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CLEANING UP

By Ian Fraser

Published: The Treasurer

Date: 1 October 2015

Corruption, scandal and bribery are commonplace in the world, but what action is being taken to eradicate these crimes? And what can treasurers do to avoid them? Ian Fraser reports

Sir-Richard-DobsonIn September 1977, Sir Richard Dobson made some off-the-cuff remarks he would come to regret.

In an after-dinner speech, the then British Leyland chairman dismissed allegations that the state-owned car manufacturer was running a slush fund to bribe overseas officials as a case of accusing the company of a perfectly reasonable and even ‘respectable’ practice. It later transpired the allegations were true.

British Leyland was handing £4.2 million a year – the equivalent of £20 million in today’s money – in kickbacks to officials to secure sales of buses and Land Rovers in the Gulf States, Iran, Libya, Nigeria, Sudan and Turkey. But in 1970s Britain, the scandal benefited from a full-establishment cover-up and was never investigated. Dobson, however, fell on his sword the following month.

The story illustrates the extent to which attitudes to bribery and corruption have changed. “In the 1970s, bribery wasn’t really seen as problematic – it just wasn’t the sort of thing that decent chaps talked about,” says John Grout, policy and technical director at the ACT, who started his career at the car giant seven years earlier. “The world has moved on enormously.”

The US was quicker to turn the tables. In the year of Dobson’s unspeakable remarks, President Jimmy Carter signed the Foreign Corrupt Practices Act into law. This was America’s response to major bribery scandals involving the US firms Lockheed – which was paying $20m a year in bribes to governments around the world to secure defence contracts – and the banana importer United Brands – which, in a scandal that led to the suicide of its chairman in New York and a coup in Tegucigalpa, had handed Honduras’s military ruler, Oswaldo López Arellano, $2.5m in bribes to get taxes lowered.

Crackdown on corruption

In Europe, change took longer. A blind eye was for many years turned to graft by ‘strategic’ players such as defence manufacturers, including BAE Systems. In parts of Europe, bribes were even tax deductible. It wasn’t until the late 2000s that Britain got its anti-bribery act together. Following international pressure from the Organisation for Economic Co-operation and Development (OECD) and others, the country’s previous anti-corruption legislation, a mishmash of dusty statutes and common law, was replaced with the Bribery Act in July 2011.

The Act – wider ranging and more draconian than the Foreign Corrupt Practices Act (FCPA) – served as a massive wake-up call for businesses operating internationally and spawned an industry of consultancy and compliance, which, arguably, has a vested interest in hyping its dangers.

But Jake Storey, vice chairman of the Maritime Anti-Corruption Network (MACN), says “the act has focused people’s minds like they were never focused before”.

Rather than focus solely on bribes paid to foreign officials and state-owned enterprises, the Act encompasses all types of business transaction. It makes UK-based firms liable to prosecution no matter where offences occur. And, unlike the FCPA, the Act treats ‘facilitation payments’ as an offence. Smaller than bribes, these are often made to ease and accelerate public-sector procedures that would have happened anyway.

However, the Bribery Act’s most disconcerting aspect for UK firms is that it leaves them open to prosecution for acts of bribery they do not commit, but which are committed on their behalf by intermediaries. The firms’ sole defence in such a scenario is to prove that they have adequate anti-bribery procedures in place.

Nick Burkill, a partner in law firm Dorsey & Whitney, says: “That aspect of the Act is designed to change corporate behaviour – and it’s working.” Initially, a lack of convictions raised doubts over the Act and whether the Serious Fraud Office (SFO) was fit to police it. The perception gained ground in 2013 when the SFO saw its case against Jordanian-born metals magnate Victor Dahdaleh, who was charged with bribing Bahraini officials on behalf of US-based aluminium giant Alcoa, collapse. Then, in December 2014, the Act and the SFO were partially vindicated when they secured the first convictions under the Act.

Gary West, a director of bio-energy firm Sustainable Growth Group (SGG), was jailed 13 years after being found guilty of accepting bribes from a third party in exchange for issuing fake invoices that entitled the agent to commissions. The agent, Stuart Stone, was convicted of giving, and West of accepting, the bribes under the Bribery Act, with Stone receiving a six-year prison sentence. SGG’s former boss, James Whale, convicted of fraud, was jailed for nine years. It has been reported that the SFO is also poised to enter into deferred prosecution agreements (which were introduced to the UK last year) with a further two small UK-based exporters over bribery allegations before the year is out.

According to an OECD review of bribery cases between 1999 and 2014, more than half were in the construction sector, the extractive industries, transportation and IT/communication. Most involved large companies, with only 4% of cases involving SMEs. Facilitation payments to customs officials accounted for 12% of cases. And bribery was shown to be almost as widespread in developed economies as in developing ones, a finding that may require some companies to rethink how they assess risk. Transparency International’s annual Corruption Perceptions Index provides a widely used guide to the prevalence of corruption in different parts of the world.

To read entire article click here to download a PDF of pages 22 to 25 of The Treasurer October 2015 issue. The Treasurer is the magazine of the Association of Corporate Treasurers, published by Think Publishing.

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