Corporate crooks

Legal Eagle / 14 October 2011

The war against bribery stretches back centuries, but new UK laws should make every organisation alert to the risk of corruption in their business – and how to stamp it out, writes Steve Coomber

In many countries and cultures, bribery has long been a way of life. In Ancient Rome the electorate were bought with free bread and gladiatorial games. Today, bundles of used notes in carrier bags, cash in brown envelopes and trips to exotic locations secure business favours from senior executives. The size of the market in corruption is staggering – in 2004 the World Bank Institute (WBI) estimated that over $1 trillion was paid in bribes each year.

Attempts to eradicate bribery are equally long standing. Marcus Tullius Cicero, the Ancient Roman lawyer and orator, would no doubt have approved of the Organisation for Economic Co-operation and Development (OECD) anti-bribery convention of 1997. But he would have also appreciated the scale of the challenge. Despite Cicero’s many years of campaigning and passing laws against corruption and bribery, the practice persisted. And, even as the OECD contemplated its anti-bribery measures, bribes were still tax-deductible in several European countries, including France and Germany among others.

The latest in a long line of measures to combat bribery is the UK’s Bribery Act 2010, which came into force in July this year. Sections 1 and 2 of the Act cover the offences of giving and receiving bribes, while section 6 deals with the bribing of a foreign public official in order to obtain or retain business or an advantage in the conduct of business. Introducing corporate liability for failing to prevent bribery on behalf of a commercial organisation is also covered (section 7).

Under section 7, an organisation that conducts business in the UK can be liable for the acts of an associated person – that is, a person who performs services for the company, such as employees, agents, subsidiaries and, in some instances, suppliers. Penalties for bribery are severe, including up to 10 years in prison and unlimited fines. However, there is a defence to section 7 if the organisation can show that it had adequate procedures in place to prevent bribery.

Best practice is about an organisation not really needing an ethical compliance system because the ethical ethos is inbuilt and embedded in the company – so the ethical compliance system is then just the external evidence of that.

Neil Holt, group director responsible for ethical compliance, Halcrow

Of course not every executive is likely to encounter bribery. Some are more at risk than others depending on role or location, or the type of sector or activity. “The sectors usually seen to be at most risk of corruption are defence, extractive industries, construction and transport,” says Liz David-Barrett, a research fellow at the Centre for Corporate Reputation, Saïd Business School at the University of Oxford. “Or consider the kinds of activities you are engaged in. Are governments in other countries your key clients? Or do they regulate your activities? Alternatively, if you do a lot of transport and logistics, and need to bring goods to and fro in corruption-prone parts of the world, then you will be asked for facilitation payments.”

Where there is a risk of bribery, companies must prepare for the effects of the Act. First stop is the guidance provided by the Ministry of Justice, which covers areas such as hospitality and the giving of gifts (see boxes overleaf). But this is just a starting point. “There are six principles set out in the guidance to the Act, but there is an implied but unstated seventh principle: you must be able to demonstrate that you are implementing those procedures,” says Neil Holt, group director responsible for ethical compliance at Halcrow, global infrastructure experts. “If you can’t demonstrate that you are doing something, it will be assumed you are not doing so.”

Take it from the top

A truly effective anti-bribery policy starts at the top of the organisation. “You need an uncompromising tone from the top, with the most senior leaders – the CEO and managing directors of operating divisions – exhibiting zero tolerance,” says Andrew Hayward, head of ethics and compliance at Balfour Beatty, the engineering and construction giant. “Your company must have a zero tolerance of bribery as a matter of stated policy and principle.”

Organisations must also avoid an overly process-driven approach to implementing anti-bribery measures. “There is a danger with compliance that it can drive a regulatory mind-set – a tick-box exercise,” says Holt.
“But it is more about driving the right behaviours. Best practice is not just about an organisation having a bells and whistles anti-bribery ethical compliance system. Best practice is about an organisation not really needing an ethical compliance system because the ethical ethos is inbuilt and embedded in the company – so the ethical compliance system is then just the external evidence of that.”

Holt believes it is about individuals knowing why they do something in a particular way and also knowing why they shouldn’t do something in a certain manner. “You can’t just rely on people doing the right things for the right reasons; you have got to educate them as to what those right things are,” he says. Most companies adopt a risk-based approach, undertaking a risk assessment to work out where the greatest potential problems lie. Training is then targeted accordingly.

Ethical education

“We have put three tiers of training in place,” says Keith Howells, chairman at Mott MacDonald, a management, engineering and development consultancy. “We have built elements into our induction training so that everyone who comes into the company receives material about ethics and bribery via our eLearning system. We have also introduced a mandatory eLearning course that all staff had to complete by the end of June. We also engage the Institute of Business Ethics to run scenario-based workshops for our frontline staff – the business developers, the managers in high-risk areas. Plus we have covered ethics at our AGM for the past two years, so that all of our employee shareholders are absolutely clear on the subject.”

Particular attention must be paid to facilitation payments, or “grease payments” as they are known under the US Foreign Corrupt Practices Act of 1977. These small unofficial payments are usually requested by foreign officials to facilitate or speed up routine transactions, such as issuing permits or passing through customs. Permissible by some legislatures, including the US, they are illegal under UK law, so employees must be aware of this if they are likely to encounter these payments while working for organisations that fall under UK legislation.

“Let’s say you are asked to pay a facilitation payment in order to get through customs,” says Robert Barrington, director of external affairs at Transparency International UK, an organisation that campaigns against corruption and produces an annual Corruption Perceptions Index (CPI) of countries ranked by perceived level of corruption.

“First you need to be able to spot that whoever is asking you for the bribe is not asking for something official. So you need to be aware of the situation. Then you need to find out how to say ‘no’ politely. You can ask the official for the name of the law under which the payment is necessary, or say that you need to make a call to your compliance officer. If someone asks you for a bribe they are doing something illegal, and the more fuss you make about it, the more it can make them back off.”

There can be times when you have no choice but to pay, especially if you fear you are in danger. But there are still processes to follow, explains Hayward: “If you conclude that you have no option other than to pay, rightly or wrongly, then you must not hide that payment. You have to report it internally, disclose it and make sure that it is accounted for, and that it is not deducted for tax reasons. And then disclose it to the appropriate authorities.”

Liability under the Act also covers associates, so attention must be focused on partner companies. “We have put together due diligence questionnaires for our partners,” says Howells. “We partner a lot with local companies and other European and American companies around the world. People have to go through a process to evaluate partners, particularly where we don’t know them. We would normally ask for a copy of their ethics policy. We also insist on having clauses in the contract that allow us to terminate without penalty if we discover that they have breached our ethics policy. We ensure that the terms and conditions of anyone in our immediate supply chain reflect our requirements in terms of ethical behaviour.”

A common way to pay bribes is through payments to sub-contractors or suppliers, so due diligence on these firms must be rigorous. Hayward suggests asking questions such as: What is the justification for choosing the third party? Is what you want them to do a legitimate activity? Who selected the sub-contractor or supplier? Were they recommended by a public official? Have they been selected based on merit? Has there been a competitive tender process? Are you paying no more than fair market value for their services?

Curbing corruption

The Bribery Act 2010 is viewed as the toughest legislation on bribery in the world. Will it stamp out the practice completely? Probably not. But the more focus there is on the issue, the more likely the global business community is to make progress towards stamping out corruption. As Graham Hand, coordinator of the UK Anti-Corruption Forum, notes: “There is a definite hope that it will be possible, and it already is possible to some extent, to have the reputation of being such an ethical company that people will stop asking for bribes, because they know that company is simply not going to be bribed.”

Now that is a sentiment Cicero would have approved of.