Bribery: kickback in anger

The US government’s steadfast approach to enforcing anti-bribery laws continues, while its net grows ever wider, potentially affecting companies all over the world. The Securities and Exchange Commission (SEC) and the US Department of Justice have been pursuing investigations more aggressively this year, after closing out last year with the release of guidance on how the Foreign Corrupt Practices Act (FCPA) would be enforced. In the first five months of 2013 enforcement actions resulted in fines of more than $400m (£252m).

Meanwhile, the UK Serious Fraud Office has signalled that bribery cases are now beginning to filter through under the UK Bribery Act. The act and the subsequent tightened policies, as well as the seemingly resurgent FCPA, have reinforced the climate of stricter enforcement. With the risk of heavy penalties and/or imprisonment for executives it’s a daunting situation for US or UK companies or, indeed, for global ones with significant connections to either country. And ignorance is no excuse.

Organisations with overseas operations that involve global supply chains and networks of intermediaries (including agents, distributors or brokers) are particularly vulnerable. A company’s claim that it was unaware of what its intermediaries were doing will not necessarily shield it from civil or criminal liability. The onus is on the company to know about its intermediaries and business partners.

Referring to Eli Lilly’s recent $30m fine for making improper payments through foreign subsidiaries, the SEC’s enforcement division noted that the company had a “check the box” mentality when it came to third-party due diligence.

And the SEC cautioned: “Companies […] must look at the surrounding circumstances of any payment to adequately assess whether it could wind up in a government official’s pocket. When a parent company learns tell-tale signs of a bribery scheme involving a subsidiary, it must take immediate action to ensure that the FCPA is not being violated.”

Managing international networks to ensure compliance is complex, resource-heavy and time-consuming. The authorities want to see that companies are vetting potential partners, putting in place risk-based protocols and undertaking greater scrutiny of agents or intermediaries in locations with a high degree of corruption.

This can all be shown through due diligence programmes which should incorporate measures such as:

– initial vetting – of agents, consultants, suppliers, distributors, salespersons and other intermediaries working on a company’s behalf;

– risk assessment – to determine risks that could stem from the country or region where the partner is;

– due diligence – including watch-list screening and deeper reputational searches, and site visits of
potential partners’ facilities;

-l contract provisions – including compliance clauses in contracts;

– and monitoring – setting a course of action for monitoring based on perceived risks.

Ignorance is not bliss – it is dangerously remiss.