Bribery, corruption and enforcement – Time for tough questions and a sense of urgency
Governments, companies and communities cannot afford to be complacent in the fight against bribery and corruption, argues Mark Taylor FCIS FCS, Director, Boxall Barton Ltd
A hymn to the Greek goddess Athena includes the words: ‘You bring folly to the corrupt and a sense of purpose to the pure’. So to what extent do governments, companies and communities have a sense of purpose when tackling corruption today?
Before looking at specifics, it is good to pause and consider the corrosive effect
of corruption on society. In 2004, the seventh secretary-general of the United Nations, Kofi Annan, described corruption as an ‘insidious plague’, undermining democracy, posing a major obstacle to poverty alleviation and a threat to human security. In other words, the future for the global economy is bleak unless there is a determined fight against corruption.
Although there are strong statements of intent to fight corruption from many governments around the world, the enforcement statistics relating to the OECD Anti-Bribery Convention are sobering. According to the 2012 progress report by Transparency International, there are only seven countries with ‘active enforcement’ to deter foreign bribery. There are 12 countries in the ‘moderate enforcement’ category and 18 countries have little or no enforcement.
The UK is one of the seven countries classified by Transparency International as having active enforcement. However, the overall picture is not so positive with the enforcement system appearing to be under strain with significant fraud cases on the rise.
- The 11th Global Fraud Survey by Ernst & Young (E&Y Global Survey) notes that respondents in Western Europe have experienced a striking rise, with twice as many respondents as before suffering a significant fraud.
- The UK’s Serious Fraud Office (SFO) is trying to manage a budget cut – media reports refer to a budget reduction from £52 million in 2008 to £32 million in 2012. The OECD has recently expressed concern that cuts could seriously hamper pursuit of complex fraud and corruptions cases.
- The latest figure from the UK’s National Fraud Authority (see its Annual Fraud Indicator – March 2012) puts losses from fraud at £73 billion per annum. This figure puts the SFO’s £50 million of assets recovered for 2011/ 2012 in context.
- UK businesses are taking risks in compliance with the UK Bribery Act. According to a recent research report from FTI Consulting, 31% of business people believe the Bribery Act exists mainly for appearances sake and to provide ethical guidelines.
- The OECD is looking for a zero tolerance stance to facilitation payments, but the SFO will only prosecute facilitation payments ‘if on the evidence there is a realistic prospect of conviction’ which suggests that complex facilitation cases with uncertain outcomes will be dropped.
Against this background, it is time to ask tough questions. Are any prosecution cases not being accepted for budgetary reasons? What happens to these cases? Do current investigator and prosecutor resources need to be strengthened? Last year the SFO initially decided not to open an investigation into Libor (the London Interbank Offered Rate which determines the average interest rate for inter-bank loans in the UK, significant fraudulent manipulation of this rate was discovered in June 2012), saying they did not have the resources to do the job and that it might overlap with work by the Financial Services Authority and the Office of Fair Trading. The decision was subsequently reversed.
The OECD itself is urging more enforcement and continues to issue hard- hitting monitoring reports encouraging countries to strengthen legislation, improve international cooperation and protect whistleblowers. From a UK perspective, there are some positive signs in the following areas.
- Government commitment. The Ministry of Justice website reminds us that, ‘Treating economic crime more seriously and taking steps to combat it more effectively are key commitments in the coalition agreement.’
- The Bribery Act 2010 came into force on 1 July 2011
and should result in a greater number of successful prosecutions. Whistleblowers can obtain some protection from dismissal or disciplinary proceedings under the Public Interest Disclosure Act 1988.
- New enforcement tools. Recent amendments to the Crime and Courts Bill, currently making its way through Parliament, include the planned introduction of ‘deferred prosecution agreements’, known as DPAs. These will result in some organisations being called to account without the time and expense associated with
a criminal trial. Under the scrutiny
of the judiciary, the DPAs will set
out financial penalties, terms of reparation to victims, repayment
of profits and measures to prevent future offending.
- The Financial Services Authority issued a guidance document (Financial crime – a guide to firms) on 1 November 2012. This document runs to 69 pages and spells out good practice in relation to anti-bribery and corruption controls. Good practice includes regular review of procedures; independent
monitoring of controls; consideration of how counter-fraud and anti- money laundering procedures will complement each other; clear criteria for the escalation of crime issues; and the need for practical training. With the Financial Conduct Authority planning to assume and continue the FSA’s intensive supervision of financial crime issues, firms need to take the guidance seriously, particularly as the regulator has power to take action against firms that have inadequate systems and controls.
Most UK companies support eradication of corporate corruption and it is clear from the results of the FSA’s thematic reviews that some will need to invest more resources in prevention measures. Organisations will need to focus on risk assessments, comprehensive due diligence, awareness training and monitoring. Some of these companies will be searching for growth overseas but will face the realities of competing on an uneven playing field.
Maintaining the right cultural values when companies operate in countries where facilitation payments are permitted and enforcement is weak will take strong leadership. By way of an example, at a time when the UK government is leading trade missions to growth economies such as Brazil, we can note from the E&Y Global Survey that 84% of Brazil respondents think that bribery and corruption happens widely in the country.
Greece is currently sitting centre stage in the European crisis with the worst levels of corruption in Europe. Local volunteers have recently set up a website (www.teleiakaipavla.gr) dedicated to sharing stories of corruption in the public sector. Media reports suggest 40,000 people visited the website within two weeks of its launch to highlight bribes. Whistleblowing on this scale can bring an added sense of urgency and purpose for those tasked with enforcement. How fitting that the people of Greece, generally considered the birthplace of democracy, are taking practical steps to encourage transparency and accountability.
The UK’s anti-bribery and corruption framework is finally falling into place. However new legislation, prosecution tools and risk assessments are not enough. Serious criminal behaviour will only be deterred if governments commit the necessary resources to enforcement. A failure to investigate complex fraud cases will create a sceptical and cynical environment. By contrast, investment in enforcement, will increase confidence levels and give hope that the fight to alleviate poverty, conflict and inequality all exacerbated by corruption, will eventually bring economic recovery.
Mark Taylor FCIS FCS. Director
Boxall Barton Ltd
Mark Taylor is a Fellow of the Hong Kong Institute of Chartered Secretaries. He can be contacted at: firstname.lastname@example.org.
The Financial Conduct Authority (FCA) will start work this year as the primary regulator of financial firms in the UK after the dissolution of the Financial Services Authority. More information can be found in ‘The Journey to the FCA’ on the Financial Services Authority website: www.fsa.gov.uk.