8 reasons why anti-bribery & corruption compliance should be a focus for multinationals
If January is anything to go by, 2017 is set to be another year for headline-grabbing regulatory sanctions against organizations for bribery and corruption violations. The year has already seen significant enforcement activity on both sides of the Atlantic.
UK Serious Fraud Office (SFO)
In the UK, Rolls-Royce’s £671m settlement in January sent out a signal that international regulators have started the year as they mean to go on. Following long-running investigations into claims that it paid bribes to land export contracts, Rolls-Royce said it would pay £497m to the UK Serious Fraud Office (SFO), $169m (£140m) in penalties to the US Department of Justice and $25m to the Brazilian authorities. The settlement means that the company will avoid being prosecuted by the agencies, although individual executives may still be charged. For the UK’s Serious Fraud Office, the size of the fine was record-setting, dwarfing the previous highpoint of £30m for BAE Systems back in 2010.
The SFO currently has high profile investigations concerning Rolls Royce (the investigation into the individuals continues), Unaoil, Libor, Airbus and Tesco, as well as others on their books which are not yet public information.
The US Regulators also mean business. By the close of January this year, the DOJ and SEC had already meted out $69,590,080 in monetary sanctions. Compare this to the same time in January 2016: $533,578. And yet 2016 was a record year for FCPA enforcements – with more than $2.8 Billion sanctions and fines being handed out to big- brand companies around the world. Clearly both momentum and traction are growing.
8 reasons why your compliance programs need to focus on Anti-bribery & Corruption
So what should an organization do? In an atmosphere of significant regulatory focus on a wide variety of compliance issues in many industries, how should bribery and corruption be prioritized?
The short answer is that for Global 2000 companies, anti-bribery and corruption programs should be at the top of your compliance program plans for 2017 –with a particular view to understanding the relative compliance of your third parties, including suppliers, agents and partners. Eight compelling reasons to support this prioritization are:
1. Your bribery and corruption problems are now: The reality is that bribery and corruption in organizations are long term challenges that defy instant fixes. If there are indeed undetected issues in your organization it will take time to identify them and address them. Boards and C-suite executives should never take the view that “it doesn’t happen here or with the organizations we work with”. It is worth nothing that the actions of third parties account for over 90% of FCPA enforcements – they are the weakest link in compliance programs and as such require focus. Companies need to have robust due diligence across all their third parties, but also recognize that this is not a one-time process. Ongoing monitoring is important to ensure changes in risk-profile are identified and exceptions addressed.
2. The future of US/UK cooperation on prosecutions: Despite uncertainty on the world’s geopolitical stage, it seems likely that the trend towards closer cooperation will continue. Signs of growing cooperation are evidenced in the Rolls-Royce case. With key connections between agencies and their teams being established, and positive enforcement actions as a result, we can expect continued cooperation between these two countries for the time being at least.
3. Anti-bribery and corruption is getting more traction among the G-8: It’s clear that the anti-bribery agenda is no longer primarily a US one. Last year, the cases brought against companies such as VimpelCom and Odebrecht involved significant cross-border collaboration. The Odebrecht case, which stemmed from the activities of a Brazilian subsidiary, is expected to settle for more than $3.5 billion eventually. In addition to more prosecutions around the world, countries are tightening up their anti-bribery and corruption rules too – France was a notable country to do so recently. The United Kingdom underlined its commitment to fighting bribery and corruption by hosting a major anti-corruption summit in May, with promises of tougher enforcement. The outcome of this event is to be the formation of an anti-corruption center in the UK, and increased cooperation among the 40 countries that attended across a range of fronts.
4. Emerging markets are raising their game: Last year saw a range of nations, such as China, Vietnam, South Africa and Mexico, as well as other countries, elevate their commitment to anti-bribery and corruption with new regulations. India, Argentina, and others are in the process of introducing or improving laws during 2017. Much more activity can be expected in these markets not just in terms of legislation but also cooperation with other countries in prosecutions.
5. Movements to expose corruption have moved beyond prosecuting agencies: The combination of cyber-savvy underground agencies and individuals committed to exposing corruption, together with trusted media organizations and combined investigative journalism efforts, are changing the playing field. Last year saw the Panama Papers story dominate media coverage for weeks. The publication of articles across a range of news sources about offshore entities involved in illegal activities sprang from a significant leak of data from Panama-based law firm Mossack Fonseca. Other news stories about other companies – including Monaco-based Unaoil – have led to prosecutors taking an interest. What 2016 showed is that journalists can and do lead the way in uncovering bribery and corruption at organizations, and are, like prosecuting agencies, willing to work together to do so.
6. Penalties for corruption have become more common and more costly: Before the Odebrecht penalty, the largest ABAC penalty had been a $1.6 billion penalty levied jointly by the U.S. and Germany against Siemens in 2008. But even aside from these billion-dollar cases, penalties in the tens or hundreds of millions have become more frequent. Four of the largest FCPA settlements ever occurred in 2016.
7. Governments are using new techniques and creating new organizations to investigate corruption: In the U.S., the DOJ announced it was adopting techniques such as wiretaps and sting operations that previously it had applied mostly to blue-collar crime. In China, the government is establishing new regional committees to investigate graft and seize assets.
8. Increased personal liability: Increased emphasis has been placed on director and officer personal criminal liability as an enforcement priority by Regulators, elevating the personal (not solely business) impact of compliance shortcomings. This is borne out by the number of FCPA actions taken against individuals resulting in incarceration and/or personal fines and the SFO’s continued focus into individual actions associated with Rolls Royce. As the then Assistant Attorney General for the Criminal Division, DOJ, Lanny Breuer once said: "…prosecuting individuals – and levying substantial criminal fines against corporations – are the best ways to capture the attention of the business community."
It’s clear that the global move against bribery and corruption is gathering pace. So it makes sense for organizations, particularly those operating across multiple regions and jurisdictions, to invest now – not just in ensuring their own house is in order but in making sure their third parties, so often the source of bribery and corruption failures, are in close alignment, too.