Don’t Bank on Your Firm Avoiding Bribery

John Burbidge-King is CEO of Interchange Solutions, a consultancy operating exclusively in the field of bribery, corruption and fraud risk mitigation.

Earlier this year, the Financial Services Authority (FSA) in the UK warned that many banks were failing to provide proper controls to prevent bribery and corruption despite the introduction of the UK Bribery Act in July 2011.

The FSA said that almost half of the 15 banks it had visited for on-the-spot inspections had failed to undertake an adequate anti-bribery and corruption risk assessment.

Given the barrage of criticism that the banking and financial services sector has come in for in recent times, this apparently lackadaisical approach to avoiding bribery and corruption seems implausible, but facts are facts.

The Authority went on to warn that senior managers’ knowledge of corruption laws was so poor that it was “difficult for us to see how firms’ senior management could provide effective oversight”. Only two of the 15 firms visited had carried out an anti-corruption audit.

Prior to the publication of the FSA’s findings, in March of this year, Coutts received a fine of almost £9million from the FSA for breaches of money laundering rules.  Coutts failings had “resulted in an unacceptable risk of Coutts handling the proceeds of crime”.

The FSA had paid a visit to Coutts in October 2010 as part of its review into how banks were managing situations in which there was a potentially high risk of money laundering.  According to the FSA, the bank failed to check the source of funds when prospective new clients tried to open accounts.It also failed to check on any intelligence about its existing or prospective clients and had not kept information on those clients up to date.The FSA said there had been deficiencies affecting almost three quarters of high-risk customers’ files.

Coutts is but one example with the sector further tarnished by allegations of unethical behaviour by Barclays, HSBC, and Standard Chartered; all reputable regulated businesses as scandal after scandal taints the sector’s image.

Any perception of wrongdoing will affect confidence in the sector, but falling foul of legislation such as the UK Bribery Act and the US Foreign Corrupt Practices Act, are potentially extremely damaging, both for corporations and individuals.

The UK Bribery Act applies to all companies, regardless of their size and however regulated. There are four main offences:

1. Offering, promising or giving a bribe
2. Requesting, agreeing to receive or accepting a bribe
3. Bribing a foreign public official
4. Failure of a commercial organisation to prevent bribery.

The sting in the tail of the Act is the Section 7 corporate offence of a company not having in place adequate procedures to prevent bribery. The burden of proof rests on the business to prove it had procedures in place.

Guidance issued with the Act sets out six principles for organisations to proportionately and appropriately mitigate bribery risk:

1. Proportionate procedures – clear, practical policies and procedures
2. Top level commitment – top down culture where bribery is unacceptable
3. Risk assessment – assessment of both external and internal risk
4. Due diligence – really knowing with whom you are doing business
5. Communication (including training) – embedding the messages
6. Monitoring and review – auditing and financial controls

The penalties are harsh – up to 10 years imprisonment, unlimited fines and civil or criminal recovery from convicted individuals companies and potentially from shareholders.  Company directors may be at personal risk too.

The Act applies to all commercial organisations registered in the UK as well as foreign companies operating in the UK. Regarding foreign companies, it will not matter that the bribery offence has not taken place in the UK and non-UK persons may also be prosecuted for offences that take place in the UK.

Bribery is global, although it is more prevalent in certain countries.  Each year, Transparency International, the world’s leading non-governmental anti-corruption organisation, publishes its Corruption Perceptions Index (CPI).

In 2011, two thirds of countries covered by the CPI were given scores of less than 5, which means they are considered significantly corrupt.

The level of international enforcement has increased as new laws have been introduced in countries including Brazil, Russia, China and Indonesia. These are also accompanied by stern enforcement action.

So what can banks and financial services firms do to mitigate their risk?

• The Board should undertake or commission an external assessment of potential risks to the firm by cconductinga company-wide health check of anti-bribery compliance (ABC) risk.
• Ensuring that steps to mitigate bribery risk are documented on the board risk register
• Introduce a clearly articulated and communicated ABC culture, visibly driven from the top.Rresponsibilityrests with the Board; it is important for a firm to demonstrate that anti-bribery is part of its fabric and embedded in its culture
• Introduce anti-bribery staff training.  Current staff should receive anti-bribery training,particularly those more exposed, and new staff should receive training as part of their induction.  Training should be reviewed and updated regularly.
• Implement policies to address conduct (including sanctions), ethics, hospitality and gifts, facilitation payments, commissions, monitoring and ‘speak up’ mechanisms, political and other lobbying, and conflicts of interest.
• Demonstrate accountability and responsibility, from employees to the boardroom including non-executive directors.The Board should appoint an individual with overarching responsibility for overseeing ABC matters and ensuring that the anti-bribery policy is embedded in the business.  The firm should also announce this appointment to employees and its external stakeholders.
• Introduce robust processes for the appointment, integrity due diligence and management of all third parties such as sales agents, advisers and other associated persons, external to the business. This should also apply to any outsourced operations, especially call centres and back office.

“But we are FSA or AN Other body regulated” is an insufficient excuse to put off the rainy day of properly addressing bribery risk, the associated reputation damage and cost in the event of an allegation.

To find out more about anti-bribery compliance, visit www.interchange-solutions.co.uk