How big a deal are anti-bribery and corruption controls?
At a time when financial services firms are facing an unprecedented level of regulatory change, they could be forgiven for being confused as to where anti-bribery and corruption (“ABC”) sits on their priorities list and how much paperwork they should be generating in relation to this subject.
The UK Bribery Act, described as the most stringent piece of anti-corruption legislation in the world, finally came into effect on July 1 2011. Prior to its implementation, there was much discussion in sections of the media as to its implications, with the suggestion that corporate hospitality as we know and love it could effectively be at an end.
Sanity was brought to the matter from the unlikely source of Kenneth Clarke, Secretary of State for Justice, who soberly said in a statement on March 30 2011 that “no one is going to try to stop businesses getting to know their clients by taking them to events like Wimbledon, Twickenham or the Grand Prix. Reasonable hospitality to meet, network and improve relationships with customers is a normal part of business”.
On March 30 2011, the Ministry of Justice published guidance to all businesses to aid their understanding of the Act and to outline how they could reduce their exposure to bribery. In the further words of Kenneth Clarke, the guidance “explains that the [anti-bribery and corruption] procedures that need to be put in place … only have to be proportionate to the size and nature of the business. Modest risks require modest procedures to mitigate them. Small companies ought not fear that they will suddenly need an army of lawyers in order to manage bribery risks. They can rely heavily on simply telling staff, verbally”.
UK corporates should be able to take significant comfort from the pointer of proportionality intoned by the very Cabinet minister that saw the Act onto the statute books. But what of the expectations of the agent of government with whom UK financial services firms have a direct relationship?
The UK’s regulated community must meet the Financial Services Authority (FSA) rule which requires that firms establish, implement and maintain adequate policies and procedures sufficient to counter the risk that the firm might be used to further financial crime.
In the lead up to the Act, the FSA kept its counsel while the corporate hospitality debate raged. However, it was doing and saying plenty about ABC generally so long as firms knew where to look on its website. In January 2009, the FSA fined insurance intermediary Aon £5.3m for allowing suspicious payments of $7m to overseas parties for the generation of new business. Two and a half years later, the FSA marked the month of implementation of the Act by fining insurance broker Willis £6.9m for similar failings.
The meat in the sandwich of the FSA’s fines for the two large insurance companies was the May 2010 publication of the FSA’s assessment of how UK commercial insurance firms address the risk of bribery. The FSA expressed that many of the issues covered in its report and the examples of good and poor practice that it provided, were relevant to firms in other sectors who use third parties to win business. These good practices found their way into the FSA’s “Financial crime: a guide for firms” of December 2011 whose several pages on ABC are expressed as being relevant to all firms. These pages, published in draft eight days before the Act took effect, were even revisited within three months of publication of the final version. Clearly ABC is a subject on which the FSA has firm and even evolving views.
The FSA’s defining ABC moment occurred in March 2012 when it published the findings of its thematic review into ABC controls at investments banks. Presumably the FSA had decided to demonstrate that ABC is a pervasive topic by considering the matter at the top end (size wise) of the financial services industry. Generally the FSA was disappointed with what it saw, with identified weaknesses including a limited understanding of the applicable legal and regulatory regimes, incomplete and inadequate risk assessments, a lack of senior management oversight and a failure to monitor the effectiveness of relevant policies.
We are now clearly at a juncture by which FSA firms ignore ABC at their peril. Anyone that has missed the warning is on constructive notice and the FSA may even consider missing the warnings as indicative of the presence of other deficiencies.
If they haven’t already done so, firms should revisit their compliance procedures to ensure that suitable contemplation has been made of ABC risk. In certain circumstances this might constitute a valid assessment as to why the firm is low risk and need do/has done very little. Indeed, even the Ministry of Justice’s own literature states that “Many organisations will face little or no risk of bribery, especially if their business is undertaken primarily in the UK”. However, while verbal instructions in certain situations may satisfy Kenneth Clarke, something more tangible will be necessary to satisfy the FSA.
Peter Moore is head of regulation and compliance at IMS group.
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