that an approach can be agreed upon before the takeover goes ahead.
We have “Adequate Procedures” in place. Do we need to do anything else?
Yes. Controls should be reviewed and monitored according to the level of risk faced. Corruption can occur anywhere and at any time; no industry sector or jurisdiction is immune. Our Illustrative Approach to Adequate Procedures at the end of this Flash Report may be of help.
Examples of monitoring controls could include some of the following:
- Review level and nature of personal hospitality, such as timing (during a tender process, for example), disproportionately high expenditures and/or regularity of entertaining one or more individuals/corporations.
- Undertake a post-winning tender review to ensure that actions leading up to the award of a contract did not breach anti-bribery controls.
- If a “right of audit” agreement is in place with third parties that represent the company’s business interests, ensure that such an audit is regularly included in the audit plan, particularly for areas deemed to be of high risk.
- Independently verify, through the use of open source information, the accuracy of statements made by key staff and third parties who claim not to have a conflict of interest.
How Protiviti Can Help
Our Litigation, Restructuring & Investigative Services team can provide assistance to businesses in a number of areas:
- Pre- and post-acquisition due diligence, with a focus on bribery and corruption risk
- Bribery risk assessments
- Building an effective control framework and developing controls
- Policies and procedures
- Effective training programs
- Dealing with whistleblowers and incident reporting
- Dealing with competitive corruption
- Investigating allegations of bribery and fraud
- Making recoveries