Bribery: local risk, global consequences



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    New and tougher anti-bribery laws push bribery to the top of multi-nationals' risk agenda, says Marcus Breese, Professions Line Underwriter at Hiscox.

    Regulators, particularly in the US and UK, are clamping down on corporate bribery. Both the UK Bribery Act and the US's Foreign Corrupt Practices Act were recently reinforced, and place intense pressure on firms to ensure they have anti-bribery controls in place.

    Previous efforts to eliminate bribery have not always been effective – at least as far as international business is concerned. In fact, before the OECD’s 1997 Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, some governments saw bribe payments to foreign public officials as legitimate business expenses for tax purposes.

    Anti-bribery prosecutions under the OECD’s Convention started to pick up at the turn of this century and the arrival of tougher rules looks set to increase the number of prosecutions even further.

    The UK’s 2010 Bribery Act, for example, allows any individual or company with links to the UK to be prosecuted for bribery, regardless of where the crime occurred. It has also created a new offence, under which commercial organisations can be prosecuted if they “fail to prevent persons associated with them from bribing another person on their behalf.”

    This ratcheting up of the regulatory pressure has already led a number of corporations to turn themselves in to the Serious Fraud Office, in the hope of more lenient treatment.

    But the tougher rules create a problem for companies doing business in countries where ethical practices are much less clear-cut. The problem facing many multinational organisations is to understand how commerce is conducted in all the countries in which they operate.

    Facilitation payments, common practice in many developing economies, are under particular scrutiny. The critical test is whether these payments are “reasonable, proportionate, and properly considered.” Gifts and hospitality should also pass this test.

    Companies should keep accurate records of any payments made, with a clear explanation as to why it was felt necessary to make them. Although such payments are never legitimate, regulators recognise that companies regularly face situations where they need to make small payments to enable business to continue.

    Every business should start by making sure it has a robust anti-bribery policy and procedures, because having these in place can provide a defence in itself.

    Firms should adopt an approach of “internal prudent overreaction” to any suggestion of bribery. Their business continuity plans should spell out how to deal with bribery being uncovered within their organisation or investigated by regulators. Insurance can help mitigate investigative and legal costs should a bribery probe be necessary.

    Companies should always ensure they fully comply with their published anti-bribery policies. So, for example, setting aside a provision in the company budget for “facilitation payments” is likely to be viewed dimly by a regulator.

    But the biggest risk though is boardroom complacency. Bribery warrants a top five place among the biggest risks faced by corporates and, in some jurisdictions, it's a top-three risk. There is still evidence that company boards are not taking the issue seriously enough. It might cost businesses £100,000-£200,000 to get the right procedures in place, but if it prevents a £450million fine from US regulators and a reputational disaster, it's money well spent.

    To read more insight from our London Market team, follow this link

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