FCPA Compliance and Ethics Blog

November 11, 2011

Transparency International 2011 Bribe Payors Index Report

Last week Transparency International (TI) released its Bribe Payors Index 2011 (Index). It represents the fifth such report issued by TI, the most recent previously released in 2008. In the introduction, TI says that the Index “ranks 28 of the world’s largest economies according to the perceived likelihood of companies from these countries to pay bribes abroad. It is based on the views of business executives as captured by Transparency International’s 2011 Bribe Payers Survey. The countries and territories ranked in the Index cover all regions of the world and represent almost 80 per cent of the total world outflow of goods, services and investments.” It also relates the perception of bribery “across business sectors.”

TI released the report because it believes that “bribery has significant adverse effects on public well-being around the world. It distorts the fair awarding of contracts, reduces the quality of basic public services, limits opportunities to develop a competitive private sector and undermines trust in public institutions. Engaging in bribery also creates instability for companies themselves and presents ever-growing reputational and financial risks. This is particularly relevant in light of recent anti-bribery reforms in a number of key countries around the world, such as in China and the UK.” It ends with its recommendations which both the private sector and governments can do to help lessen or eradicate the “prevalence of foreign bribery around the world.”

The survey for the Index asked more than 3,000 business executives (Respondents) worldwide about their views on the extent to which companies from 28 of the world’s leading economies engage in bribery when doing business abroad. The score for each country is based on the views of the business executives who had come into contact with companies from that country. At the bottom of the list were companies from Russia and China which were perceived to be “the most likely” to engage in bribery abroad.

The Index had five key findings.

  • There was clear evidence of bribery between private companies. More than one-third of the respondents in the Index reported that to help their companies grow business they were prepared to offer cash payments, gifts or hospitality to help win business. More ominously, more than one quarter of the respondents reported that they did not “trust their management to behave ethically.”
  •   There was no improvement seen since the previous index released in 2008. When looking at changes on a country-by-country basis, no country has seen a change in its prior score from 2008. India’s score improved the most with an increase of 0.7, but it still remains near the bottom of the table.
  •   The business integrity of a company is generally related to the perceived business integrity of its home country. An important first step in the fight against foreign bribery is that the home country government “must have an effective anti-corruption system in place. Home governments must set an example to companies by prohibiting corruption within the public sector and upholding high standards of integrity with no impunity.” In order to change the behavior of companies, one of the things needed is a strong legal framework in their home country making such conduct illegal.
  •  Companies from China and Russia were perceived as the most likely to pay bribes. TI has particular concerns with the reported findings regarding Russia and China as both of their economies have grown rapidly over the past decade. This gives their actions wide implications beyond their domestic economies. Further bribery and corruption by companies from Russia and China “are likely to have a substantial impact on the societies in which they operate and on the ability” or other companies to compete fairly in those countries.
  •  While the payment of bribes is prevalent across all business sectors it is perceived to be the most prevalent in the public works and construction sectors. TI notes that the public works and construction sectors are usually involved in high-value investment and significant government interaction and regulation, “both of which provide opportunities and incentives for corruption.” Further, the public works and construction sectors are also “particularly important from a development perspective, as they require decisions to be made with respect to the use and ownership of a country’s core resources and infrastructure.” This means that the public works and construction sectors will have significant consequences for the well-being of future generations of the countries in which they are involved. With bribery seen as widespread in public works and construction sectors, “countries working with foreign companies should be conscious of bribe paying and not tolerate unethical practices.”

The Index ended with recommendations for both companies and governments. While I found some of the recommendations for both groups unrealistic, I do believe that several are realistic and can be reached so that a company can remain competitive.

For companies, such recommendations include:

  • Bribery and corruption risks must be assessed across companies’ entire supply chains;
  • Companies should undertake due diligence, as appropriate, in evaluating prospective contractors and suppliers to ensure that they have effective anti-bribery programs;
  • Companies should make known their anti-bribery policies to contractors and suppliers and contractually require equivalent standards”; and finally
  • Companies should empower whistleblowers who experience or witness bribery and corruption through an effective and, if appropriate, anonymous whistleblower mechanism.

For governments, such recommendations include:

  • Strengthening of national anti-bribery and anti-corruption legislation, including the banning of all facilitation payments; and
  • Making illegal private sector bribery.

I found the TI Index report to be quite enlightening and useful. It will help inform the compliance practitioner on both the underlying legal basis of many international anti-bribery and anti-corruption initiatives and provide concrete steps to build or enhance a compliance program around. Its larger role may be to inform government regulators on companies from countries listed in the Index or market sectors which may be more prone to bribery and corruption. For laws which are both supply and consumer side based, such as the UK Bribery Act, it may point regulators to companies and sectors which may well bear scrutiny for companies over which they hold jurisdiction.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2011

March 14, 2010

The Only Defense: Adequate Procedures under the UK Bribery Bill

With wide cross-party support it is anticipated that the Bribery Bill will pass the House of Commons and become law by May, 2010. The Bribery Bill amends and repeals existing anti-bribery offences under the Public Bodies Corrupt Practices Act 1889, the Prevention of Corruption Act 1906 and the Prevention of Corruption Act 1916 and abolishes the UK common law offenses of bribery and embracery (bribery of jurors). This proposed legislation represents a long awaited simplification of the law on corruption and makes the UK compliant with its international obligations under the OECD. It will have a major impact on the way businesses connected to the UK manage their international business.

There is one affirmative defense listed in the Bribery Bill. The is the ‘adequate procedures’ defense. The Explanatory Notes to the Bribery Bill indicate that this narrow defense would allow a corporation to put forward credible evidence that it had adequate procedures in place to prevent persons associated from committing bribery offences. Although not explicit on the face of the Bill, in accordance with established case law, the standard of proof the defendant would need to discharge is the balance of probabilities. The legislation requires Secretary of State to publish guidance on procedures that relevant commercial organizations can put in place to prevent bribery by persons associated with their entity.

Other than this commentary, the Bill provides no further information on what might constitute ‘adequate procedures’ as a defense but the Government has signaled that it will work with the UK business community to provide appropriate guidance to this critical component of the Bribery Bill. The UK law firm KattenMuchin has indicated that they expect the Government will apply a test regarding the ‘adequate procedures’ defense “with regard to the size of the company, its business sector and the degree to which it operates in high risk markets.”

While it might only give general guidance, the United States Department of Justice has published its Sentencing Guidelines which provide a framework to construct an ethics and compliance program which will meet the strictures of the FCPA. Using the Sentencing Guidelines, Richard Cassin has written about an effective compliance program, in his excellent FCPABlog. He notes that the purpose of an “effective compliance program” is to prevent and detect criminal conduct. In his listing his suggestions for what constitutes an “effective compliance program” He suggested the following:

1. A Written Program. A company must have standards and procedures in place to prevent and detect criminal conduct.
2. Board Oversight. A public company’s Board of Directors must be knowledgeable about the content and operation of the compliance program and must exercise reasonable oversight of its implementation and effectiveness.
3. Responsible Persons. One or more individuals among a company’s high-level personnel must be assigned overall responsibility for the compliance program.
4. Operating and Reporting. One or more individuals must be delegated day-to-day operational responsibility for the compliance program. They must report periodically to high-level personnel on the effectiveness of the compliance program. The individuals must have adequate resources, appropriate authority, and direct access to the Board or Audit Committee.
5. Management’s Record of Compliance. A company must use reasonable efforts not to hire or retain personnel who have substantial authority and whom a company knows or should know through the exercise of due diligence have engaged in illegal activities or other conduct inconsistent with an effective compliance program.
6. Communicating and Training. A company must take reasonable steps to communicate periodically and in a practical manner its standards and procedures, and other aspects of the compliance program, to directors, officers, executives, managers, employees and agents — by conducting effective training programs and otherwise disseminating information appropriate to the individuals’ respective roles and responsibilities.
7. Monitoring and Evaluating; Anonymous Reporting. A company must take reasonable steps (a) to ensure that its compliance program is followed, including monitoring and auditing to detect criminal conduct, (b) to evaluate periodically the effectiveness of the compliance program and (c) to have and publicize a system, which may include mechanisms that allow for anonymity or confidentiality, whereby a company’s employees and agents may report or seek guidance regarding potential or actual criminal conduct without fear of retaliation.
8. Consistent Enforcement — Incentives and Discipline. A company’s compliance program must be promoted and enforced consistently throughout a company through appropriate (a) incentives to perform in accordance with the compliance program and (b) disciplinary measures for engaging in criminal conduct and for failing to take reasonable steps to prevent or detect criminal conduct.
9. The Right Response. After criminal conduct has been detected, a company must take reasonable steps to respond appropriately and to prevent further similar criminal conduct, including making any necessary modifications to a company’s compliance program.
10. Assessing the Risk. A company must periodically assess the risk of criminal conduct and take appropriate steps to design, implement, or modify its compliance program to reduce the risk of criminal conduct identified through this process.

Once again the British Government has not provided any guidance was to what might constitute “adequate procedures” under the Bribery Bill. However procedures based upon some of all of the elements above would certainly be a good starting point for any UK corporation to put in place.

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This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2010

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