Dealing with the UK Bribery Act -what you need to know - Presentation to the French Chamber of Commerce in Hong Kong by: Hugh Gozzard Principal ...
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Dealing with the UK Bribery Act - what you need to know Presentation to the French Chamber of Commerce in Hong Kong by: Hugh Gozzard Principal Enterprise Risk Services Deloitte Hong Kong February 22, 2012
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This document is the property of Deloitte Touche Tohmatsu and contains confidential and proprietary
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2 © 2012 Deloitte Touche Tohmatsu
Bribery and corruption enforcement trends
Note the gradient
Feb. 2010
BAE
Cumulative enforcements since 2000 - US and Rest of World Systems
300
Jan. 2009
Dec. 2008 Aon Ltd,
250
UK
Siemens subsidiary
AG
200
Jul. 2009
Mabey &
150
Johnson
Ltd
100
50
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
USA Rest of World
Source:
Article: Global Enforcement Trend 2011 (Trace)
http://www.jonesday.com/newsknowledge/publicationdetail.aspx?publication=7005
Article: Trends in FCPA and International Anti-Corruption Enforcement (Jones Day)
3 © 2012 Deloitte Touche TohmatsuBribery and corruption – the context in Mainland China Causes……warnings and red flags • Large, state-owned enterprises with significant monopoly power • Highly bureaucratic environment—rules and regulations at every turn and in each locality (province/county/city) and an uncertain legal process in relation to contract enforcement • Drivers of value as much in relationships as in products and services • Complicated business models i.e. conducted through distributors or other intermediaries, rather than with ultimate customers • Aggressive entrepreneurial group with a "get rich quick" mentality, abusing personal position • Weak corporate governance and internal controls culture 4 © 2011 Deloitte LLP. Private and confidential
Discussion points
• Part I – Provisions and Requirements of the UK Bribery Act
‒ Key Provisions
‒ Comparisons with Foreign Corrupt Practices Act
‒ Perceptions and reactions
‒ Implications
• Part II – Dealing with the UK Bribery Act
‒ The Corporate Offence and the Six Principles
‒ The level of preparedness in Asia/China
‒ Roadmap for establishing “adequate procedures”
‒ Responding to suspected bribery/corruption
• Case example
5 © 2012 Deloitte Touche TohmatsuPart I: Provisions and Requirements of the UK Bribery Act
UK Bribery Act 2010 – Key provisions
Offences Penalties Implications
Offering, promising or 1. Unlimited fine + 10 years An offence is committed whether the
giving a bribe in the UK or imprisonment advantage was offered directly or through
abroad, in either the public an agent or third party
or private sector (Section 1) 2. Personal liability for
directors/secretaries/managers who There must be an intention to induce a
Requesting, agreeing to “consent or connive” to an offence by person to act improperly in the
receive or accepting a bribe a corporate entity performance of their duties
in the UK or abroad, in
either the public or private What is ‘improper’ will be judged by the
sector (Section 2) standards of a ‘reasonable person’ in the
UK
Bribery of foreign public Reasonable belief that payment is
officials (Section 6) lawful/legal is not an adequate defence
There is no requirement to prove
improper conduct
Failure of commercial 1. Unlimited fines Corporate and its officers can be strictly
organizations to prevent liable for failing to prevent bribery
bribery paid by those who 2. Disgorgement occurring within the organization and by
perform services for or on its associated persons
behalf of the organization 3. Debarment
(“associated persons”) A defence is provided if a company has
(Section 7) proportionate adequate procedures in
place
7 © 2012 Deloitte Touche TohmatsuUK Bribery Act compared to FCPA (1)
Nature UKBA FCPA
• Offences committed inside • Affects US-issuers and
the UK. “domestic concerns”
• Offences outside the UK (individual or corporate)
(provided that the person regardless of whether the
Jurisdictional committing the offence is a violation is in or outside US
UK National/resident or is a territory.
Coverage
company carrying on part of • Bribery of foreign officials
business in the UK, wherever committed by foreign
incorporated) nationals or business in US
territory.
Prohibits both active and Only active bribery, i.e. giving of
passive bribery, i.e. taking of a a bribe
Active/Passive Bribery
bribe
8 © 2012 Deloitte Touche TohmatsuUK Bribery Act compared FCPA (2)
Nature UKBA FCPA
• All functions of a public Focuses on prohibiting the
nature bribery of foreign government
• All activities connected with a officials
business (which includes a
trade or profession) Accounting provisions require
Scope • Any activity performed in the issuers of publicly-traded
course of a person’s securities to keep books and
employment records that accurately reflect
• Any activity performed on business transactions and to
behalf of a body of persons maintain effective internal
(whether corporate or controls
unincorporated)
Bribery of foreign public official - Must have “corrupt” intent to
No requirement for “corrupt” or induce recipient to misuse his
“improper” intent official position
Intent of Offender General bribery offences –
intention to bring an improper
performance – “test of a
reasonable person”
9 © 2012 Deloitte Touche TohmatsuUK Bribery Act compared to FCPA (3)
Nature UKBA FCPA
Strict liability corporate offence Vicariously liable for acts of its
under Section 7 employees and agents
Failure to prevent bribery No strict liability but enforcement
Corporate Offence trends suggest corporate
officials may face penalties for
failing to ensure that policies and
procedures prevent and detect
violations
Companies can be subject to Companies can be fined up to
unlimited fines US$2 million per violation
Individuals can be subject to Individuals can be subject to
Penalty for Offence unlimited fines and ten years’ fines of up to US$250,000 per
imprisonment violation and five years’
imprisonment
10 © 2012 Deloitte Touche TohmatsuUK Bribery Act compared to FCAP (4)
Nature UKBA FCPA
No clear prohibition. Allowed, provided that it can be
Hospitality, demonstrated they were
Promotional and Other reasonable and bona fide
Business Expenditure expenditures
No exception, no matter how Narrow exception if it can be
small or routine proven that the payments are (1)
in the written law of the country
Exception for
in which payment is made, and
Facilitation Payments (2) reasonable and bona fide
expenditure
11 © 2012 Deloitte Touche TohmatsuUK Bribery Act
Perceptions and reactions
New chapter in
Radical New
global anti-
Anti-Corruption
corruption
Law (Reuters)
enforcement
(Forbes)
Benchmark for
other countries
US companies UK Bribery (International
Anti-Corruption
sweating [over Act Conference)
new rules]
(Reuters)
Many UK
companies do not
FCPA on steroids Very broad – will have “adequate
(Forbes) resources be procedures”
sufficient for
enforcement?
12 © 2012 Deloitte Touche TohmatsuUK Bribery Act - implications
Far-reaching and serious implications – sharpens the focus
Extra territorial reach
• Bribery shoots up the
Wider offences
risk register
• More proactive
• Anti-corruption
Liability of senior officers culture
• Robust approach -
‘Turning a blind eye’ and ‘not being understand the
aware’ not acceptable precise risks faced -
and address them
• Increased vigilance
Not a ‘tick box’ regulation –
by boards
proportionality is a central tenet
No minimum thresholds
13 © 2012 Deloitte Touche TohmatsuPart II: Dealing with the UK Bribery Act
The Corporate Offence
Principles of Adequate Procedures - Ministry of Justice guidance
MOJ Principle Description
Anti-bribery procedures should be proportionate to
Proportionate
1
P1 the specific risks faced by the business and to the
procedures
nature, scale and complexity of its operations
Senior management commitment to preventing
P2
2 Top level commitment bribery and to a culture that supports this
commitment
Regular and comprehensive assessment of the
P3
3 Risk assessment
nature and extent of its corruption risks
Understand the background and reputation of the
P4
4 Due diligence
parties with whom it does business
P5
5
Communication Anti-bribery policies should be communicated and
(including training) embedded in day-to-day business processes
Monitoring and review mechanisms to ensure
6
P6 Monitoring and review
compliance with relevant policies and procedures
15 © 2012 Deloitte Touche TohmatsuWhat we are seeing in Asia/China
Lack of readiness for the UK Bribery Act
• Awareness of the UK Bribery Act and its basic provisions, and
recognition that it will apply
• No anti-bribery plans or program for addressing it
• Rudimentary anti-bribery practices, resulting from rapid expansion in
Asia without commensurate internal controls structures, e.g.:
• Codes of conduct in place but outdated or poor understanding
• Bribery risk assessment not performed - excessive focus on
specific bribery issues
• No integration with corporate anti-bribery program
• Lack of information systems to support proper bribery prevention
• Lack of basic internal controls in key bribery areas
16 © 2012 Deloitte Touche TohmatsuPractical roadmap for establishing “adequate procedures”
MOJ Workstream Phase 1 Phase 2 Phase 3
Principle
Top-Level Commitment
P1 • Define risk assessment • Use risk assessment • Establish periodic risk
1. Risk
P3
methodology, perform results to perform assessment and
assessment
assessment and analyze detailed design of anti- integrate with
P4 results bribery program compliance program
P1
• Take corrective action
• Engage responsible
2. Policies • Scope policies required to address gaps on an
parties
P4 on-going basis
• Identify and address
P1 • Take corrective action
3. Procedures • Define the control gaps in design of
Key steps
to address gaps on an
and controls framework required existing procedures and
P4 on-going basis
controls
P2 • Develop and instigate • Identify recipients of
4. Training and general awareness training high-risk practitioner • On-going
communication • Scope and plan training communication
P5 communication required • Perform training
P6 • Establish compliance
• Define and agree
5. Governance program and flow of • Ongoing monitoring of
governance structure and
and monitoring management compliance program
reporting requirements
information
17 © 2012 Deloitte Touche TohmatsuRisk assessment (1)
Key features and principles
• Workshop and interviews
• Research risks in
Sponsored by
advance
Supported
by data top • Workshop(s) with
management
cross section of
functions and grades
Considers Company-
• Questionnaire:
black swan wide and • Gather data
risks consistent
Regularly • Analyse results to
updated identify high risk
locations and
Engages functions
business Subject matter
management • Follow up in high risk
expertise
Aligned with locations and
existing risk functions
assesment
process • Prioritisation and action
planning
18 © 2012 Deloitte Touche TohmatsuRisk assessment (2)
Risk factors to consider
• Tone at the Top • Reliance on Third Parties (Agents & intermediaries)
• Company Culture • Contracting/Sub-contracting
• Staff Morale
• Joint Ventures
• Training & Communication
• Delegation of Authority • Significant Investments
• Reward & Incentives • Licensing/Exporting
• Recruitment & Performance • Gifts, Entertainment, Hospitality
Management • Project Bidding/Tendering
• Reporting Channels • Facilitation Payments
Communication, Nature of
Tone & • Government Customers
Operations • Government Relationships
Awareness
• Control Breaches/Incidents
• Corruption Perception Index • Controls Culture,
• Acquisitions/Mergers Location of Prevention,
Monitoring & Skills & Experience
• Legislation & Enforcement Operations
• Local Culture Assurance • Whistle-blowing
• Public Procurement • Risk Management
• Free Society • Internal Audit/Assurance Coverage
• Business Change
• Escalation Channels
• Payment Controls
• Investigations
• Disciplinary
19 © 2012 Deloitte Touche TohmatsuPolicies
Key features
Policy concepts: Clarity on group
• Zero-tolerance approach
Senior involvement and • Definitions of bribery and minimum standards
clear policy ownership corruption vs. divisional
• Consequences of non- variations
compliance
• Raising concerns/whistle-
blowing
• Ownership, roles and
responsibilities
Simple and coherent
policy structure and Policy coverage:
Local accountability
governance • Risk areas e.g. for implementation
lobbying/political
engagement, company
donations, sponsorships
community investment,
offset, facilitation
payments, gifts,
hospitality and Link to training
System considerations entertainment, due
diligence, mergers and programme
acquisition
20 © 2012 Deloitte Touche TohmatsuProcedures and controls
Control framework identification and assessment
Define control framework needed to prevent and detect incidents of bribery and corruption and to monitor
compliance over bribery and corruption risks, such as:
1. Culture & Environment 7. Sourcing
2. Supervision & Control 8. Sales & Marketing
3. Risk Management 9. Information Technology
4. Information 10. General Ledger
5. Monitoring & Assurance 11. Inter-company
6. Business Relationships 12. Human Resources
Assess existence of key anti-bribery and corruption controls
Assess operational effectiveness of key anti-bribery and corruption controls
Develop compliance program to monitor on-going compliance comprising of periodic risk-based testing
of key controls and sign-off by business unit leaders that procedures have been complied with
21 © 2012 Deloitte Touche TohmatsuTraining and communication
Considerations
Computer-based vs. Scenario-based/case
Determining attendees
face-to-face studies/role plays
Local cultural Integration into existing Roll-out mechanism
considerations training curriculum (train the trainer, etc.)
Assessing
Opportunity for Q&A Tracking attendance
understanding
22 © 2012 Deloitte Touche TohmatsuGovernance and monitoring
Overview
Clear definition of structure to
Define management information
monitor compliance with anti-bribery
requirements and frequency of
framework.
reporting (e.g., results of compliance
Assignment of roles and
testing, whistle-blowing,
responsibilities to appropriate
investigations, etc.).
individuals and/or committees.
Definition of assurance framework, Preparation of reporting tools and
methodology, tools and templates. formats.
23 © 2012 Deloitte Touche TohmatsuResponding to suspected bribery/corruption (1) Key Indicators – from Serious Fraud Office (1) • Abnormal cash payments (“inspection fees”, “sales commissions”) • Pressure for payments to be made urgently • Money moving through offshore companies/related parties • Private meetings to tender for contracts • Lavish gifts being provided or received • Individual who insist on dealing with specific contracts him/herself • Making unexpected or illogical decisions when accepting contracts • Unusually smooth process of cases 24 © 2012 Deloitte Touche Tohmatsu
Responding to suspected bribery/corruption (2) Key Indicators – from Serious Fraud Office (2) • Agreeing contracts not favorable to the organization • Unexplained preference for certain contractors during tendering period • Avoiding independent checks on tendering or contracting processes • Raising barriers around specific roles or departments • Bypassing normal tendering/contracting procedures • Invoices being agreed for more than the contract without reason • Missing documents or records regarding meetings or decisions 25 © 2012 Deloitte Touche Tohmatsu
Responding to suspected bribery/corruption (3)
What do you do when a possible bribe is uncovered?
Three immediate questions to ask:
• Are the allegations material? Who, and how much, is involved?
• How credible are the claims?
• Who has been told about the claims?
Internal communication:
• Who may be implicated?
• Who should be informed?
• Internal investigation or make use of external counsel?
Regulators:
• The UK Bribery Act requires senior officers to report suspicion of
bribery (to avoid criminal offence)
• Take early legal advice
• Avoid temptation to report too soon (complete the full
investigation as far as possible)
26 © 2012 Deloitte Touche TohmatsuCase Example
Case example Company in Mainland China Company A manufactured its products and sold them to its customers through sales representatives and agents. The sales representatives were employed by Company A, whilst the agents were not Company A’s employees. Company A paid sales commissions to the sales representatives/agents. • The sales representatives and agents paid bribes to customers to favor Company A’s products. Company A required the sales representatives and agents to obtain re-imbursement for the bribes by making false expense claims using purchased tax invoices. The payments were recorded in different expense accounts, i.e. promotional, meeting, entertainment, development and marketing. • Commission to agents varied from around 40% to 50% of monthly sales revenue. However, the basis for determining these percentages was not properly documented. The rates were also extremely high as they were not meant to exceed 5%, according to government regulations. Issues • Ethical culture • Due diligence for and selection of sales representatives and agents • Ethical training of sale representatives and agents • Monitoring of the performance of sales representatives and agents • Approval of sales commissions • Expenditure policies and procedures 28
Summary
Summary
Key Considerations
Do you have “adequate procedures”? - commercial organisations need
a proactive and comprehensive approach in the form of an effective and
well-documented anti-corruption programme:
Ethical Culture – Tone at the top, Zero-tolerance
Organisational structure / Delegation of authority
General compliance programme
• Bribery and corruption risk assessment
• Business conduct / ethics policies
• Training programme
• Disciplinary policies and procedures
• Independent audit reviews / internal audit
• Decisive action when bribery is discovered
Internal controls
• Gifts, entertainment, sponsorship, donations’ policies
• Procedures around procurement, tenders and contractual arrangements
• Due diligence/right to audit for sales agents, joint ventures or other third parties
• Effective financial controls such as segregation of duties, authorization limits
• Whistle-blowing program
• Personal performance management
• On-going monitoring and assurance
30 © 2012 Deloitte Touche TohmatsuThank you!
Q&A
31 © 2012 Deloitte Touche TohmatsuContact details Hugh Gozzard Principal Enterprise Risk Services Deloitte Touche Tohmatsu Hong Kong (852) 2852-5662 huggozzard@deloitte.com.hk 32 © 2012 Deloitte Touche Tohmatsu
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