anti-bribery & corruption and · pdf fileanti-bribery & corruption and whistleblowing...

Steve Giles(MA Oxon. ACA)

Anti-Bribery & Corruption And Whistleblowing

16 March 2016 GACO 1

16 March 2016 GACO

Objectives

• Raise awareness of the Gibraltar bribery offences

• Understand the risks & the controls needed to manage them

• Place the offences in their international context

• Focus on whistle-blowing , the law in Gibraltar and current best practices

• Provide an update on recent anti-bribery cases and developments in the UK

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16 March 2016 GACO

Agenda

• Introductions

• International context & Gibraltar legislation

• Anti-bribery risks , controls and update , together with a focus session on whistle-blowing

• Quiz, examples and practical tips

• Summary

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Session 1 – International Context and Gibraltar Legislation

• Landscape and definitions

• The international response

• The bribery offences in the Gibraltar Crimes Act 2011

• The 10 key areas

• Bribery Awareness Quiz


Financial Crime Threat Landscape

Terrorist financing

Procurement fraud

Cartels & collusion

Asset misappropriation

Insider dealing

Tax evasion

Accounting fraud

Money laundering

Data theft & cyber crime

Bribery & corruption


International Response • Worldwide action against corrupt business practices: money laundering; terrorist financing; sanctions evasion bribery & corruption; fraud; tax evasion; insider dealing; cartels; people smuggling

• Examples of action taken and developing legislation: US Foreign Corrupt Practices Act 1977 Financial Action Task Force formed 1989 (international AML standards developed) US PATRIOT Act 2001 EU Anti-Money Laundering Directives Proceeds of Crime Act 2002 & Terrorism Act 2000 Fraud Act 2006 Anti-Money Laundering Regulations 2007 Bribery Act 2010 Crimes Act 2011 Modern Slavery Act 2015

• Development of minimum compliance standards – financial hygiene: policies; risk-assessment; due diligence; training; reporting to authorities; evidence & record-

keeping; monitoring; individual accountability

3 February 2016 Highview Consultants

National Strategic Assessment (NCA 2014)

• Presents a single, comprehensive picture of serious and organised crime affecting the UK– not just a threat, a reality. Costs £24bn pa

• 36,600 organised criminals in 5,300 groups• 5 cross-cutting issues – key vulnerabilities that criminals exploit: Cyber - growth in scale & speed of internet communication technologies Corruption – undermines trust, impact is disproportionate to frequency. A means

of managing risk for the criminals Money laundering – scale is a threat to UK’s economy and reputation Borders – importance of transnational crime Identity – both a commodity to be traded and needed to disguise true identity• Key threats: Child sexual exploitation & abuse; criminal use of firearms; cyber crime; drugs;

economic crime; organised acquisitive crime; organised immigration crime & human trafficking; serious and organised criminals in prison and under lifetime management


Financial Crime Risk Management Framework

• Risk-based approach

• Strong preventative approach

• Deterrence measures and awareness of the “perception of detection” factor

• Detective controls that reduce the exposure gap

• Access to investigative expertise

• The governance dimension – senior management responsibility and reporting lines


Corruption Focus

• Functional definition: “the use of public office for private gain.”

• Associated activities:

bribery (giving/receiving something of value to influence)

kickback (portion of the value of the contract demanded as a bribe for securing the contract)

extortion (demanding money or goods with a threat of harm if the demand is not met)

conflict of interest (employee has an economic or personal interest in a transaction)


Aspects of Bribery & Corruption

• A secret arrangement involving two or more people - difficult to detect

• Often involves paying a financial inducement to a public official for securing some favour in return

• May be an overseas element e.g. a UK company paying a bribe for the benefit of a foreign public official in order to win a contract

• Payment could be through an agent or direct

• Payment is often circuitous – routed through various companies in different jurisdictions


Economic and Social Effects

• Bribery & corruption: impacts especially on the poor and vulnerable people in developing

countries undermines public services has an economic impact, increasing the costs of doing business whether the

corruption is abroad or domestic

• Case Study (Serious Fraud Office) a young mother in a developing country died in childbirth along with her new

born baby because the new road that she and her husband chose to travel to hospital had not been completed due to the corruption of a public official by a UK company


• Transparency International defines corruption as: “The abuse of entrusted power for private gain. It hurts everyone who depends on the integrity of people in a position of authority.”

• TI’s Corruption Perception Index:

a country or territory’s score indicates the perceived level of public sector corruption on a

scale of 0 (highly corrupt) to 100 (very clean)

the countries are ranked relative to each other in the index (from 1 to 167 in 2015) - the

higher the country’s corruption ranking the greater the risk for public corruption in business

transactions and new market entries

more countries improved their score in 2015 than saw a decrease BUT 2/3 of all countries

scored less than 50 – indicates the countries have a serious corruption problems

heavily relied upon by anti-bribery prosecutors in the US & UK to signpost country risk as well

as companies when developing their risk-based compliance procedures to prevent bribery

and corruption

Transparency International


The Foreign Corrupt Practices Act (“FCPA”)

• FCPA - the most enforced anti-corruption law in the world:

Results in multimillion dollar corporate fines and penalties

Individual managers and employees also prosecuted

Reputational harm and shareholder lawsuits

Can trigger parallel anti-bribery enforcement actions in other countries

• Differences between FCPA and Bribery Act 2010 include:

FCPA deals with bribing foreign public officials, not private to private bribery

FCPA covers active bribery only

FCPA creates an exception for certain facilitation payments

FCPA does not have the corporate offence of failing to prevent bribery


Headline Fraud & Corruption Scandals

• Barings

• Enron

• WorldCom

• Arthur Andersen

• Hollinger

• Boeing

• Madoff

• Galleon

• Olympus

• Petrobras

• Siemens

• AIB

• Parmalat

• BAE Systems

• Satyam

• Stanford

• “G2 Gate”

• UBS

• Libor & Tom Hayes

• FIFA


Conflict of Interests Example - Boeing

• Darleen Druyun, Principal Deputy Assistant Secretary of the US Air Force (Acquisition & Management), joined Boeing in 2003 on $250k pa salary

• Before she left, she negotiated for the Air Force to buy 100 planes from Boeing for $26 bn

• Following investigation, she admitted inflating the price of the contract to favour her future employer (by $11 bn) and to passing information on the competing Airbus bid. She was jailed & fined.

• Boeing CFO (Michael Sears) was fired & jailed, the CEO resigned. Boeing paid a $615 million fine to the authorities to settle claims surrounding its involvement


Bribery & Corruption Example - “G2 Gate”

• Mr. Raja, former Indian telecoms minister, arrested in 2011

• 2nd generation mobile phone spectrum licenses were distributed by Raja on a “first come first served” basis in 2008

• Allegations of corruption, that Raja received $440m to favour a few applicants

• An official audit claimed it cost the Exchequer $26bn

• 2012 Supreme Court of India cancelled the licenses

• Raja charged with breach of trust and criminal conspiracy – trial ongoing


Insider Dealing - Example: Galleon

• Galleon hedge fund founded by Raj Rajaratnam. He managed $7bn funds – one of 10 largest in the world

• Found guilty in 2011 of using illegal tips to make $63.8m profit in a 7-year conspiracy to trade on inside information – sentenced to 11 years in prison

• Use of wire-tap evidence• Network of insiders – executives,

bankers, traders. A “ship of knaves”• Reputation risk – McKinsey &

Goldman Sachs (e.g. Anil Kumar pleaded guilty & Rajat Gupta convicted)

Bribery & Corruption Example - Siemens

• Europe’s largest engineering conglomerate, employing > 400,000 people in 190 countries

• 2006-08 corruption scandal –widespread bribery of officials to win contracts

• Uncovered by whistleblowing

• $1.6 bn fines

• Banned from procurement lists

• Share price fell > 50%

• Directors & managers sacked and prosecuted

• Costly compliance overhaul


The UK Anti-Bribery Strategy

• Response to: international laws & convention (e.g. FCPA, UNCAC) and pressure (e.g. the OECD, Transparency International)

• 2006 – UK ratified the UNCAC

• 2008 onwards successful convictions and regulatory fines . Examples

BAE Systems, the Weir Group, Macmillan

Mabey & Johnson

Aon and Willis

• The Bribery Act 2010 – came into force 1 July 2011

UK bribery laws had previously been outdated and ineffective

The new and unique S. 7 offence - a major commitment to ethical corporate culture


The BAE Systems plc Case

• One of the world’s largest military contractors

• The Al- Yamamah arms deal –record arms sales by the UK to Saudi Arabia

• Allegations that these contracts were the result of bribes

• The SFO investigation was discontinued on grounds of public interest (2006)

• Fined $400m for accounting offences in the US (2010)

• Fined £500k for accounts offences in UK – part of £30m settlement (2010)


Mabey & Johnson

• International steel bridge-building firm based in Reading

• Convicted in 2009 of systematically paying bribes around the world to win contracts

• Bribes paid to foreign politicians and officials in: Ghana, Jamaica, Angola, Bangladesh, Iraq

• In 10 years paid bribes totalling over £1m for export orders of £60-£70m through covert middlemen

• In 2011 the former MD and sales director were jailed for involvement in a corrupt kickback deal in Iraq


16 March 2016 GACO

The Law in Gibraltar

• Efforts to modernise legislation, combat crime and strengthen law enforcement

Crimes Act 2011

Criminal Procedure and Evidence Act 2011

• Bribery offences – Crimes Act, Part 24 s. 566-582

• Modelled on the UK’s Bribery Act 2010

• Came into effect on 23 November 2012

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The Crimes Act 2011 – Bribery Offences

• S.566 & S.567 - General bribery offences in private & public sectors covering:

active bribery (the offering, promising or giving of a bribe); and

passive bribery (requesting or agreeing to receive a bribe)

• A bribe is described as a “financial or other advantage”

• Bribery is defined in terms of an intention to encourage or induce “improper performance” by any person in breach of any duty or expectation of trust or impartiality

• S.571 - Offence of bribery of foreign public officials:

bribe must be given with intention to influence a foreign official in the performance of his/her duties;

no offence if there is a local “written law” permitting payment (BUT local customs or practices are irrelevant);


The Crimes Act 2011 – Section 572

• S.572 The new Corporate Offence – the failure of commercial organisations to prevent bribery:

a company or partnership (“C”), incorporated or formed in the UK OR carries on business in the UK is guilty of an offence if:– someone (“A”) associated with C bribes another person– intending to obtain or retain business or a business advantage for C

• A person is an associate if they perform services for or on behalf of C (the capacity is irrelevant – could be an employee, agent, subsidiary etc.)

• It is a defence for the company to show that, despite a particular case of bribery, it nevertheless had adequate procedures in place designed to prevent persons associated with it from undertaking such conduct


The Crimes Act 2011 - Other

• Prosecution of senior officers with whose “consent or connivance” bribery was

committed

• Jurisdictional reach:

prosecution of a person with a “close connection with Gibraltar” (i.e. an individual

who is a British person or a Gibraltarian or a body incorporated under the law of

Gibraltar) – no territorial limitation

prosecution of non-Gibraltar persons for the corporate offence where they carry on

a business (or parts of a business) in Gibraltar

• Penalties (main offences):

maximum prison sentence of 10 years

unlimited fine


Key Area 1 - Strict Liability

• The Act takes a robust approach to commercial bribery. It creates a new strict liability offence for corporates & partnerships of failing to prevent bribery occurring within the organisation

• Strict liability is absolute legal responsibility for damages or injury that can be imposed on the wrongdoer without proof of fault or negligence

• The only defence is if the corporate had put in place “adequate procedures” designed to stop incidences of corruption

• Context is crucial – the standards expected of a small private company will not be the same as those expected of a large multi-national

• The UK Ministry of Justice published Guidance on “adequate procedures” in March 2011 – the Guidance is flexible and is not prescriptive or a fail-safe check list of requirements


Key Area 2 – Extra Territorial Jurisdiction

• The main offences - jurisdiction limited to companies/individuals with a close connection to Gibraltar (or to offences taking place in Gibraltar )

• But, the corporate offence has broader scope. Here the Act applies to “relevant commercial organisations” i.e. a Gibraltar company or partnership OR entities formed elsewhere if they “carry on a business” or part of a business in Gibraltar.

• UK MoJ Guidance – a “common sense” test should be applied.

If entities do not have a “demonstrable” business presence in the UK they won’t fall under the Act.

But, as long as it has a demonstrable business presence in the UK, a foreign company can be prosecuted for bribery offences in relation to conduct in a foreign country that is not connected with any business undertaken in the UK

Principle of extra territoriality in matters relating to financial crime - companies need to apply the most stringent standards


Key Area 3 – Associated Persons

• In the Act an “associated person” is one who performs services on behalf of the principal

• The definition of “performing services” is vague – the Act says it will be determined by all the relevant circumstances

• UK MoJ Guidance emphasises the broad scope of S.7 & provides signposts e.g.

employees, agents, intermediaries, subsidiaries, joint ventures, main contractual counterparties

a contractor /supplier generally performs services only for the entity with which it has a direct contractual relationship

• Key that the third party is:

aware of and commits itself to the principal’s policies

made aware of a zero-tolerance culture

subject to appropriate due diligence & monitoring


Key Area 4 – Improper Performance

• A key element of the offences is that the person being bribed “improperly performs” his/her duties

• Improper performance is defined by reference to a failure to perform one’s duties in line with a “relevant expectation”

• Improper performance arises if it is intended that, by paying the bribe, the recipient of the bribe would be expected to act otherwise than:

- in good faith

- an impartial manner

- in accordance with a position of trust

• Expectations are judged by Gibraltarian not local standards


Key Area 5 – Bribery of a Foreign Public Official

• The law in the UK has outlawed bribery of private persons for over 100 years

• The UK Bribery Act continues to make such conduct illegal

• For the first time, the law now also includes a separate and specific offence of bribery of a foreign public official


Key Area 6 – Foreign Public Officials

• Bribery of a foreign public official does not need to include an intention of improper performance

• The elements of this offence are:

an intention to influence the FPO in his official capacity

an intention to obtain/retain business or an advantage in the conduct of business

the act is not permitted by local written law

• Intention to influence is a lower bar than improper performance


Key Area 7 – Indirect Bribery

• ALL corrupt payments are prohibited, regardless of whether they are paid directly by the corporate, or on its behalf by a third party


Key Area 8 - Individual Liability

• It is not only organisations that can be prosecuted – individuals convicted of one of the principal offences are liable to imprisonment for up to 10 years, or to a fine, or to both

• Senior officers with whose “consent or connivance” the bribery was committed can also be prosecuted

• Could be committed by the “passive acquiescence” of a director, if in practice that amounted to consent to the bribery

• Failure to maintain “adequate procedures” could render directors vulnerable to civil claims

• “Adequate procedures” is not defined in the legislation – the UK Government has provided Guidance


Key Area 9 – Facilitation Payments

• The Foreign Corrupt Practices Act in the USA makes an exception for small facilitation, or “grease” payments, paid to officials to smooth relevant processes of official actions

• Normally they are payments to speed up actions that would happen anyway

• The Act makes no such exception – all payments, no matter how small or routine, or expected by local customs, are illegal

• Concept of zero tolerance

• Questions re practicality – the importance of prosecutorial discretion


Key Area 10 – Public Procurement

• There is the possibility that a corporate convicted of a bribery offence will be debarred from participating in future public contracts in light of recent events (e.g. Siemens Case, EU Public Procurement Directive, IFI initiatives)

• Unclear, but a serious potential risk


Session 2 – Risks and Controls

• The six guiding principles for bribery prevention

• “Adequate procedures”

• Focus session: whistleblowing

• Examples

• Update on recent developments in the UK

• Summary – the key controls


The Crimes Act 2011 – Section 572

• A commercial organisation will be liable to prosecution if a person associated with it bribes another person intending to obtain or retain business or an advantage in the conduct of business for that organisation

• The commercial organisation will have a full defence if it can show that despite a particular case of bribery it had adequate procedures in place to prevent persons associated with it from bribing

• Standard of proof is the balance of probabilities

• Guidance on “adequate procedures” was published in the UK by the MoJ in March 2011 (together with a “quick start” guide for smaller organisations) BUT it is not prescriptive or a fail-safe check list of requirements


Six Guiding Principles For Bribery Prevention

• Proportionate procedures

• Top level commitment

• Risk assessment

• Due diligence

• Communication (including training)

• Monitoring and review


Principle 1 – Proportionate Procedures

• A commercial organisation’s procedures to prevent bribery are proportionate to the bribery risks it faces and to the nature, scale and complexity of its activities

• The procedures are clear, practical, accessible, effectively implemented and enforced

• Comments

Bribery prevention policies are necessary but they will not be sufficient without being properly implemented

The key measure of proportionality is bribery risk

Also the size, nature and complexity of the organisation – less need for extensive procedures


Principle 1 – Example: Gifts & Hospitality Policy

• Overall test – is the expense appropriate?

• Unacceptable criteria (e.g. cash, large amount)

• Approval process

• Gifts & hospitality register

• Clear exemption criteria:

monetary amount

business courtesy

infrequent

no obligation


Principle 2 – Top-Level Commitment

• The top-level management of a commercial organisation (be it a board of directors, the owners or any other equivalent body or person) are committed to preventing bribery

• Top-level management foster a culture within the organisation in which bribery is never acceptable

• Comments:

Tone at the top – the key influence on culture. Likely to involve:

communication of the organisation’s anti-bribery stance; and

involvement in developing bribery prevention procedures


Principle 2 – Procedures

• Commitment to zero-tolerance of bribery

• Develop an appropriate corporate culture & values – commit to treating everyone equally

• Lead on the ethics charter & code of conduct

• Remuneration tied to values & long term performance

• Encourage and be part of anti-bribery training


Principle 3 – Risk Assessment

• The commercial organisation assesses the nature and extent of its exposure to potential external and internal risks of bribery

• The assessment is periodic, informed and documented

• Comments

Purpose is to promote the adoption of proportionate risk assessment procedures

May be part of more general risk management or it may be a specific, stand alone bribery risk assessment


Principle 3 – Example: External Risk Factors

• Country risk• Sectoral risk – extractive industries,

large scale infrastructure etc.• Transaction risk e.g. public procurement licences and permits political donations• Business opportunity risk –

suspicious transactions• Business partnership risk – who do

you do business with?


Principal 3 – Example: Internal Risk Factors

• Deficiencies in employee training, skills knowledge

• Bonus culture rewarding excessive risk taking

• Lack of clear financial controls• Lack of clear anti-bribery message

from the top• Lack of clarity in policies around

hospitality & promotional expenses, political donations etc.


Principle 4 – Due Diligence

• The commercial organisation applies due diligence procedures, taking a proportionate and risk-based approach, in respect of persons who perform or will perform services for or on behalf of the organisation, in order to mitigate identified bribery risks

• Comments

Due diligence is part of a broader framework of good corporate governance

Due diligence processes are an important means of mitigating risk

Encourages organisations to put in place due diligence procedures that adequately inform the application of proportionate measures designed to prevent persons associated with them from bribing on their behalf



• Can be carried out internally or by using external consultants

• Level of due diligence needed can vary hugely depending on risk

• Care needed when going into new relationships

• The use of anti-bribery terms and conditions with contractual counterparties

• Integrity due diligence in high risk situations

• Importance of internal recruitment procedures


Principle 4 – Example: Due Diligence Concepts

• Knowing the extent of the organisation’s business relationships

• Understanding the risks that a particular business opportunity raises

• Seeking reciprocal anti-bribery agreements

• Being in a position to feel confident that business relationships are transparent and ethical e.g. use “right of audit” clause

• Integrity due diligence process – aim to establish trust between counterparties

• Purpose is to: supplement legal & financial due diligence; and provide an informed understanding of the human risk of entering into a new association

• Asks “difficult” questions:

has disclosure been complete & honest?

does the company behave in an ethical manner?

is the reputation of the company healthy?

are the individuals competent, honest & respected?


Principle 5 – Communication (Including Training)

• The commercial organisation seeks to ensure that its bribery prevention policy procedures are embedded and understood throughout the organisation through internal and external communication, including training, that are proportionate to the risks it faces

• Comments

Communication and training deters bribery by raising awareness and understanding of the organisation’s procedures and commitment to their proper application

Making information available assists in more effective monitoring, evaluation & review of bribery prevention procedures

Training provides the knowledge and skills to operate procedures and deal with any bribery related problems that arise



• Internal communication: tone at the top policies & procedures “speak up” procedures• External communication through

statement, code of conduct – can reassure and act as a deterrent

• Training needed to establish firmly an anti-bribery culture:

mandatory continuous, monitored &

evaluated associated persons also?


Principle 6 – Monitoring and Review

• The commercial organisation monitors and reviews procedures designed to prevent bribery and makes improvements where necessary

• Comments

The bribery risks facing an organisation may change over time so the procedures needed to mitigate the risks may also change. So, regular monitoring is needed

Also, review may be required to respond to events e.g. a change of government, an incident of bribery or negative press comment


Whistle-blowing Overview

• Definition: “Whistle-blowing is the raising of a concern, either within the workplace or

externally about a danger, risk, malpractice or wrongdoing which affects others.” (Whistle-blowing Commission 2013)

• Hotline: often regarded as a dedicated telephone number . But, this is not necessary - could be a web-based reporting system; or surface mail to a specified address; or traditional oral reporting to a line manager. Think of “hotline” as an umbrella term

• Principles: Key goal – a culture of openness in the workplace (“speak-up”) A whistle-blower is someone who raises a concern that affects others – not

grievances It is about something that happens in the workplace Disclosures can be made internally or externally (e.g. to the police, regulators

politicians, media). Aim of organisations is to ensure all disclosure are internal Disclosures are important: calls on the hotline number always picked up; respect

confidentiality; investigate appropriately; communicate


Examples of Cases & Controversies

• USA Heroes (Watkins, Cooper & Reilly) Incentivised (Birkenfield & tax

evasion) Controversy (Assange & Snowden)• UK Public sector (e.g. Mid-Staffs NHS

Foundation Trust, BBC)• Europe Mistrust (van Buitenen discloses

wrongdoing at the European Commission )


Negative Attitudes

• General: people dislike the idea of “telling tales” on colleagues - will inevitably result in “trouble”, either for themselves or others

• Scepticism “It won’t work here” – size of organisation and/or jurisdiction lip-service and box-ticking

• Fear: staff are reluctant to report concerns about colleagues because of fear that: their identity as a whistle-blower will be revealed they don’t have sufficient evidence to “prove” their concern, so unfair their disclosure won’t make any difference they will be dismissed, demoted or otherwise victimised

• Changing Attitudes – becoming more positive: reputation - an open, accountable culture is a key part of sustainability effective – e.g. tip-off is the most important AFC detective control improved legal protection for individuals who blow the whistle on wrongful conduct


Protection under the Law

• Blowing the whistle carries personal and professional risk

• Legal protection varies • Public Interest Disclosure Act (UK) 1999 - the first comprehensive W/B

law passed in EU, still a benchmark A single “protected disclosure” regime

for workers in public & private sectors reverse burden of proof provides a route to compensation• Dedicated legislation to protect public

sector W/B in many countries (e.g. USA, Australia, Japan, Canada) but still patchy , including within the EU


Gibraltar Employment Act (Part 1VA)

• Protected disclosures the Act provides protection to workers who make disclosures in the public interest disclosure can be made to various (e.g. employer; legal adviser; a Minister) protected disclosure overrides contractual duties of confidentiality

• Disclosures qualifying for protection: a protected disclosure is one that is made by an employee where they reasonably believe that any

of the following either have occurred, are currently occurring or are about to occur a criminal offence; failure to comply with a legal obligation; a miscarriage of justice; an

endangerment to health and safety; damage to the environment; or information evidencing any of the above is being concealed

• Reasonable disclosure: the employee must make the disclosure in good faith believe the allegations to be true have no personal gain believe that it is reasonable for the disclosure to be made

• Detriment – provided the disclosure is reasonable, an employee: has the right not to be subject to any detriment from employer in the event of detriment, is entitled to take the matter to an industrial tribunal


The 10 Key Steps to Effective Whistle-blowing

• Step 1: establish the baseline criteria for reporting (illegality, danger

etc.) separate reporting for grievances• Step 2: draw up (or review) the policy positive message, enabling workers to

conduct business with integrity meet workers’ fears: confidentiality,

reprisals and reports taken seriously• Step 3: scope the policy applies to managers and employees –

third parties too? • Step 4: reporting obligations speed of reporting (asap) report suspicions as well as actual

knowledge

30/9 & 1/10 2015 Landmark Seminars


• Step 5: alternative reporting lines line manager OR a trusted officer an external whistle-blowing service• Step 6: confidentiality emphasise its importance to staff cater for anonymous reporting too?• Step 7: protect “good faith” W/Bs no disciplinary action or victimisation BUT no protection for malicious W/Bs• Step 8: raise awareness publicise the policy training to show the mechanics of the

policy and to answer any questions or concerns from staff



• Step 9: effective investigations all disclosures are followed up quickly investigate fully, fairly, quickly,

confidentially keep the W/B informed of progress

periodically • Step 10: report results report progress to the Audit

Committee (or other nominated body)

periodic internal reports too


UK Changes in Financial Services (2016)

• PRA and FCA each provide a whistle-blowing service

• Accountability and Whistle-blowing Instrument 2015

Every employer must put whistle-blowing arrangements in place

No regulatory duty on employees to blow the whistle

Provides strong protection for good faith whistle-blowers

Requirement on firms to notify their employees of the regulators’ whistle-blowing services and of their right to use them

Requirement on firms to appoint a “whistle-blowers champion”

Requirement on firms to present a report on whistle-blowing to the Board annually

• Firms must assign responsibilities to the whistle-blower champion by 7 March 2016 and must comply with all requirements by 7 September 2016


Whistle-blowing Summary

• Overview:

“The essence of a whistle-blowing system is that staff should be able to by-pass the direct management line because that may well be the area about which their concerns arise and that they should be able to go outside the organisation if they feel the overall management is engaged in an improper course”

(UK Committee on Standards in Public Life)

• Attitudes to whistle-blowers vary but are becoming more positive

• Whistleblowing hotlines are three times more likely to detect internal fraud than any other control mechanism (ACFE)

• Two barriers to people reporting concerns internally:

they do not trust assurances of confidentiality

they do not believe that anything will happen following disclosure

• Overall aim – an open culture where all employees feel able to “speak up”


Bribery Act - UK Update

• General - some evidence of changes in corporate behaviour:

cut-backs in corporate hospitality

ripple effect of compliance questionnaires

• Convictions of individuals:

Mr. Patel (six years, reduced to four on appeal)

Mr. Mushtaq (two months suspended)

Mr. Li (12 months + ordered to pay £4,880 costs)

• SFO successful prosecution of the “Bio-fuels Case” (2014)

Sustainable Agro Energy duped UK investors in £23m green biofuel fraud

two defendants (Mr. West & Mr. Stone) convicted of bribery offences also

• Brand-Rex Ltd case in Scotland (2015)

the cabling company pleaded guilty to the corporate offence of failing to prevent bribery by a third party associate

concerned the misuse of an incentive scheme for UK distributers and installers, which in return for meeting or exceeding sales targets resulted in certain rewards such as foreign vacation trips.

company self-reported and was deemed suitable for civil recovery rather than criminal prosecution. Paid £212k


Bribery Act - UK Update• ICBC Standard Bank case (2015) First company to enter into a Deferred Prosecution Agreement with the SFO UK division of the South African bank admitted failing to prevent a $6m bribe being paid to a

local agent by its sister company in Tanzania in 2013 to induce Tanzanian government officials to favour them in a private placement – the banks won the deal and shared $8.4m in fees

Judge decided bank should pay fines and restitution totalling $32.5m

• Deferred Prosecution Agreements (“DPA”) An agreement reached under judicial supervision (between prosecutor & an organisation) A plea bargain that allows for the suspension of a prosecution for a fixed period of time, but

only if the organisation agrees to stringent conditions eg: comes forward to the SFO with information, admits guilt & co-operates fully; pays a fine and agrees to remedial measures (pay compensation & undergo a compliance overhaul)

• Government decision in 2015 NOT to lower the corporate criminal liability standard in the UK away from the current standard of controlling mind to that found in the Bribery Act (failure to prevent) for other economic criminal offences (e.g. fraud and money laundering)

• Sweett Group Plc – admitted to failing to prevent bribery intending to secure & retain a contract in the UAE by a subsidiary. A failure of systems and supervision. Convicted in February 2016 and ordered to pay £2.25m – SFO’s first conviction under the S.7 offence

• SFO has a number of on-going investigations 3 February 2016 Highview Consultants

The Smith & Ouzman Case (“Chicken-gate”)

• The UK’s first foreign bribery conviction following a contested trial (in 2015 under the Prevention of Corruption Act 1906)

• Smith & Ouzman (S&O) is a family-owned printing company in Sussex

• S&O and its directors, father Christopher and son Nicholas Smith were found guilty of making corrupt payments via agents to public officials in Kenya and Mauritania in 2009-10 totalling £395,000 in order to win contracts for printing ballot papers and exam certificates worth £2.26m

• Prosecution case rested largely on emails in which the directors discussed giving “chicken” to public officials with their agent in Kenya – argued this was a codename for bribes

• S&O’s defence was that these were legitimate business payments for hospitality, gifts and facilitation payments – said they were just doing things “the African way”

• Sentences:

Nicholas Smith, Sales & Marketing Director, sentenced to three years

Christopher Smith, Chairman, received an 18 months suspended sentence

S&O has to pay £2.2m in fines, confiscation amounts and costs

• Easier to establish corporate criminal liability via the identification principle (must attribute guilty knowledge to the directing mind of the company) with smaller companies like S&O


Practical Example 1: Issues

• UK subsidiary of huge global utility group

• Group Ethics Charter - little traction in the UK & policy framework in flux

• No assessment of bribery risk• Little focus on financial crime

threats • Extensive contractual relationships• UK-focus to business• Extensive corporate entertainment


Practical Example 1: Solutions

• New policies: code of business ethics; gifts & hospitality; whistleblowing

• Bribery risk assessment • Legal review of contracts to

include appropriate clauses• Initial training programme on

ethics and corrupt business practices – mandatory

• On-going training – “cbt” provider lined up

• Review of corporate entertainment


Practical Example 2: Issues

• Medium-sized UK subsidiary of German supplier to the arms industry

• Few formal policies & procedures • Extensive use of agents abroad to

win business• Standard contracts • Traditional business hospitality &

entertainment• No formalised risk management• Small staff, huge time pressure


Practical Example 2: Solutions

• Meetings with the CEO - “Zero tolerance” statement

• Bribery risk assessment: risk register; regular workshops

• Retaining a risk intelligence company

• Retaining a specialist lawyer to review contracts

• Training of management (CEO briefs the workforce)

• Gifts & entertainment policy


Summary – the Key Controls

• An anti-bribery policy and tone at the top

• Financial controls – approval of expenditure

• Continuing bribery risk assessments

• Training of staff – comprehensive and ongoing

• Contracts with third parties - to include a commitment to bribery prevention

• Due diligence on agents and third parties


Summary – the Key Controls

• Clear policies in areas of high risk e.g. gifts & hospitality, use of agents, political donations

• “Speak-up” procedures

• Communication of zero-tolerance of bribery communicated internally (culture) and externally (on website and in contracts)

• A monitoring and review process

• Managers and staff understand their individual accountability


16 March 2016 GACO

Thank You!

• It has been a pleasure meeting you

• Thank you for your participation

• Good luck in the future

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