Why your business needs to write an anti-bribery strategy
With anti-corruption campaigners reporting a continuing rise in global bribery and corruption, and governments stepping up their enforcement, corporates are facing heightened reputational and financial risks. But such risks are not just limited to an organisation's staff, with suppliers, agents and other third parties presenting similar challenges to the integrity of an international business. In response, organisations must ensure their due diligence programmes take into account the full extent of the risks that regulators and enforcement agencies may one day want to investigate further.
The supranational reach of the UK Bribery Act (UKBA) and US Foreign Corrupt Practiceses Act (FCPA) creates a complex backdrop. Despite the risks of failing to carry out appropriate due diligence, many organisations fall short. Recently, US authorities fined energy services company Technip more than $300m for FCPA breaches, and criticised it for having a due diligence programme which the authorities considered only a "perfunctory exercise" and one that was not "adequate to detect, deter or prevent the payment of bribes by agents".
However, only half of all businesses polled in a recent survey said they review external suppliers for UKBA compliance, which could see a company commit an offence if an "associated person" bribes another person to obtain or retain business on its behalf. Local agents, distributors, licensees and joint venture partners may not be employees but firms are increasingly being held liable for their corrupt actions.
The UK ministry of justice has provided guidance on due diligence as it applies to the Bribery Act, which is set out in Principle 4. This states that organisations must apply "due diligence procedures, taking a proportionate and risk based approach, in respect of persons who perform or will perform services for or on behalf of the organisation, in order to mitigate identified bribery risks".
Companies must actively manage and mitigate risks associated with third-party relationships. The first step of any due diligence assignment should be an assessment to ascertain the particular risks. While the level of corruption in a country is a key factor, other aspects can also have an impact. These include the size or value of the business relationship, the structure of the contract or transaction, the level of government involvement and the industry sector in question.
A due diligence investigation proportionate to the risk can then begin. For some lower-risk relationships, this can mean basic searches of sanctions and watch lists, media and political exposure databases. However, organisations seeking to do business in countries where corruption is more prevalent should always try to identify the beneficial owners of a potential partner. For example, are they government officials or connected to such individuals? An overly complex and opaque shareholding structure could in itself be a red flag.
Other public record information and local media can sometimes prove valuable in assessing a partner's reputation, experience and integrity. This information may be available in some countries but in others it may only be retrievable by someone on the ground, through various registers and agencies if at all. Given the diversity of privacy and disclosure laws, special care must be taken to ensure that public record information is accessed legally and ethically.
Of course, there are many instances where open-source information is limited, due to media censorship and the availability of official records, and in isolation does not provide enough insight into a potential partner. In addition, information may be incomplete, contradictory or clearly tainted by political bias or commercial rivalry. In such cases, human intelligence – comment, context and insight from local sources familiar with an industry sector and local market, the political landscape and regulatory environment – can provide valuable perspectives on the background and standing of a potential third party.
Some more serious causes for concern relate to relationships with government officials; the reliance on political or government contacts, as opposed to knowledge; a hidden or complex ownership structure; or where the organisation may lack the experience or expertise to perform the work required. Past allegations of bribery and corruption and an unexplained breakdown of previous partnerships may also contribute to the risk landscape.
Scrutinising the activities of a third party in a distant market, with a different culture and language, presents obvious challenges. Failing to address such risks could prove damaging and a proportionate and risk-based approach to due diligence will help identify key red flags that a tick box approach would miss. Placed at the centre of a credible and values-led strategy, this will create greater resilience from scrutiny by law enforcement, customers, investors and the wider stakeholder community.
Michael Boag is the London-based managing director of Stroz Friedberg, an investigations, intelligence and risk management company
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