Michael Littlechild considers the potential impact of an important new piece of international anti-bribery legislation

 

Michael Littlechild considers the potential impact of an important new piece of international anti-bribery legislation
The UK Bribery Act was passed into law on April 8th 2010.

To say it was at the eleventh hour understates it.

Passed on the penultimate day of a five-year parliament, I make that two seconds to midnight.

On the face of it, the Act couldn’t be more straightforward. No giving or accepting bribes, plus a special offence for corrupting public officials.

The act clearly states that a person will be guilty of bribery if they ‘promise to give a financial or other advantage to another person’.

This makes it tougher than the much feared US Foreign Corrupt Practices Act (FCPA), which says that for a bribe to be a bribe a public official must be on the receiving end.

The Bribery Act will also be tougher on so-called facilitation payments (petty amounts to speed up an official process) than the FCPA.

Facilitation payments are tolerated under US law, but are made clearly illegal under the UK Act.

This is a business regulation to celebrate, at least if you like to do business honestly. Legally we now have a much more level playing field for matches between the virtuous and the venal.

And there’s more good news. There may still be the odd dirty player or two in the squad. We all know that in business employees who cheat can be harder to spot than the notorious divers who litter the penalty areas of Premiership pitches.

The new Act says that where an employee is guilty of bribery, the company will be charged only if it has failed to prevent malpractice through ‘adequate procedures’.

Not surprisingly this phrase has furrowed the brows of those who have been following the progress of the legislation.

The government has promised to issue a guidance document on this before the Act comes into force later in the year, but has stressed that this will be at the level of principles not detailed practice. Most companies have got principles already.

Many companies have long ago issued a code of ethics and obliged employees to sign that they have read and understood it.

While no one can deny that this is a useful thing to do, a Code should be the umbrella over many elements of a serious anti-corruption policy. What other practical things need to be in place?

Employees

In our experience the two biggest danger areas for employees are gifts and entertainment and conflict of interest.

Guidance on these areas must be constantly emphasised in employee communications and this is often neglected. There should be an easily-understood policy on gifts and entertainment, which makes it clear not just what can be given but also received. This is still quite flaky in many companies.

Everyone has their own idea of what might be seen as ‘influencing a business decision’, so the company’s own rules must be clearly spelt out.

Employees should also understand what conflict of interest means. This is a woefully misunderstood concept, especially in countries where the people qualified to work in business live in a relatively small world and employees often find they have friends or relatives among their suppliers or their regulators.

It is also important that honest employees know that it is their duty not just to decline external temptations but to blow the whistle to senior management, so that the matter can be addressed with the management of the offending company with a very strong message.

Suppliers

Robust procurement processes must give corrupt individuals inside and out a tough time. Separation of powers to approve procurement decisions means that suppliers would need to corrupt not one but many, making it much more difficult.

Senior management should be wary where suppliers have been continually re-engaged with little attempt to explore the alternatives.

There should be strong communication to suppliers on expected behaviour, with a clear message that misbehaviour will be met by sanctions. There is nothing like the threat of exclusion from bid lists to smarten up the act of unscrupulous suppliers. This happens extraordinarily rarely even in business environments riddled with corruption.

Customers

Relationships with customers also need careful thought. Customers can bribe as well as suppliers, generally to gain advantages in pricing or service levels. A well-controlled pricing policy is essential here, with procedures and business cases for giving discounts.

Reasonable levels of customer entertainment will always be part of business life but should be able to stand up to external scrutiny. One hesitates to propose the national press as an arbiter of ethics but it can help to imagine your entertainment activities plastered over the front pages.

Bids for major contracts need a specific approach. Bid spending is often necessarily high and worthwhile commercially for big deals. But the rules of engagement should be clear and the accounting fully transparent.

Sales intermediaries

The use of intermediaries or agents to negotiate between a company and potential major customers is fraught with peril and a clear and detailed agency remit is required. Companies have sometimes blamed dubious practices that have come to light on agents exceeding their remit.

This is no longer going to be accepted as an excuse, especially if the company has been vague about that remit. There needs to be a detailed coverage of an agent’s activities in its contract and again transparent reporting of expenses.

Public Officials

Payments to public officials should not be made under any circumstances and there can no longer be any toying with spurious distinctions between bribes and facilitation payments.

Businesses are fond of proclaiming their stance on corruption but they should be seen to support those governments that set up policies and institutions to combat corruption.

All of the above is really just good management practice. In reality we find most companies doing most of this, most of the time.

But we also see too many holes in processes and safeguards for companies to feel robust against a close examination of their efforts to prevent malpractice. Then there is a still darker side where some companies are fixing deals directly and indirectly.

A dispassionate examination of current practice and process is now plainly due. In the world of business, a red card from the courts will now mean a lot more than missing a couple of matches.

Michael Littlechild is a director of GoodCorporation, an auditing firm of responsible business practice. http://www.goodcorporation.com/