Porridge anyone

Porridge anyone

Bosses who dare to ignore a draconian new law could be risking big trouble - even jail, warns Debra Halcrow, of PricewaterhouseCoopers LLP in Newcastle.

Company directors who fail to act now to address tough new anti-bribery law risk severely damaging the reputation of their business - and the possibility of prison. Stiffer rules on bribery in UK business have come a step closer since a Joint Parliamentary Committee recently gave its backing to the 2009 Bribery Bill.

Under these new proposals, firms with UK operations will become criminally liable for corruption in their business, supply chain or sales channels, as will management who consent or connive with the offence. Yet many companies and business leaders appear to be generally unaware of the new responsibilities and potential penalties that could be heading their way.

The new regime, which Justice Minister Jack Straw has undertaken to see enacted before the next election, will see a strict regime introducedthat’s somewhat similar to the US Foreign Corrupt Practices Act (FCPA).

Existing UK laws have been criticised for many years, based as they are on a patchwork of 19th and early 20th Century rules, unsuited to the realities of doing business in today’s global markets.

My colleague Fran Marwood, who leads PricewaterhouseCoopers LLP’s Investigations team in the North, has advised many companies in relation to the US FCPA.

He believes local companies with US connections, where the anti-bribery regulations have been in place for quite some time, may alreadyhave considered the risks.

However, they represent only a tiny fraction of businesses. Most will be starting from scratch when the new UK rules come into force. Implementing a robust internal system will take, on average, about a year. Our advice would be for businesses, particularly those bidding for any foreign contracts, to start planning and implementing appropriate measures now. Penalties under the new act are likely to include unlimited fines and disbarment from tendering for foreign government contracts.

As the Government is actively encouraging smaller firms to bid for foreign contracts, the danger is that these companies could be caught out.

Key changes include a new corporate offence of failure to prevent bribery. To avoid this liability, companies will have to provide evidence that their anti-bribery policies and controls are working in practice, not just established in theory.

The Joint Parliamentary Committee has recommended that guidance be provided to businesses on the expected polices and controls, while stating that they should be risk-based and take account of the size and resources of the business.

Facilitation payments (for example, paying for goods to be processed by customs more quickly) will remain illegal but subject to prosecution discretion.

Be warned: the changes are far reaching and will, for the first time for many UK businesses, require detailed evidence of operational anti-bribery procedures to be retained.

Yet figures PricewaterhouseCoopers LLP recently gathered indicate that the level of preparedness and awareness is far from high. Only one in 10 businesses appear to have discussed the implications of the UK Bribery Bill at board or audit committee level. And half of the 40 non-executive directors and senior managers polled were unaware of any preparations that might have been made within their organisation at all. Only 20% were confident that their organisation carried out a regular anti-bribery risk assessment.

The Joint Committee’s report is being issued at a time when government agencies are proving increasingly keen on enforcement.

The Serious Fraud Office has already published its guidance for firms wishing to self-report instances of bribery and corruption within their business. That represents a move towards the US system of self-reporting and plea bargaining. Effective safeguards will take time and resource to design, implement and operate.

So firms should start now to identify any risks of bribery within their organisation and put measures in place to address these risks. That will include better staff training. The Bill is particularly pertinent to North East businesses active overseas because it introduces an offence relating specifically to bribery of foreign public officials. So, companies trading abroad could be liable to prosecution for bribes paid by any overseas employees. Steps also have to be taken to avoid any bribery by third parties working on a company’s behalf.

While businesses face significant pressure to control costs in the current recession, failure to address this issue effectively could prove a false economy and could make all the difference between survival and failure over the longer term.

Doing the bare minimum is not an option. Once the law is in effect it will not be enough just to have an anti-bribery policy in place, however well crafted, without proof of other measures to ensure the policy is properly applied. Even firms that have taken steps to comply would do well to run an anti-bribery health check, assessing the design and operational effectiveness of the framework in place. The rules will apply in England, Wales and Northern Ireland, but the Committee has strongly recommended their adoption in Scotland too. PricewaterhouseCoopers LLP will publish a paper on these changes shortly.