Bribery/Anti-corruption: Balfour Beatty
18 March 2011 | By Andrew Pugh
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Section 7 of the Bribery Act creates the new corporate offence of failure of an organisation of prevent bribery on its behalf, in what is proving to be the most contentious area of the new act. The only defence to a Section 7 offence is evidence that ’adequate procedures’ to prevent bribery were in place. The guidelines for adequate procedures include a provision that firms should have processes that allow employees to report misconduct in a “safe and confidential” manner.
This helps explains why, in the past two years alone, there has been a big hike in the number of companies establishing so-called ’whistleblower hotlines’. A survey by Middlesex University found that three-quarters of FTSE250 companies now have whistleblower hotlines in place - a 26 per cent increase compared with 2008. Balfour Beatty set up an independent hotline three years ago as part of an overhaul of its anti-corruption measures, but it was not the Bribery Act that spurred the UK construction giant into action.
The catalyst came in October 2008 when the company was forced to hand over £2.25m in unlawful proceeds after a Serious Fraud Office (SFO) investigation found payment irregularities in securing a joint venture contract for construction of the Bibliotecha Alexandria in Egypt. The irregularities, which were self-reported, saw the company become the first to be hit with a Civil Recovery Order (CRO) by the SFO.
The three-year probe ended a year after the arrival of general counsel and company secretary Chris Vaughan, who took over managing the terms of Balfour Beatty’s settlement with the SFO. This was followed by a year-long review of the company’s anti-corruption measures.
Under the settlement Balfour Beatty agreed to appoint external monitor the Global Infrastructure Anti-Corruption Centre (GIACC), to review its anti-corruption measures. In its first report the GIACC identified areas where Balfour Beatty needed to improve: whistleblowing procedures, due diligence and training.
In response, Vaughan established the Balfour Beatty Ethics Helpline, which is operated by an independent company. Employees can contact the hotline anonymously via email, phone or in person. Vaughan says the new procedures have led to a three-fold increase in the number of investigations.
Although final figures for 2010 are not available, in 2009 42 whistleblowing cases were reported, up from 28 the year before. All 42 cases were investigated.
“My view was that it was best practice to have the hotline operated externally,” says Vaughan. “It’s led to quite a big increase in the number of cases reported. It also means that even people who wish to remain anonymous can follow the progress of a case via the website.”
For those companies looking to set up a whistleblower hotline, one thing to be aware of is the potential to breach EU data protection laws, as well as regulations specific to each country. In some jurisdictions, for example, only senior employees can be reported, while in others anonymity is prohibited.
Vaughan says: “It’s important to have the right statements about data protection policy embedded in whatever hotline process you opt for - a statement either on the web or the phone. There’s also the issue of document retention and how long you keep the notifications. We cover this in a document retention policy.
External providers are familiar with these issues.”
As well as setting up the hotline the SFO investigation forced Vaughan to rewrite the group’s code of conduct, which he felt had become overly prescriptive.
“The code of conduct we had was quite short and rules-based,” he says. “It was very ’thou shalt not’. We wanted to try and create a code and culture based on ethics and values.”
The construction industry is a key battleground in the fight against corruption. The 2008 Bribe Payers Index from Transparency International found public works and construction companies to be the most “corruption-prone” when dealing with the public sector, and the most likely to “exert undue influence on the policies, decisions and practices of governments”.
Much of this is because big construction companies routinely work on infrastructure projects in the emerging markets of Africa, China and Russia, where bribery of public officials is rife.
“We acknowledge these are high-risk markets, but there are plenty of reputable companies that operate in those countries perfectly ethically,” Vaughan says.
The tender process involved in securing a contract is also beset with risk, from the pre-qualification stage through to bidding and selecting contractors and suppliers.
“All the way through that process there’s a risk of money changing hands or improper behaviour,” says Vaughan.
His solution is vigorous due diligence.
“At the outset of a project the first thing we do is map out the risks,” he says. “There will often be due diligence on the project and the client, then on any joint venture partners and subcontractors involved. Then we put financial controls in place to make sure money can’t change hands in an improper way.”
The fact that Balfour Beatty began reviewing its procedures before the Bribery Act came along means Vaughan is confident it has adequate procedures in place, but the act has also helped in other ways.
“We’ve used it as a tool to raise awareness [among employees],” he says. “It’s also given us a focus and brought things forward in our minds.”