Although the way firms and individuals are being prosecuted for bribery and corruption continues to evolve, the overall direction of travel is towards increased responsibility for the prevention of these activities. Most FCPA actions (83%) of 2017 involved bribery schemes that relied on third-party intermediaries such as agents, consultants, or contractors. And yet according to a recent survey, organizations are not responding fast enough by implementing the right policies and risk assessments.
US – Third party cases hit the headlines
In the US, total sanctions levied in 2017 fell by more than half, to nearly $934 million in 2017, according to the Foreign Corrupt Practices Clearinghouse website. This was down from $2.4 billion the previous year. Yet, the average sanction fell only slightly, to nearly $78 million, down from $81 million in 2016. Expert opinion is mixed about whether this signals a change in direction because of the Trump administration – many say not, as these prosecutions were begun under the Obama administration and so the fall in total sanctions is just the natural variation in the overall FCPA caseload. Experts also point out that in the US, prosecution of individuals is more likely to accompany action against companies today.
Many of the cases settled in 2017 reflect the importance of getting third party relationships right. For instance, Cadbury and Mondelez paid a civil penalty of $13 million January 2017 after Cadbury India failed to conduct proper due diligence on an agent hired to interface with the Indian government on approvals for the paperwork around an extension to a chocolate factory in the country. The SEC also said Cadbury India didn’t monitor the agent's activities correctly, either.
Additionally, In the Matter of Halliburton Company and Jeannot Lorenz, the SEC imposed monetary sanctions on Halliburton and the executive for outsourcing about $15 million in services to a local Angolan company to meet Angola’s local content obligations for government contract bidding. The third party was owned by a former Halliburton employee who was a friend and neighbor of a government official who had oversight of Halliburton contracts in the country.
US tightens bribery & corruption regulations
Looking at other areas of activity, it might well be a mistake to say that the US was letting up in its approach to tackling bribery and corruption. For example, in February the Department of Justice (DoJ) released a document, the Evaluation of Corporate Compliance Programs, which was designed to help give organizations an idea of what examiners might be looking for. It included more than 100 sample questions that examiners might ask of organizations around bribery and corruption issues, as well as in other fraud-type cases.
In addition, just before the December holiday season, President Trump signed an executive order that significantly extended the extraterritoriality of US bribery and corruption rules. Now, the US Treasury – in consultation with the Secretary of State and the US Attorney General – can name and shame non-US individuals who have engaged in bribery and corruption. US entities cannot engage in, or facilitate, business with individuals who have been named to this list. They also must block all assets and interests in assets of individuals on this list.
US companies are responding to this environment of increased risk – but perhaps not fast enough. According to a new PwC study released early in 2018, only 37% have performed a bribery risk assessment over the past 24 months, while just half have specific bribery and corruption policies.
UK ramps up enforcement
In the UK, the situation is even more intense. The Serious Fraud Office (SFO) case load continues to expand, with high-profile investigations into Airbus, BAT, Unaoil, Petrofac, and Chemring. A decision by the SFO on whether to file criminal charges against Rolls-Royce and GSK is expected before April 2018. Many of these cases involve third parties – again either as fronts for paying the bribes or else as organizations the business was working with, which engaged in the illegal activity.
Law enforcement is getting more sophisticated, too. In some areas, the SFO is bringing the might of artificial intelligence (AI) to bear. For example, the SFO teamed up with other UK agencies to use AI to comb through the cache of 11 million documents that were called Panama Papers in the media – resulting in investigations being opened into more than 66 individuals as of October 2017. A similar approach was used in the Rolls-Royce bribery and corruption case as well, to comb through more than 30 million documents, and in the end the company had to pay a record £671 million in fines globally. Five individuals were also charged with offenses in the US as part of the probe.
The UK is bringing in stricter rules and regulations around bribery and corruption, as well. A slate of measures were launched at the end of 2017, including:
- A new ministerial post to oversee the implementation of a new National Economic Crime Centre, within the National Crime Agency
- A new strategy paper which sets out further measures the government is going to undertake to clamp down on bribery and corruption
- A draft bill to be published during this session of parliament to create a public register of beneficial ownership of overseas legal entities that own or purchase property in the UK, or that engage in UK government contracts.
- Enhanced attention given to implementing the Criminal Finances Act, passed in 2017, which increases powers of UK forces to combat economic crime.
UK companies gear up
The PwC survey revealed a big increase in the proportion of UK organizations that reported having experienced bribery and corruption in the last two years. This leapt from just 6% in 2016 to 23% in 2017 (with the global average in 2018 being 25%).
The regulatory focus on ABAC, together with the recognition that the UK is not immune to the international tendrils of corruption, means that UK organizations are beginning to apply more focus on controls – ahead of many of their global counterparts. The survey showed that 53% of respondents now have specific anti-bribery and corruption due diligence programs when they are looking to acquire another business. This is higher than the global average of 45% and second to regulatory compliance as a priority for due diligence.
According to the survey, some three-quarters of respondents have a formal ethics and compliance program in place, and of those, 62% said this included specific anti-bribery and corruption policies.
However, it seems that on other fronts there is still a long way to go – only half of those who participated in the survey said their companies had carried out a bribery risk assessment over the past two years.
A long way to go
In the PWC survey, globally just over one-third of companies (37%) had performed an anti-bribery and corruption risk assessment over the past two years, while 25% of global organizations say they have been the victim of bribery or corruption.
Overall, it’s clear that the risk of prosecution for bribery or corruption remain high – whether it’s a firm’s own employees engaging in the behavior or a third party that the organization is working with. Individuals within firms are also being held to account in the courts and by regulators. Yet, many firms are still not implementing basics such as policies and risk assessments. Companies need to raise their game – matching the technological firepower and resources that prosecutors are beginning to bring to this area of law enforcement to keep their firm’s compliance robust, and their reputations safe.