Adequate Procedures Defence from a Practical Perspective by
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9781119970668 ˑ 600 pages ˑ Hardback
Adequate Procedures Defence from a Practical Perspective
by Monica Bond BA, LLB, FCIS, ACA, CFE, MAE, MCSI Solicitor of the Senior Courts of England and Wales BOND SOLICITORS
in conjunction with Adrian Bond MSc, ACA BOND SOLICITORS Section 7 of the U.K. Bribery Act 2010 (â€œthe Actâ€?) introduces a radically new offence, which is the failure of commercial organisations to prevent bribery committed by one of their "associated persons", i.e. anyone acting for and on behalf of the organisation. This offence is also known as the Corporate Offence. The Corporate Offence has an extremely wide ambit as it applies to both UKbased commercial organisations and foreign companies which carry on business in the UK. The potential consequences for being found liable under the Corporate Offence typically include reputational damage and a potential unlimited fine1. In addition, it is possible that organisations that are liable under s.7 of the Act may attract discretionary exclusions from governmental contracts across the European Union2.
It appears that the legislature heeded the strict approach of the judiciary in enacting the Act. See R v Innospec  Crim LR 665. 2 See Public Contracts Regulations 2006 and the Utilities Contracts Regulations 2006.
These factors plus the fact that the offence is a strict liability offence mean that commercial organisations must ensure that they have "adequate procedures" to counter bribery practices, as it is the only defence to the Corporate Offence. Fortunately, to assist commercial organisations in their development and implementation of adequate procedures, the Ministry of Justice published Guidance Notes in 2011 (the "Guidance"). The Guidance sets out six core principles regarding which commercial organisations should have regard to when implementing such anti-bribery controls. These principles are: 1. 2. 3. 4. 5. 6.
Proportionate Procedures. Top-level commitment. Risk assessments. Due Diligence. Communication (including training). Monitoring and reviewing.
These principles are closely interrelated with each other. Whilst this Guidance is not mandatory, it stands as benchmarks for when the prosecution assesses the "adequacy" of a commercial organisation’s procedures. As such, I will examine the six principles with focus on the practical issues commercial organisations should bear in mind when implementing them. 1. Proportionate procedures Proportionality plays a critical role within the scope of s.7 (2) of the Act as it underpins the other five principles. An organisation should ensure that its bribery prevention procedures are implemented proportionately, i.e. such procedures should be proportionate to the risks faced by the organisation. For example, a small domestic company with less than 50 employees may not be expected to have the same, extensively implemented anti-bribery procedures as a multi-national corporation. In each subsequent principle I shall attempt to demonstrate how “proportionality” underlies every applicable example of good practice. 2. Top-level commitment It is expected that senior management display an unwavering determination when implementing anti-bribery systems. In addition, evidence of “tone from the top” is one of the simplest ways of delivering an organisation’s commitment to counter bribery. Top-level management teams of commercial 6
organisations are encouraged to be involved in key decisions relating to bribery risks such as setting out bribery prevention procedures and taking active measures to ensure their full implementation. There are many ways to demonstrate top-level commitment, and how the message should be delivered largely depends on a commercial organisation's circumstances. Nonetheless, there are some measures that can be applied to both small and large organisations. Such measures may include: 1. appointing a senior manager with responsibilities relating to anti-bribery work; 2. tasking this senior manager to closely observe whether the top-level management team need up-to-date training on anti-bribery; and 3. ensuring that the top level management team conveys the importance of anti-bribery procedures at all times. In the vast majority of my fraud and corruption investigations, I have observed that bribery is facilitated by the lack of relevant internal controls. This is often not because organisations do not have those controls in place. Instead, it is often because a rogue employee or manager has simply chosen to ignore such controls. It is vital that any evidence of a cavalier attitude towards internal controls be regarded as a serious â€œRed Flagâ€? for investigation and rectification. 3. Risk Assessment Risk assessment is the very first step an organisation should take in developing adequate anti-bribery procedures. Without a thorough understanding of the risks an organisation is facing, it is impossible to have an adequate system to identify and mitigate such risks. Each organisation is different; there is no "one size fits all" approach that can be applied to the task of fighting bribery. However, there are some general pointers which can be given. Internal Risk Factors Risk assessments must consider the organisationâ€™s structure and anti-bribery culture; its current anti-bribery policies and procedures; its key personnel; its current record keeping and internal audits; and key issues the organisation has faced in the past. Once these considerations have been taken into account, 7
teams tasked with conducting such risk analysis exercises must be selfreflexive. External Risk Factors The external risk factors to be analysed will be likely to include an organisation’s global business interests. It is important, therefore, to know how business is conducted within an organisation’s operational jurisdictions. In particular, one must determine whether it is done directly, or through third parties – this bears particular weight regarding training. As a rule of thumb, a useful starting point in identifying levels of geographical risk would be to have regard to Transparency International's corruption measurement tools. 4. Due diligence Adequate and proportionate due diligence procedures should always be fully adopted and closely reviewed. I will discuss certain key scenarios which risk commercial organisations should have regard to. Politically Exposed Persons (“PEPs”) FATF recognises the bribery-related risks with PEPs - see Recommendations 12 and 22 regarding domestic PEPs and EDD requirements. Typical measures in mitigating such risks include open source searches; utilisation of commercial databases and any in-house databases; checking government issued PEP-lists; and adopting asset disclosure systems. Beneficial Ownership This concept remains an important topic for risk management professionals. Financial fraudsters often hide as the ultimate beneficial owner behind multiple layers of legal entities whilst remaining as the mastermind of transactions. Commercial organisations are therefore expected to take prudent and proportionate measures to verify the ultimate beneficial owner(s) in every transaction that they are involved with. With the forthcoming 4th EU Money Laundering Directive coming into play, even further stringent requirements on beneficial ownership will soon be placed on commercial organisations.
Developing foreign markets Commercial organisations are often exposed to more bribery-related risks when operating on the international stage, especially in regions where bribery is epidemic. Such organisations should carry out due diligence on both their (potential) clients and associated persons. The Guidance recognises that it might be difficult to withdraw from an established business relationship, thus it emphasises the importance of thorough due diligence prior to any commitment are made. For further detail on due diligence procedures, the readerâ€™s attention is directed to the Guidance. 5. Communication (including training) One could almost be forgiven for putting forth blunt comments that this principle "is stating the obvious". That is not to say, however that it is not worth saying. I was recently tasked to act as a consultant for a client in the subcontinent and surprised to find employees of that client saw bribery as an industry standard. As this example shows, clear communication, together with proper training, are key when it comes to formulating an anti-bribery culture. From a practical standpoint there are a number of things that organisations should bear in mind when considering their communication protocols and training platforms. One must always instruct those responsible for such areas of work to to be cognisant of an employee and/or agent's status when issuing instructions. Regarding the training platforms, it is even more important that when the organisation is operating in territories or industry sectors where bribery is epidemic, face-to-face training is given. However one chooses to inflect the message, the core principle is to convey a strong and clear message against the onset of bribery. 6. Monitoring and reviewing Unsurprisingly, there must be systems in place enabling the periodic review of a corporation's anti-bribery protocols. Just as the nature of business is an evolutionary concept, so too is the nature of those who seek to glean unfair advantages through bribery. Whether an organisation's reviewing is conducted internally or externally, always effect consistent and thorough record-keeping and evidence thereto.
Conclusion Despite the fact that the Act came into force in 2011, recent studies show the UK still has a long way to go when it comes to implementation of adequate procedures. According to a study carried out by Ernst & Young in September 2013, the majority of mid-market British businesses are still unaware of how the legislation works3. Although the awareness of the Act's obligations among large commercial organisations is noticeably higher4, the situation remains challenging in many respects5. The UK regulators have explicitly expressed their determination to tackle bribery and to build ethical business dealings. This tenacious attitude from the regulators undoubtedly makes it increasingly important for commercial organisations to review their existing anti-bribery systems, to make any necessary adjustments with all due haste and to keep these systems updated. Monica Bond BA, LLB, FCIS, ACA, CFE, MAE, MCSI Solicitor of the Senior Courts of England and Wales BOND SOLICITORS in conjunction with Adrian Bond MSc, ACA BOND SOLICITORS Any queries or email on this topic would be welcomed by the author. Monica Bond can be reached via email at email@example.com.
See Growth Business' article available at: http://www.growthbusiness.co.uk/news-and-market-deals/businessnews/2138236/midmarket-lacks-knowledge-of-uk-bribery-act-says-ernst-and-young.thtml 4
According to the KMPG Bribery Survey 2011, 85% UK companies have a formal, written anti-bribery and corruption compliance programme compared to 57% in 2009. 5 See http://www.fsa.gov.uk/library/communication/pr/2012/035.shtml