The Bribery Act 12 Months On

When the Bribery Act became law last summer, it represented the first major change to UK anti-corruption legislation in over a century. Since it came on to the statute books it has been the focus of considerable management attention as businesses endeavour to ensure that adequate procedures are in place to prevent corruption.

GoodCorporation invited a cross-section of UK businesses to discuss the measures they have been able to adopt and the challenges they have faced in order to comply with the law. Introduced by Michael Littlechild, the debate concentrated on the issues that could be the most problematic for businesses, based on GoodCorporation’s experience over the past year, in particular Gifts and Hospitality, Due Diligence and Facilitation Payments.

Gifts and Hospitality
Prior to July 2011, much of the opposition and hostility to the Act was the worry that its introduction would herald the end of the UK’s hospitality industry. This has not proved to be the case, nor has its implementation been as challenging as people feared.

Although businesses have taken a serious approach to managing their gifts and hospitality policies by issuing practical and specific guidance, there has been no significant change in entertainment policies in the UK. However, some caution has been exercised to avoid conspicuously lavish hospitality and it was reported that Olympic tickets are likely to be declined because the high financial value was not perceived to be acceptable.

Overseas, some companies have dealt with gifts and hospitality better than others, with the management of gifts proving to be the most problematic, particularly when it is a culturally engrained expectation of business practice. In these circumstances, companies are working towards culture change through communication, education and training to give clear working rules and examples.

In managing gifts and hospitality, most companies have set limits and some ask guests to confirm that accepting an invitation adheres to their company’s policy. One company warned that their policy had been so draconian and bureaucratic that it could potentially draw attention away from higher risk areas. This policy is now being reviewed.

Due Diligence
Almost all businesses are finding due diligence a real challenge. Some companies are performing due diligence on tens of thousands of suppliers. Others remain unsure how best to tackle this and have no system in place as yet.

Risk assessment is the key to managing due diligence, enabling businesses to conduct the appropriate levels of checks on the right suppliers. In the vast majority of cases, suppliers of services have far more opportunity to bribe on behalf of a business than those that supply it with goods.

GoodCorporation urges companies to look closely at the activity of the supplier, what are they doing and what are the opportunities for corruption. It is not enough to monitor the Transparency International Corruption Perceptions Index to see the position of the country in which the supplier operates. Suppliers should be categorised according to risk and checked using questionnaires, audits, training, signing agreements and research, as appropriate.

Businesses admitted that due diligence is often being conducted after the contract had been awarded (usually on price), and needs to be carried out much earlier on in the process. It is far harder to change the working practices of an organisation already on a long-term contract, a problem identified by businesses when checking existing suppliers. This was acknowledged as the hardest aspect of due diligence and GoodCorporation would advise businesses to manage this by prioritising the due diligence of existing suppliers according to risk.

Businesses pointed out that some existing contracts are of an extremely long duration, with a significant financial penalty for terminating a relationship. This needs to be taken into account and balanced against any reputational risk that might be identified through due diligence checks. Businesses need to have a clear red line and a clear procedure if it is crossed. Shorter contracts could be issued where there are doubts.

Some businesses reported that producing the policies and procedures was the easy bit; the real challenge lies in monitoring the on-going relationship, checking what is really going on on the ground. This is essential, particularly in high-risk situations.

Major Contract Bids
GoodCorporation observed that the issue of bidding for major contracts on which millions depends has received little, if any, attention as businesses develop Adequate Procedures. Yet it is precisely this activity that has led to the biggest fines in recent years. Far from getting specific treatment in anti-corruption programmes, this area seems to have been placed in a completely different box, some distance from the compliance officer. Clear guidance is needed to ensure that businesses are properly protected when in big bid situations. For example, businesses should have strict controls over the money required for bids. There should be Anti-Bribery and Corruption (ABC) scrutiny of agents involved and careful monitoring to ensure that success fees and rates are reasonable.

Facilitation Payments
Although facilitation payments have never been allowed under UK law, the biggest problem for businesses is working out whether or not someone is paying them on your behalf. Using an intermediary can lead to obfuscation. ‘Miscellaneous expenses’ from suppliers should obviously ring alarm bells. However, facilitation payments are usually hidden in a more subtle way; built into the fee structure making it hard for a company to unpick and identify. Ensuring that a company’s own employees deal directly with public officials can help, but the policy on ‘tips’ needs to be clearly communicated.

Key steps to emerge from the discussion

 Establish who owns the intermediary and watch out for conflicts of interest such as family relationships and links with government and regulators
 Check the ethical statements of service providers and look for references to facilitation payments in their ABC policy.
 Avoid payment structures that are based on a percentage of the consignment value. In some parts of the world however, this is mandatory, so seek assurances about facilitation payments in writing.
 Make sure you have a clear understanding with customs clearance agents about facilitation payments. Previously there was a tendency ‘not to bother’ clients with these details. Today businesses need transparency.

Training
All agreed that to be really effective, policies need to be properly embedded. To create a culture that makes it clear how a company conducts its business, staff need to live and breathe it. For many organisations it is there on paper but not yet in practice.

So getting training right is a vital part of a company’s ABC process. Some companies train the entire staff often using e-training, others don’t have a company-wide intranet which slows down whole company training and can lead to a focus on senior management. GoodCorporation would favour training more staff rather than less. More employees are likely to witness or be aware of corruption than actually engage in it, so the more that are knowledgeable enough to speak up, the better. It is however important to identify who is most at risk and ensure they are prioritised for training.

One of the problems is perception – it is hard for some staff to see why it is acceptable for the CEO to take a client to the Olympics but not for an employee to offer a gift to a visa official processing documents. Training is critical to ensuring that all concerned believe that the steps taken are the right ones to protect and ensure the continued success of the organisation.
 
Speak Up
A good speak up process is a useful safety valve and is recommended in the Ministry of Justice Guidance but it is important to get it right as these can be intimidating, unused and therefore redundant. It is vital that a trusted person is involved so that employees feel comfortable using it. Staff also need to feel that if they speak up they are protected.
 
Dealing with problems with suppliers
Businesses need a system for dealing with a problem that might be unearthed and a number of questions were raised. Are third parties cut off without payment, given a chance to reform or suspended? It was agreed that this should depend on how widespread the problem is, whether it’s the failing of one individual or a widespread practice. An analysis of the risk of liability versus losing an otherwise reliable supplier is key here.

Some businesses choose to blacklist suppliers if serious problems are discovered. In some circumstances, businesses ask the supplier how they will deal with the problem and for a ‘proof of change’ if the relationship is to continue. If charges are ever brought, being able to demonstrate that effective changes in behaviour were made should provide an adequate defence.

If a supplier is unable to demonstrate how it can eradicate malpractice, companies would be advised to deal with that supplier as if they had breached the company’s own code of conduct.

Summary
The majority of companies felt that the appropriate plans were in place but there was still some way to go to ensure that they were properly implemented.

Companies should be aware that risk assessment advice that is not acted upon would provide prosecutors with the perfect paper trail. Businesses should therefore seek advice that is fit-for-purpose and ensure that they are able to act upon it.