Bribery and corruption: time to get serious
The SFO's announcement that it intended to prosecute BAE fired the starting gun. But other UK corporations have also started to feel the heat of the UK's drive to get to tough on international bribery and corruption.
Margaret Cole, the FSA Director of Enforcement, was unrepentant about the magnitude of the £5.25m imposed on AON Limited in January 2009 for failing to establish and maintain effective anti-bribery systems and controls: 'It sends a clear message to the UK financial services industry that it is completely unacceptable for firms to conduct business overseas without having in place appropriate anti-bribery and corruption systems and controls,' she said.
A tougher UK landscape
The Aon case highlighted a shift in the UK's approach to tackling corruption, employing more imaginative means than traditional criminal investigation and prosecution.
The focus on systems and controls and imposition of a civil penalty under the FSMA 2000 had parallels with the SFO's ground-breaking use of civil recovery powers under the UK's Proceeds of Crime Act 2002 against Balfour Beatty. In October 2008 the SFO and Balfour Beatty agreed a £2.5 million civil recovery order for unlawful conduct in the form of inaccurate accounting records and the introduction of tighter compliance procedures. Although both parties were coy about the exact nature of the investigation, many commentators reported that it related to bribery and corruption.
The settlement marked the SFO's first use of civil recovery powers and appears to herald a new approach.
The new approach has also resulted in the recent SFO self reporting protocol designed to encourage more UK businesses to agree civil settlement rather than risk criminal prosecution. Like the FSA's focus on systems and controls, the SFO's agreement to such settlements will involve demanding significant improvements in compliance systems.
A coordinated clampdown
Not only are UK regulators and prosecutors taking a harsher line on corruption, but there are signs they are working much more closely together – and also with foreign agencies such as the US Department of Justice (DoJ) – to secure convictions
The SFO has confirmed it worked with the DoJ to help the latter impose a $579m fine on former Halliburton subsidiary KBR for breaching the US Foreign Corrupt Practices Act (FCPA). This should set off alarm bells with any UK corporation that may be subject to the draconian and extra-jurisdictional reach of the US's FCPA.
So what is going on? Well, the UK has been trying to shake off its soft-on-corruption image since 2001, when it reformed existing UK legislation in a bid to comply with our OECD convention obligations. However, the UK's record of prosecuting corruption remained poor owing to continued difficulties with the primary legislation.
The future
Now, though, UK authorities are determined to lose the 'bungling Britain' tag and come down hard and fast on infractions by UK businesses.
The draft UK bribery bill published in March 2009 proposed a new corporate offence of 'bribery through negligence', comprising three elements:
A corporate would be liable where a person performing services on behalf of the organisation:
- bribed another person; and
- the bribe was in relation to the organisation's business; and
- a responsible person (in senior management) was negligent in failing to prevent the bribe being made or offered.
Potential penalties included 10 years in prison and unlimited fines. Subsequently the parliamentary joint committee that scrutinised the bill has recommended removing the negligence element to make the offence one of strict liability, subject to a complete defence if the organisation can prove that it has 'adequate' anti-bribery procedures in place. Thus the need for UK corporations to have robust systems and controls in place will become increasingly important if and when the bill becomes law.
What you need to do
There has never been a more important time for UK corporations to put their house in order. The risk of large financial penalties or criminal prosecution, not to mention damage to reputation and other commercial interests, from a corruption enquiry is clearly increasing.
Lawyers and other professional advisors would do well to advise their corporate clients of these risks and the importance of having self protective measures in place. The overarching feature of all the recent developments in the UK is the importance of mitigating corruption risk by focussing resources on systems and controls to prevent, detect and minimise incidences of bribery.
Engaging appropriate audit, forensic accountancy and compliance expertise to advise and monitor suitable anti-corruption risk governance frameworks and conduct regular transactional reviews is a vital component in successfully implementing and maintaining those defences.
The message to UK corporations and their advisors cannot be clearer: it's time to get serious.
To discuss any issues relating to this article, contact James Lightfoot on james.lightfoot@bdo.co.uk or 020 7893 2079.
