Managing The Risks Of Global Bribery In Business
A number of companies faced the need to develop anti-corruption programs before the adoption of relevant changes in legislation. Businesses operating in international markets have long faced the need to comply not only with international anti-corruption requirements but also with the rules defined by the laws of individual states. The most important statutes in this area include the Foreign Corrupt Practices Act, which came into force in 1977, and the UK Bribery Act 2010, which entered into force on July 1, 2011.
The Foreign Corrupt Practices Act (FCPA) became the first U.S. law prohibiting the bribery of foreign officials. The adoption of the FCPA in the United States was preceded by a series of high-profile investigations into corrupt practices involving companies such as Gulf Oil, Northrop, Mobil Oil, and Lockheed. The Senate report on the Lockheed scandal noted that giving a bribe corrodes business relationships and free enterprise; corruption influences the redistribution of resources and directs them according to corrupt schemes rather than the principle of efficiency, thereby significantly reducing the economic efficiency of business. In addition to negative consequences within the country, it was noted that corruption scandals have negative external effects. According to Rep. John M. Murphy, who spoke about the corruption scandals that preceded adoption of the FCPA, the consequences of bribery for U.S. foreign policy had, in some cases, become irreversible. As an example, he cited the Lockheed case. On August 16, 1976, former Japanese Prime Minister Tanaka was accused of accepting $1.7 million from Lockheed Corporation. As a consequence, the government of Japan was destabilized, and the credibility of U.S. companies and the United States as a whole was undermined.
The FCPA establishes a ban on bribing foreign officials, political parties, party officials, or candidates by issuers of securities, domestic concerns, and certain other persons subject to U.S. jurisdiction. At the same time, the definition of a foreign official is interpreted broadly and may include individuals who are not necessarily considered public officials under applicable local law. The requirements and procedures prescribed by the FCPA apply more broadly than only to persons who would be classified as ordinary domestic civil servants. The law also obliges U.S. issuers to maintain appropriate accounting records and effective internal accounting controls. The Act applies primarily to covered companies and individuals but also has extraterritorial reach in specified circumstances.
On July 1, 2011, the Bribery Act, adopted on April 8, 2010 (Bribery Act 2010), came into force in the United Kingdom. The goal of the law was to prevent bribery both within the United Kingdom and abroad. Thus, like the FCPA, the UK Bribery Act has extraterritorial aspects. Unlike the FCPA, the Bribery Act addresses a broader range of bribery conduct, including offering or giving bribes, requesting or receiving bribes, bribing foreign public officials, and a commercial organization’s failure to prevent bribery. Understanding the differences between these statutes is extremely important for organizations operating globally. Compliance with anti-corruption requirements and procedures that may be adequate for FCPA purposes will not necessarily be adequate under the UK Bribery Act. For example, the UK Bribery Act can apply not only to the actions of a company’s own employees and agents but also, for purposes of the corporate failure-to-prevent offense, to associated persons performing services for or on behalf of a commercial organization. Unlike the FCPA’s principal anti-bribery provisions, the UK Bribery Act also criminalizes certain bribery conduct in the private sector. The statutes also differ in how they define and regulate bribery involving foreign public officials.
The duty to comply with UK anti-corruption law may arise for companies in circumstances such as the following:
1) The company conducts business in the United Kingdom or has a branch or representative office there;
2) The company acts as an associate, distributor, or agent of a company registered or carrying on business in the United Kingdom;
3) The company interacts with British companies in circumstances that bring relevant conduct within the law.
Section 7 of the Bribery Act provides for corporate liability for failure to prevent bribery by an associated person intending to obtain or retain business or a business advantage for the organization. In order to defend itself against prosecution under this provision, a company may need to demonstrate that it had adequate procedures designed to prevent associated persons, such as agents or distributors, from undertaking bribery.
Companies whose activities are subject to the FCPA and the Bribery Act often include anti-corruption or compliance clauses in agreements with foreign partners in order to reduce reputational risk, prevent corrupt conduct in which the company could become involved, and reduce the risk of prosecution. A partner company may undertake to develop procedures in accordance with an applicable code of conduct to prevent corruption. The presence of appropriate preventive procedures may help protect the company and demonstrate a serious compliance effort.
In this context, the subject of anti-corruption regulation and compliance is particularly relevant. One possible meaning of the English term compliance is conformity with rules or fulfillment of requirements. At present, there is no single universal understanding of the term across all legal systems. Compliance with mandatory standards can be understood in two ways: as a principle of company activity and as a condition in which the enterprise’s activities meet applicable requirements. Non-compliance with anti-corruption regulations creates compliance risks.
Compliance assumes that the activities of a company and its employees should be regulated not only by the requirements of laws and subordinate legislation but also by relevant industry standards, acts of self-regulatory organizations, and rules contained in local corporate policies. By implementing compliance measures, a company follows the principle of legality and promotes lawful conduct in its own activities and in the markets for goods, works, and services more generally. Although the modern compliance concept has developed substantially through international and corporate practice, the underlying concepts of legality and lawful order are not new. The legality of actions depends on observance of applicable legal requirements and formalities. Legality requires observance and enforcement of laws and other legal acts by all subjects of law.
In conclusion, it is important that legislative anti-corruption measures be reflected increasingly in practice and that corruption offenses be prevented through implementation of compliance procedures and monitoring of their effectiveness.
Question 2
The Serious Fraud Office (SFO) was established under the Criminal Justice Act 1987 and began its work in 1988. The agency investigates and prosecutes serious or complex fraud, bribery, and corruption. The SFO has encouraged reporting of serious wrongdoing and has maintained reporting channels for information about fraud and corruption. UK law also provides for deferred prosecution agreements (DPAs), which became available in 2014. These agreements create a procedure under which a qualifying organization can agree to specified conditions, such as financial penalties, compensation, compliance improvements, or monitoring, while prosecution is suspended subject to judicial approval and compliance with the agreement.
The SFO cooperates with other law-enforcement partners to address serious and organized economic crime. In particular, it works with UK policing bodies, specialist fraud and anti-corruption units, tax and customs authorities, financial regulators, and other agencies as relevant to particular investigations.
The SFO also works with government departments in the United Kingdom, including the Attorney General’s Office, the Home Office, and the Ministry of Justice, as well as with foreign partners such as the U.S. Department of Justice on matters of common interest.
The SFO has also investigated corporate misconduct involving major companies. One example discussed in the original material concerned allegations associated with product testing and certification at Tata Steel. Such investigations illustrate how concerns about inaccurate records, certification, or fraud can fall within the remit of specialist enforcement agencies when the legal requirements are satisfied.
Why Is It So Difficult To Determine When A Minor Gift, Entertainment, Or Incentive Constitutes A Bribe?
In the United States, distinguishing legitimate business expenditures from improper payments can be difficult in some circumstances because the FCPA contains specific provisions and defenses concerning reasonable and bona fide expenditures and also recognizes a narrow exception for certain facilitating payments. Companies must therefore distinguish legitimate hospitality and business expenses from payments made with corrupt intent. The absence of a single monetary threshold that automatically determines whether every gift is lawful or unlawful can make the analysis more complicated (Ferrell and Fraedrich, 2015). Clear internal guidelines can help employees and compliance personnel assess such situations consistently.
The reason it may be difficult to determine when a minor gift, entertainment, or incentive constitutes a bribe is that context and intent matter. Whether a payment or benefit is improper depends on factors such as its purpose, recipient, timing, value, frequency, surrounding circumstances, and whether it is intended to influence an official or business decision improperly. There are many ways in which conduct can resemble ordinary hospitality while creating a risk of improper influence.
The end-of-year festive season can affect business life beyond office parties and time away from work. Ethics and compliance professionals may pay particular attention during this period because gifts and hospitality can create ethical and legal challenges. An organization may need rules governing whether gifts and hospitality may be given or accepted.
There is little doubt that giving and accepting reasonable gifts and hospitality can play a role in facilitating legitimate business relationships. A meal with a supplier can help build a relationship; a pen bearing a company’s name can help a customer remember the company when requesting a quotation.
Sometimes, however, the line between an ordinary gift or hospitality and a bribe can be unclear, and the acceptance of gifts, services, and hospitality can leave an organization vulnerable to allegations of unethical or unlawful conduct.
When is a gift not merely a gift? First, consider the purpose of the gift or hospitality. Is it intended to influence a relationship or induce improper conduct? Or is it simply a modest token of appreciation?
What’s The Expectation?
If the purpose is to create an expectation that a favorable act will be performed in return for the gift or hospitality, then the benefit may not be an innocent gift.
Timing is also important. Is the recipient about to decide a significant transaction that could materially benefit the giver? Is a gift being offered shortly before or during a competitive bidding procedure? It is not only giving bribes but also requesting or accepting bribes that can constitute offenses under the UK Bribery Act.
The appropriateness of a gift should also be considered in relation to the recipient’s position and circumstances. If a middle manager seeking a new job offers Centre Court Wimbledon tickets to a senior manager in another organization who can influence the hiring decision, the gift may reasonably raise concerns about improper influence.
What constitutes a lavish gift or hospitality can also be difficult to judge. For example, the duties of senior staff may require them to attend or sponsor events where hospitality is relatively generous. What may appear minor to a senior executive could be significantly more valuable to a junior employee. Sometimes, the exact value of a gift or hospitality can also be difficult to determine. Cross-cultural considerations may matter as well; a gift valued at £20 may be regarded as low-value in the United Kingdom but could have a different significance in another economy or cultural setting.
Consider the Recipient
Who is the gift intended for? Giving gifts or hospitality to certain individuals, particularly public officials, can create heightened legal and reputational risks. The definitions of public officials and the rules governing benefits offered to them can vary among jurisdictions. In some countries, it can be difficult to distinguish between an employee of a state-owned enterprise and a public official working within or through that enterprise.
A principle sometimes used when considering whether a level of gift-giving or hospitality is appropriate is reciprocity: if I accept an offer, would I reasonably be able to offer an equivalent benefit in return? For example: “If my supplier offers me tickets to the theatre, would I be able to reciprocate?” If the answer is no because the benefit is unusually valuable or disproportionate, it may be prudent to decline it or seek compliance approval.
How can organizations support staff? Some organizations adopt a zero-tolerance approach to giving or receiving gifts and hospitality. However, this is not always the most practical approach and can create awkward situations in cultures where modest gift-giving is a normal part of professional relationships.
This is particularly relevant for employees of multinational organizations working in countries where gift-giving is an important social custom and is used in building professional relationships, such as the giving of red envelopes during Chinese New Year. Some organizations therefore do not impose a single global prohibition but instead establish locally appropriate limits and approval requirements for the value and type of gifts and hospitality that may be given or received.
Additional procedures may be established for public officials, such as lower limits on gifts or hospitality or a requirement that employees obtain management or compliance approval regardless of value.
Clear Policy
Employees need guidance on the organization’s rules concerning giving or accepting gifts and hospitality. This may include requirements to seek approval from a line manager or compliance officer and to record gifts and hospitality in an appropriate register. In some cases, high-value gifts may be required to be returned, surrendered to the company, or donated to charity in accordance with company policy.
Guidance is normally found in an organization’s code of ethics or gifts-and-hospitality policy. This should explain the organization’s position on gifts and hospitality, identify conduct that requires approval or is prohibited, and set out good practices for employees. A gifts-and-hospitality policy should be consistent with the other parts of an organization’s ethics and compliance program and should encourage high standards of integrity in decision-making and conduct.
Accordingly, there is no need for an organization to prohibit every modest gesture. It should communicate its gifts-and-hospitality policy to employees and relevant business partners, encourage employees to consider ethical and legal implications before giving or receiving benefits, and offer additional support to people working in cultures with different gift-giving norms.
This approach can reduce embarrassment for both sides and, more importantly, protect the organization’s reputation and legal position.
References
Ferrell, O., & Fraedrich, J. (2015). Business ethics: Ethical decision making and cases (Tenth ed.).
Fisher, J., & Gauci, G. (2011, June 1). Legal Resources. Retrieved December 1, 2015, from
https://www.acc.com/legalresources/quickcounsel/UKBAFCPA.cfm
Gunther, M. (2013, January 6). Who’s responsible for factory conditions in poor countries? Has CSR gone too far?
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