Written by Rebecca Cummings on Friday May 19, 2017
‘To some degree it matters who's in office, but it matters more how much pressure they're under from the public’ - Noam Chomsky.
It could be argued that it is worldwide public outcry that has been the trigger for governments around the globe to sit up, take notice and commit to actions to tackle bribery and corruption. In March 2015 Transparency International (TI) published their study, ‘Corruption On Your Doorstep: How Corrupt Capital Is Used to Buy Property in the UK’ which found that London is seen as a global magnet for corrupt funds due to high property prices and lax rules on the disclosure of property ownership.
This was compounded in July 2015, when the Channel 4 documentary ‘From Russia with Cash’ was aired. An undercover reporter posed as a Russian government minister to investigate the increasing evidence that the London property boom is being partly fuelled by overseas buyers laundering money. These events prompted the then-UK Prime Minister David Cameron to vow to do more to tackle global corruption when he delivered the message that ‘London is not a place to stash your dodgy cash’. What these examples show is that bribery and corruption is a global issue, generating increasing public outcry and requiring international coordination.
The direction of travel is clear – anti-bribery and corruption (ABC) is – finally - firmly on the agenda of government agencies, non-governmental organisations, media outlets and the public. As a result, over the coming years we should expect to see:
More international collaboration
In May 2016 the UK hosted representatives from more than 40 countries at the Anti-Corruption Summit. The Summit sought to ‘galvanise a global response to tackle corruption’ and agree steps to expose corruption, punish perpetrators and drive out a culture of corruption.
The measures announced at the Summit included:
It is a clear step in the right direction that representatives from these countries committed to actions to tackle corruption, but more work remains to be done with those countries which were not represented at the Summit. We may find that as public and political pressure increases on governments, more countries pledge to do more to tackle these issues. On the other hand, we may find a widening divergence in legislation, between countries that have committed and those that have not.
Whilst the UK spearheaded this campaign, as part of its country statement submitted at the Summit, Singapore outlined it would ensure law enforcement agencies had timely access to ownership information and would share information with other law enforcement agencies. These commitments of cross-border cooperation were demonstrated where Singaporean authorities worked closely with their overseas counterparts to investigate the corruption scandal surrounding Malaysia’s state development fund, 1MDB. With so much international focus and coordination, we are likely to see more investigations which start locally leading to enforcement action spanning multiple jurisdictions. However, we might also see increased competition between countries’ regulatory bodies as they each seek to demonstrate their authority and take a slice of any enforcement penalties.
Strengthening legislative frameworks
The Foreign Corrupt Practices Act (FCPA) is arguably one of the cornerstone pieces of ABC legislation. It has resulted in Department of Justice (DOJ) and Securities and Exchange (SEC) enforcement actions being an area of concern for firms with a US nexus since the first settlement agreement with the SEC was reached in 1980. The UK Bribery Act of 2010 has also helped define the fight against bribery and corruption. These laws have paved the way for other jurisdictions to follow suit, albeit some years later. For example, in 2014, Brazil’s Clean Companies Act became effective. In 2016, France introduced mandatory compliance obligations similar to the FCPA and UK Bribery Act in an effort to modernise and strengthen its anti-corruption law. Sapin II, as it is known, also contains provisions to protect whistleblowers and introduces a French style Deferred Prosecution Agreement (DPA). Mexico also enacted a new National Anti-Corruption System in 2016 and at the same time domestic enforcement efforts have stepped up in countries such as China that fined GlaxoSmithKline $489 million in 2014 and imposed a suspended prison sentence on an executive for bribing doctors.
It is likely that we will see more of the same as countries strive to meet the commitments made at the Anti-Corruption Summit and respond to ongoing media scrutiny and public pressure resulting from events such as the 1MDB scandal and Lava Jato (Operation Car Wash), an investigation into money laundering and corruption in Brazil. This only serves to reinforce the message that firms need to ensure all of their business units, regardless of where they are located comply with ABC laws. This could create complexity for firms – especially those operating across borders. Firms should therefore understand the differences in the legislative frameworks and consider how their global policy meets the highest standard required. The real challenge for firms is the consistent implementation of this global approach across their overseas operations.
Firms also need to be aware of the changing landscape by ensuring they have appropriate regulatory horizon scanning in place to enable them to identify changes which may be applicable to their business activities and assess the impact these may have on their business operations and their compliance programmes.
Increased enforcement action
The UK Bribery Act 2010 introduced the Section 7 corporate offence of failure to prevent bribery in 2011. This has resulted in four enforcement cases by the Serious Fraud Office (SFO), including the first conviction for failing to prevent bribery in February 2016. Sweett Group PLC admitted to failing to prevent its wholly owned subsidiary from bribing a director of a UAE company. The Group was ordered to pay £2.25m and costs of £95,000. In 2015, the UK’s first Deferred Prosecution Agreement (DPA) was entered into with Standard Bank PLC (now known as ICBC Standard Bank Plc). The case related to Standard Bank’s failure to prevent bribery within its Tanzanian unit. It put bribery and corruption firmly back on the legal and regulatory radar, after years in the wilderness overshadowed by huge anti money laundering (AML) and sanctions fines. One of the key themes that comes out of the case is that the SFO are prepared to go after UK firms, even where the bribery takes place overseas. UK companies therefore need to have oversight of their overseas operations and how they do business.
Under the DPA the bank avoided the criminal prosecution process (and all of its related costs). That said, it was instructed to pay a fine totalling $32.2 million, which includes a $16.6m payment to the SFO, $7m to the Tanzanian Government and $8.4 million in disgorgement of profits. The bank was also instructed to commission an independent and potentially costly review of its existing ABC controls as part of the agreement. DPAs are therefore a helpful tool for law enforcement in their efforts to address corporate wrongdoing. Following the judgement, the director of the SFO released a statement saying that DPAs are likely to be used more frequently in the future, following a path trod by US law enforcement agencies. It’s no surprise then that the second DPA was approved in July 2016 between the SFO and a UK SME. Further, in January 2017, after a four year investigation the SFO entered a DPA with Rolls-Royce PLC.
These cases highlight some of the challenges faced by firms when operating in overseas jurisdictions. How do firms really know what’s going on in their overseas offices, branches or subsidiaries and how do they gain comfort that their overseas jurisdictions are doing the right thing? Our experience tells us that this is an area which firms are still struggling to get to grips with. This coupled with prosecution for historic failings is likely to result in more enforcement action and reputational damage for those found to have deficient systems and controls.
Uplift of global compliance standards
The DPA between the SFO and Standard Bank highlighted a number of failings, including that the bank did not have adequate ABC policies and procedures. Of particular concern was the adequacy of training provided to Standard Bank’s staff regarding due diligence requirements and the identification of red flags. It highlights the need for firms to review not only the design, but perhaps more importantly, the effectiveness of their ABC controls to ensure they satisfy the ‘adequate procedures’ requirement. ABC policies and procedures should include: an open culture and strong tone from the top; a business risk assessment; tailored training to high risk employees and regular compliance monitoring. The DPA highlights how important it is for global firms to ensure their controls and culture are embedded in their overseas offices, subsidiaries and affiliates. Clearly defined roles, responsibilities and reporting lines can help a firm demonstrate effective oversight of overseas operations.
In October 2016, the International Organisation for Standardisation (ISO) launched an international ABC standard known as the ISO 37001:2016. It sets out ‘requirements and provides guidance for a management system designed to help an organisation to prevent, detect and respond to bribery and comply with applicable anti-bribery legislation and regulation’. Whilst the standard cannot provide assurance that bribery has not or will not occur, it is a tool which could help firms establish reasonable and proportionate measures to prevent bribery.
The Standard allows companies to obtain certification from accredited third parties that their systems and controls meet its requirements. As such, companies will be able to provide a level of assurance to customers and business associates that they are taking reasonable steps to prevent bribery. In addition, it provides assurance to the Board and shareholders that the firm has implemented good practice. However, although the Standard set out to create a level of consistency globally, it may fall short. It does not provide a clear definition of bribery and defers to local legislation which differs widely across jurisdictions. Whether the ISO 37001:2016 becomes widely used and has the desired impact remains to be seen but it does reinforce the global approach to tackling bribery and corruption and should prompt firms to review their compliance program. Firms should consider:
Due to fundamental societal reasons, the risks of bribery and corruption are not going away and firms and their employees must take responsibility to manage these risks. Tone set by senior leadership is critical for driving positive behaviours and is therefore an essential element for a strong ABC framework.
Rebecca Cummings is a Consultant in the Financial Crime Advisory team at Bovill Limited. All views expressed are those of the author and should not be considered as advice. To discuss the content of this article further or if you have any questions, please contact Rebecca directly (RCummings@bovill.com)
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