As tighter legislation has been introduced, and enforcement activity is increasing, the emphasis on preventing corruption has become key, say Nick Benwell and David Bridge
In recent years, anti-corruption policies and procedures have become a more common part of many organisations’ worldwide compliance measures. And reviewing corporate corruption related investigations and prosecutions over the past few years, it is possible to identify the areas of greatest risk that need to be addressed as part of an effective anti-corruption programme.
As many companies’ compliance programmes have been in place for a number of years now, it is also possible to see what has worked well and what has not.
Three key compliance risks can be highlighted.
Multinationals, particularly when operating in other countries, cannot avoid engaging the services of intermediaries. Recent research published by Transparency International (TI) and the Organisation for Economic Co-operation and Development (OECD) indicate that such intermediaries represent a major corruption risk.
Recent enforcement actions, including against Pfizer and Koninklijke Philips Electronics NV by the US Department of Justice, support this, with intermediaries at the centre of allegations. Third party intermediaries perform many roles – as sales agents, distributors, market researchers and introducers or in securing necessary permissions and approvals. All share the same risks – when a task is to be performed for an organisation by someone who is not an employee, their approach to that task is less easy to control.
An effective compliance programme will ensure that a clear and legitimate business case exists for the engagement of third party intermediaries, and the identity of the agent must also be checked.
It is common now for reputational due diligence to be conducted, ranging from basic online research into the agent to using the services of a professional enquiry agency, depending on the potential risk posed by the arrangement.
The agent’s contract should be drafted to enable the company to terminate the arrangement immediately if it learns of anything that causes it to suspect the agent is corrupt. Such a right can be a blunt tool, however, leaving the company with an all or nothing response, so an accompanying right to suspend the contract while a matter is investigated is useful. As is a right to audit an agent’s records, but one must consider whether there are the resources to conduct such audits.
In some countries, demands for facilitation payments are part of everyday business. They are typically requested by lower ranking public officials, using the power of their position to withhold a service or approval in order to extort small payments. Despite their prevalence, many countries’ laws prohibit such payments, considered as a form of corruption.
Although enforcement agencies tend not to prosecute every case, anything other than a ‘zero tolerance’ policy inevitably exposes an organisation to the risk of investigation and reputational damage. However, companies have found that a ‘zero tolerance’ policy in itself is insufficient, as it leaves staff exposed to difficult situations where the policy may simply seem unrealistic.
Most laws will provide a defence for someone who paid a bribe under duress, but the requirements vary. Staff should be provided with guidance on assessing the level of threat in any given situation, as well as specific steps to take in response to a request for a facilitation payment.
Gifts and hospitality
Inviting potential customers to sporting or cultural events and paying for their tickets, travel and refreshments is a familiar form of business development. However, it is easy for such opportunities to be abused to win contracts in return for personal benefit.
Controlling the use of gifts and hospitality is therefore a key plank of any effective anti-corruption compliance programme. The primary ways to do this are a clear policy on what is and is not acceptable, using monetary value limits and a register that employees must complete to record benefits they give and receive.
A more sophisticated register can provide for values of benefit that employees are not prohibited from giving or receiving, but which require prior approval from their line manager. Any register must be periodically reviewed for suspicious patterns.
The key to making an anti-corruption policy effective is to ensure that it does not impose too high a burden on those using it.
In the wake of legislation such as the UK Bribery Act, some companies rushed to implement ‘gold standard’ compliance programmes, only to find that, two years later, the measures were not being followed. Measures, therefore, must be practical and achievable in the long-term, and their implementation and effectiveness should also be reviewed regularly and changes made where necessary.
A policy will be worse than useless if it is not followed. Indeed, if an incident occurs, a policy that was ignored can be highly incriminating: a statement of what should have been done but wasn’t.
Nick Benwell is Co-Chair of the International Bar Association’s Anti Corruption Committee and Head of Crime, Fraud & Investigations at Simmons & Simmons in the UK. David Bridge is a Counsel and Senior Professional Support Lawyer in Commercial Litigation, also at the firm.