UK: UK Bribery Act - Know What’s Ahead

With the advent of the new UK Bribery Act and continued regulatory developments, anti-bribery and corruption compliance should now be a high priority for financial institutions.

The new Act significantly strengthens the UK law in this area and the Financial Services Authority's Business Plan clearly sets out anti-corruption as a key financial crime priority for 2010 and beyond.

The UK Bribery Act 2010

The new UK Bribery Act is expected to come into force in a matter of months. The Act has a broad scope and contains two general offences of (i) offering, promising or giving a bribe and (ii) requesting, agreeing to receive or accepting a bribe and a specific offence of bribery of a foreign government official.

What is the new corporate offence?

In addition, and perhaps most importantly for financial institutions, the Act creates a new strict liability corporate offence for institutions for the failure to prevent bribes being paid directly or indirectly on their behalf by an entity or persons 'associated' with them.

The only defence available will be for the institution to demonstrate that it had 'adequate procedures' in place that were designed to prevent bribes being paid. As such, if wrongdoing is identified, an institution will be liable to prosecution unless it can demonstrate it had adequate procedures.

Currently, no formal guidance has been issued to define what 'adequate procedures' are. Whilst the Government has undertaken to do this prior to the Act coming into force, the guidance is not expected to be very prescriptive.

What if we didn't pay the bribe?

Financial institutions should note that under the corporate offence provision in the Act they can be found guilty not only for the failure to prevent a bribe being paid directly but also a bribe paid indirectly by an entity or person performing services on its behalf (an 'associated person').

This is clearly a key area of risk as many financial institutions use third parties such as sales introducers to obtain business. The 'associated' entity or person need have no link whatsoever with the UK for an offence to be committed.

Although the definition of 'associated' is quite vague, the effect is clear; institutions need to ensure that, when engaging third parties to perform some kind of service or entering into business with partners, they have appropriate procedures in place to ensure that the third party's compliance with UK law is similarly rigorous and that the compliance of the third party is monitored on an ongoing basis.

What is the extra-territorial effect of the new Act?

It should also be noted that the Act has far reaching implications for financial institutions that have operations beyond the UK. The corporate offence applies to any corporate or partnership, wherever registered or incorporated, so long as it conducts part of its business (no matter how small) in the UK.

The offence itself can take place outside or inside the UK. This means a financial institution must ensure that not only its UK operations, but its entire global operations, are operating to the standard required by UK law. There is no scope for any aspect of the anti-corruption programme to get lost in translation between the UK and an overseas operation. If adequate procedures are not fully implemented across global operations, the financial institution may be exposing itself to significant risk.

The Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act

The US Foreign Corrupt Practices Act (FCPA) led many institutions to implement anti-bribery frameworks but they should be aware that the new UK legislation goes further than the FCPA in several areas. Some of these key areas are outlined in Figure 1 below. As a result of these differences, even institutions with experience of ensuring FCPA compliance should revisit their anti-corruption frameworks to ensure compliance with UK law.

Increased regulatory focus on, and appetite for, anti-corruption

The FSA's Business Plan published in March this year, clearly sets out anti-corruption as a key financial crime priority for 2010 and beyond. In 2010 the FSA are planning a themed corruption review on investment banking that will likely incorporate private equity activity and are also planning to continue their themed work from 2009 on insurance brokers.

The FSA imposed its largest ever fine of £5.25million (the first relating to corruption) in January 2009 against an insurance broker for breach of Principle 3 for 'failing to take reasonable care to organise and control its affairs responsibly and effectively with adequate risk management systems'.

No bribery was proven; the broker simply failed to implement and maintain effective systems and controls for countering the risks of bribery and corruption in its business, in particular around making payments to overseas third parties who assisted it to win business. A primary driver of this fine was to provide a credible deterrent and encourage other firms across the financial services sector to raise standards of conduct in this area. We expect further FSA enforcement actions to follow in this area in the future.

What should financial institutions be doing?

Faced with these regulatory and legislative priorities, institutions should be taking action now to understand the corruption risks faced and consider appropriate risk management strategies, policies and procedures to mitigate the risks of bribes being paid, directly or indirectly. We have experience in assisting financial institutions in the UK with corruption matters, including when under enforcement, and have outlined below (see Figure 2) some key areas for consideration:

Figure 2.

Anti-Bribery and Corruption Risk Assessment Factors to be considered would include:

  • In what jurisdictions are you doing business and with whom?
  • Where are you using third parties to obtain business?
  • Where is entertainment and other hospitality activity significant in the sales process?
  • Have you performed a corruption risk analysis on your operations in order to identify potential high risk areas and ensure the continued effectiveness of the company's anti-corruption procedures?

Culture, tone and ownership

  • Is your culture one of zero tolerance and is that tone driven from the top?
  • Does responsibility for anti-corruption procedures sit with a designated member of senior management with appropriate access to the board?

Embedded controls

  • Do you conduct sufficient, effective due diligence when entering into relationships with third parties and monitor those relationships?
  • Do you have appropriate review and authorisation controls over the nature and purpose of payments and do you understand the commercial rationale for payments that you make?
  • Do you have a rigorously enforced gifts and entertainment policy?

Training and awareness

  • Do you have an anti-bribery and corruption policy that has been communicated and is demonstrably enforced?
  • Do your staff receive regular, appropriate and specific anti-corruption training?
  • Do you have a mechanism in place to provide guidance to employees, representatives and business partners on complying with anti-corruption procedures when dealing with potentially problematic situations?

Demonstrating an effective anti-bribery and corruption programme

Based on our experience, we have developed an Anti-Bribery and Corruption Controls Framework (see Figure 3 below) which can be tailored to individual organisations and their specific anti-bribery and corruption risks. Our framework is based on the COSO controls framework and is designed to facilitate the reinforcement of existing, or development of, anti-bribery and corruption controls. The framework is supported by a benchmark set of detailed controls which form the basis of our approach to assessment.

Our framework illustrates that an effective anti-bribery and corruption programme must combine an effective culture with functioning process controls.

It will not be sufficient to rely on an established code of conduct or company values because an organisation will remain vulnerable to rogue employees.

However, process controls won't prevent collusion and cannot cater for every eventuality so it's important that the company culture is right.

How Deloitte can help

The anti-corruption specialists at Deloitte have helped some of the world's leading institutions and companies navigate the risks arising from anti-corruption legislation. Our clients seek our assistance on a broad range of corruption-related matters including:

Adequate Procedures and Anti-Bribery and Corruption Compliance Programmes

We can assist with the development, implementation and review of anti-bribery and corruption compliance programmes. This can involve supporting organisations in: " Understanding and prioritising the risks they face.

  • Establishing the control objectives and key controls necessary to enable them to determine if the risks are controlled.
  • Assessing the effectiveness of the controls in place.
  • Developing enhancement plans to improve controls.
  • Training and awareness.

Forensic Data Analytics

Our Forensic Data Analytics team has a number of relevant tools and techniques which are used to assist clients in their anti-corruption efforts. These include:

  • Data mining and interrogation capabilities that can highlight potentially problematic transactions quickly and efficiently.
  • Online survey tools that can quickly gauge the state of awareness of staff with a company's anticorruption policy and related procedures and controls as well as highlight potential corruption risk areas.

Business Intelligence Services

Our Business Intelligence team are able to obtain information relating to the background and reputation of potential joint venture partners, sales agents or other business partners who may fall into the definition of 'associates'.

Transactional Due Diligence

Our corruption specialists have worked with both buyers and sellers to identify corruption risks as part of the due diligence process. The results of such work can influence deal price and also allow acquirers to mitigate identified corruption risks both pre and post acquisition.

Forensic Investigations

Our corruption and forensic accounting specialists have deep experience of conducting investigations and producing reports that are responsive to the needs and expectations of regulators and enforcement authorities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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