Tag Archive for 'Bribery Act'

Bribery Act Hiccups

Published on 14/01/2011. Closed Tags: , , .

With just 77 days to go until the UK’s Bribery Act 2010 comes into force, it has been widely reported that Downing Street has ordered a review of the forthcoming act.  The story broke in the London Evening Standard (here).  The Standard has been on something of a crusade against the act for several weeks, on the back of fears of “burdensome anti-corruption systems” damaging the UK’s economic interests. 

The Wall Street Journal though has a quote from an SFO offical who states that any review will be “limited” (here) and is certainly not going to result in the scrapping or changing of the entire act. 

There is little detail about what this review might entail, but would echo the sentiment that the Act is definitely coming, in substantively the form it is now.  The OECD Convention which the UK signed up to in 1999 requires the Act, and any changes coming out of this review are likely to affect only the adequate procedures guidance (which has not yet been published) and guidance to prosecutors.

Bribery Act 2010 – ‘Adequate Procedures’. The consultation process begins

Published on 15/09/2010. Closed Tags: , , .

The new UK Bribery Act 2010 introduces a strict liability corporate offence of failing to prevent bribery committed by employees, agents, or any other ‘associated person’ of the company. Under Section 7, a relevant commercial organisation commits an offence if a person associated with it engages in bribery, unless it can show that it had in place “adequate procedures” designed to prevent the offence. This element of the Act is due to come into force in April 2011.

In response to much business disquiet about what all this means in practice,  the Secretary of State was required to publish guidance about procedures that commercial organisations can put in place to prevent persons associated with them from bribing people.   Although much of this is already fairly well established by compliance professionals in this space, we have waited with baited breath to see if this guidance actually contained tangible, concrete procedures which will be useful to business, or just more dishy-washy statements about the importance of tone at the top.

A consultation document has just been published to start the process.  This consultation begins on 14 September 2010 and ends on 8 November 2010. The consultation period will last 8 weeks, and is shorter than the standard 12 week period in order to allow enough time for views to be considered and for guidance to be published early in the New Year in advance of the Act coming into force in April.

The Government proposes guidance formulated around six general principles, designed to be of general applicability. The guidance states that it is not intended to be prescriptive or standard setting, or impose any direct obligation on business, however the flip side to this is that the guidance is vague and overly-generic, leaving the reader in many instances feeling: ‘This is all very good – but what should we actually DO?’.

The principles are as follows:

Principle 1 – Risk Assessment

The commercial organisation regularly and comprehensively assesses the nature and extent of the risks relating to bribery to which it is exposed.

Principle 2 – Top-Level Commitment

The top-level management of a commercial organisation is committed to preventing bribery. It establishes a culture within the organisation in which bribery is never acceptable. It takes steps to ensure that the organisation’s policy to operate without bribery is clearly communicated to all levels of management, the workforce, and any relevant external actors.

Principle 3 – Due Diligence

The commercial organisation has due diligence policies and procedures, which cover all parties to a business relationship, including the organisation’s supply chain, agents, and intermediaries, all forms of joint venture and similar relationships, and all markets in which the commercial organisation does business.

Principle 4 – Clear, Practical, Accessible, and Enforceable Policies and Procedures

The commercial organisation’s policies and procedures to prevent bribery being committed on its behalf are clear, practical, accessible, and enforceable. Policies and procedures take account of the roles of the whole work force, from the owners or board of directors to all employees, and all people and entities over which the commercial organisation has control.

Principle 5 – Effective Implementation

The commercial organisation effectively implements its anti-bribery policies and procedures and ensures that they are embedded throughout the organisation. This process ensures that the development of policies and procedures reflects the practical business issues that an organisation’s management and workforce face when seeking to conduct business without bribery.

Principle 6 – Monitoring and Review

The commercial organisation institutes monitoring and review mechanisms to ensure compliance with relevant policies and procedures and identifies any issues as they arise. The organisation implements improvements where appropriate.

Some of the guidance is as expected, not really very guiding, such as the several statements of the obvious ….

What constitutes adequate risk assessment procedures will vary enormously depending on the size of an organisation, its activities, its customers and the markets in which it operates…

The case studies at the end are well worth a read though. They deal with:

  • Intermediaries and agents
  • Hospitality and promotional expenditure
  • Business partners – joint ventures, consortia, etc.
  • Facilitation payments
  • Political and charitable donations

I’ll take the liberty of quoting the one that deals with facilitation payments in its entirety.

You are a medium sized UK IT installation company that is under contract to a large US consortium to install an IT system in a new hospital in the capital of Beneficia, where corruption is rife. In compliance with a contractual requirement you supplied the consortium with information about your existing anti-bribery regime, which is approved on the basis that it meets US Foreign Corrupt Practices Act (FCPA) standards. These standards exempt facilitation payments. Your installation project is a highly technical process requiring time sensitive management of component importation, storage and on site delivery. At an early stage your staff in Beneficia consider that, in light of the FCPA standards of the consortium and despite the prohibition of facilitation payments in the company’s anti-bribery code, they have no choice but to commence payment of local “customs fees” and “transport taxes” in order to facilitate reasonably efficient on site delivery of their components. After a few weeks your local managers strike a deal with local union leaders in which Benefician transport workers and customs officials agree to stop their demands for facilitation payments in return for free IT services for local union run educational centres. Shortly afterwards the Benefician Government supplies a dossier to the US and UK authorities detailing payments paid by your employees to customs officials and the gratis IT services for the union-based political opposition, alleging that these payments breach Benefician law.

Principle 1 – Risk Assessment

  • Did you undertake a risk assessment for the Benefician project informed by the political, social and media environment in Beneficia?
  • Was your Benefician project risk assessment informed by an objective analysis of the consortium’s contractual standards, their relationship to both the FCPA defence for payments of facilitation payments, the relevant UK law and the law regulatory environment in Beneficia?

Principle 2 – Top level commitment

  • Did your senior management provide leadership on developing and implementing anti-bribery policies and procedures tailored to Benefician law and regulatory environment?
  • Have you offered any leadership within your Chamber of Commerce or in partnership with local anti-corruption initiatives to develop alternative options for dealing with demands for facilitation payments in Beneficia?

Principle 3 – Due diligence

  • Did your enquiries extend to the political connections of the Benefician transport workers and customs officials demanding facilitation payments?
  • What did you do to assess the nature of the Benefician government’s policy on facilitation payments to officials?
  • Did your appraisal of the Benefician contract include any analysis of the potential impact of the local political situation?

Principle 4 – Clear Practical and Accessible Policies and Procedures

  • Is your policy on facilitation payments and the applicable legal frameworks clear and accessible to all staff and in particular all staff in Beneficia and all those concerned with the Benefician contract?
  • To what extent does the Benefician project solution comply with your policy on facilitation payments?
  • Did you tap into the experience and expertise of your Benefician staff and management when formulating our policy on facilitation payments?

Principle 5 – Effective implementation

  • Are there procedures in place for employees to feedback on local Benefician management’s solution to the facilitation payments problem in a safe and confidential manner?
  • Are your procedures linked to operational concerns, such as anticipating and managing the impact of a refusal to pay facilitation payments?
  • Do your procedures require management of projects such as the Benefician project to report any changes in circumstances, such as the union brokered Benefician deal on facilitation payments, to top-level management?
  • Did your procedures and policies provide for full comparative training in UK law and the FCPA standard?

Principle 6 – Monitoring and reviewing bribery-free business policies

  • Do you have procedures in place to provide a regular review of your risk assessment as regards facilitation payments associated with the Benefician contract?
  • Do you have a means of using your experience in Beneficia to improve your procedures on facilitation payments?
  • Have you considered external verification of your policy on facilitation payments with bodies other than the consortium?

The consultation document (in pdf format) can be found here.

Kenneth Clarke Appointed New Anti-Bribery Champion

Published on 15/06/2010. Closed Tags: , .

Justice Secretary Kenneth Clarke has been appointed as the UK’s new international anti-corruption champion, suceeding former incumbent Jack Straw.  In his new role, Clarke  will have to ensure that the Bribery Act 2010 is fully implemented without any hitches.

 Mr Clarke said:

I will be working closely with colleagues across Departments, devolved Administrations, law enforcement, prosecution authorities and regulatory agencies to ensure a coherent and joined-up approach to combat international corruption.

The champion role sends out a clear message that the UK coalition Government will not tolerate bribery or corruption and that we will work together to stamp out these practices across the board.

FSA concludes that Commercial Insurance Brokers are Unready for the Bribery Act

Published on 10/06/2010. Closed Tags: , , .

Commercial insurance brokers have been in the cross-hairs of the Financial Services Authority for some time now. The FSA wrote to CEOs of wholesale insurance brokers in late 2007 reminding firms of the criminal offences of bribery and corruption. On 8 January 2008, they fined AON Ltd £5.25 million for failing to take reasonable care to establish and maintain effective systems and controls to counter the risks of bribery and corruption associated with making payments to overseas firms and individuals.

In late 2008, the FSA began a thematic review of anti-bribery and corruption systems and controls in commercial insurance brokerage firms.  The interim report on this was published in September 2009, and the final report on this topic has just been published. Titled ‘Anti-Bribery and Corruption in Commercial Insurance Broking: Reducing the Risk of Illicit Payments or Inducements to Third Parties’, the report focused on 17 broker firms between January 2009 and January 2010 to gather information on current anti-bribery controls.

The main failings identified were as follows:

  • Weak governance of anti-bribery and corruption efforts and a poor understanding of bribery and corruption risk among senior managers.
  • Failure to implement a risk-based approach to anti-bribery and corruption in practice.
  • Poor responses by many firms to significant bribery and corruption events which should have led them to reassess the adequacy of their preventative systems and controls.
  • Very weak due diligence on, and monitoring of, third party relationships and payments with a worrying lack of documentary evidence of due diligence taking place.
  • Very little or no specific training was provided on anti-bribery and corruption, even for staff in higher risk positions. Anti-bribery and corruption in commercial insurance broking Reducing the risk of illicit payments or inducements to third parties Page 5
  • Although payment authorisation controls appeared generally adequate, virtually no firms took steps to identify unusual payments to third parties. As a result, some firms failed to report suspicious activity until after our visit or follow-up work.
  • Inadequate compliance and internal audit monitoring of anti-bribery and corruption work.
  • Weak vetting of staff compared with other financial sectors, with a heavier reliance on personal referrals and market gossip than usual.
  • Although controls over staff expenses and accounts payable generally appeared to be effective, some firms gave large cash advances to staff to assist travelling in higher risk countries where they said credit cards were not readily accepted.
  • Some firms awarded their brokers large bonuses directly related to the income or profit they generated. This could encourage risk-taking and negligence, and increase the risk of bribery and corruption, particularly where brokers use third parties to win business.

Due diligence on third party relationships came in for particular scrutiny and criticism:  but the controls found lacking in insurance brokers are in our experience exactly the same as are found lacking in many firms in many varied industry sectors: 

  • many firms relied very heavily on an informal ‘market view’ of the integrity of third parties and took no steps to check the accuracy of account opening documentation;
  • few firms conducted detailed checking of higher-risk third parties to ensure they were not connected with either the assured, the client or public officials;
  • most firms had historically not taken any steps to establish and document the business case for using third parties in insurance transactions. However , there were signs this was changing;
  • most firms had historically not conducted regular reviews of their relationships with approved third parties;
  • several firms had not reviewed (or conducted their own) due diligence on third parties when teams or business were acquired from other firms;
  • there was no real consideration of whether payments made to third parties were commensurate with the services they provided;
  • some firms, acting on the instructions of third parties, had made payments to persons other than the approved third party without understanding or verifying the reasons behind the request;
  • in some firms, there was no independent checking of due diligence and the approval of third parties outside the producing department;
  • some firms did not have – and could not produce – a central list of third parties used to obtain or retain business. Others could not easily produce lists of payments made to third parties; and
  • most firms did not take adequate steps to confirm approved third parties’ bank details, increasing the risk that they might unwittingly make payments to somebody else.

The report states  that the FSA will be taking further action against some of the firms reviewed: 

As a result of this review and our concurrent casework, we have commissioned a skilled persons report to assess past payments to third parties made by a firm and issued a formal private warning to another after we became aware of a number of third party payments which were made without an adequate business case being established and documented. We are considering whether further regulatory action is required in relation to other individuals and firms and it is likely that there will be referrals to Enforcement.

We have been saying for some time that companies do not appearing to be taking their very onerous obligations under the Bribery Act seriously enough.  The FSA seems to agree.   

The report can be found here.