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June 6, 2011

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KPMG survey: corruption still hampering UK business abroad

With the introduction of the UK Bribery Act now less than a month away, nearly three quarters (73%) of UK senior compliance executives have told KPMG researchers that corruption is endemic in certain areas of the world.

According to the latest KPMG International Survey, nearly a third (32%) of those respondents acknowledge that not doing business in those countries is a way of avoiding bribery and corruption risks.

Despite their obvious concerns, most companies continue to operate in such places and have chosen to take precautions that include improved internal controls, enhanced due diligence and employee training to enable them to do so.

The KPMG survey was conducted last October and November, involving 214 executives in the UK and US who had anti-bribery and corruption responsibilities in companies with 200 or more employees and more than $300 million in revenue (in the United States) and GB pound 200 million in the UK.

Representatives questioned all work for companies subject to regulations such as the FCPA or the US Bribery Act.

Risk mitigation programmes in place

Speaking about the survey results, Brent McDaniel (head of KPMG’s UK anti-bribery and corruption practice) said: “Rather than sidestep certain markets, our survey finds that many leading companies have implemented risk mitigation programmes ranging from increased employee training about ethical cultures and doing the right thing through to enhanced internal controls and keeping a closer eye on operations.”

McDaniel continued: “Companies that chose education and enhanced controls are able to enter and operate in more diverse markets, while others simply limit their potential.”

The survey found that companies operating in countries with corrupt reputations face significant challenges, for example around their ability to adequately investigate the backgrounds of local business partners and dealing with the growing variety of foreign laws and regulations.

According to the survey respondents, and despite the known compliance risks of working with third parties in some countries:

  • two-in-five UK and US organisations with written anti-bribery and corruption policies don’t distribute them to agents, distributors, vendors, brokers, joint venture partners or suppliers
  • three-in-five companies with such compliance programs that incorporate employee training do not require any third party representatives to participate in that training
  • nearly one-in-four UK and one-in-three US companies require training less than once a year
  • three-in-five companies do not exercise ‘right to audit clauses’ in third party contracts
  • 10% of the UK companies and more than half of the US companies surveyed don’t obtain periodic compliance certifications from those with whom they do business in other countries

Development and implementation of anti-bribery and corruption policies

The KPMG survey also points to significant shortcomings in terms of how companies develop, implement and maintain anti-bribery and corruption policies:

  • one-in-five respondents said their companies don’t have communication and training programs
  • one-in-two of the respondents’ organisations does not have a committee responsible for overseeing anti-bribery and corruption compliance
  • three-in-five UK and three-in-four US respondents said their organisation does not have a full-time dedicated anti-bribery and corruption compliance officer
  • a third of the companies do not perform anti-bribery and corruption risk assessments

“Many multi-national companies seeking to expand their markets or supply chains to certain areas of the world are often met there by an official with their hand out looking for a bribe or some other favour,” explained McDaniel.

“Doing the right thing becomes even more difficult when facing increased stakeholder expectations for a better return on investment that requires continued expansion to remain competitive in what is now an increasingly global society.”

In addition, while both countries now have stringent anti-bribery and corruption laws – the UK Bribery Act of 2010 and the US Foreign Corrupt Practices Act of 1977 (FCPA) – the KPMG survey found that only 43% of US executives said their programs comply with the UK Bribery Act, while 46% of UK executives say theirs complies with the FCPA.

In addition, nearly 80% of US respondents stated they still had little to no knowledge of the UK Bribery Act’s provisions, while 32% of the UK executives said they still didn’t understand the UK law’s requirements.

Finally, only 9% of UK and 13% of US respondents said their organisations allowed facilitating payments: the balance either prohibiting them outright or allowing them to be made only for personal safety concerns.

To read the full Global Anti-Bribery and Corruption Survey 2011 access the web link at the foot of this page

Bribery Act shortcuts: beware!

As the Bribery Act approaches, pressure is mounting on commercial organisations to adopt policies and procedures to ensure compliance with the new laws, particularly in respect of the corporate offence. The Act is due to commence on 1 July 2011.

The corporate offence may occur when a person ‘associated’ with the commercial organisation commits an act of bribery. The only defence available is that adequate procedures were in place to prevent bribery.

Potential penalties are unlimited fines, serious damage to reputation and permanent exclusion from public contract works. The Act also carries potential criminal liability for the senior officers of the company.

Many companies have turned to their HR personnel to create suitable policies to satisfy the ‘adequate procedures’ defence.

For their part, many HR officers are turning to the Internet to download pre-drafted policies in the hope they might be ‘adequate’.

Beware: compliance with the Bribery Act is complex and unique to each individual organisation. Pre-prepared policies may not be sufficient to address all areas of potential exposure to corruption. A full risk assessment should remain the starting point from which to create appropriate compliance procedures.

Level of commitment to the Act

Should the prosecuting authorities appear at the office door, they will not be impressed by policies which have simply been downloaded from a website.

In deciding whether to prosecute, they will consider the level of commitment to the Act in terms of the six principles laid down by the Ministry of Justice in their Guidance.

Shortcuts could therefore lead to serious damage to the company and directors facing lengthy prison sentences.

Andrew Swan of Short Richardson and Forth LLP Solicitors is a specialist solicitor in white collar crime and regularly advises on compliance with the Act. Swan’s available to review any policies and procedures already adopted for the new laws to ensure they are fit for purpose.

Such reviews are not expensive and generally take no more than three hours to complete. They include an initial meeting to discuss the key issues involved.

Interested parties should contact Andrew Swan by telephone on 0191-2111 503 or via e-mail: [email protected]

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