Brown Envelope, Sir?

We all experienced feelings initially of disbelief quickly moving to anger when stories appeared in the media that our elected representatives received highly valuable benefits in addition to salary for doing the day job. We know also that many MPs receive payments as company directors, financial support from trade unions or provide paid services to commercial organisations, and the instances of senior politicians receiving hospitality on the yachts and in the elegant homes of the extremely rich are well documented. The general feeling among the electorate is that it is impossible for an MP to be truly independent if he or she is in receipt of largesse from those who have a beneficial interest in the decisions which our legislators might make.

What then of you and me? We, of course, do not give and receive favours; we maintain our independence at all times; we pay our taxes in full; our first and only consideration is to act in the interests of our employer. Yes...

What about that lunch you attended? You remember, the one laid on by the recruiter who has been trying to get to the top of the firm's 'approved supplier' list. And that breakfast seminar which the law firm invited you to? Educational, wasn't it, but of course it didn't influence your decision to use them for the little bit of litigation that came across your desk. By the way, wasn't it an amazing coincidence when those accountants invited the top team to Wimbledon this year and the Board was just considering whether to reappoint them as the firm's auditors. Yes, amazing..

Moral and ethical dilemmas such as these are nothing new; they have been part of the social/business scene for decades, but from 1st July, the UK introduced what has been described as 'the toughest anti-corruption legislation in the world'.

The Bribery Act 2010 was introduced in the Queen's Speech in 2002 but not enacted by the then Labour government. For the past year the new coalition has had the Act under review and only now has it been introduced. While we do not, of course, have any cases to offer definitive rules, there is enough in the Act itself to point us in the right direction.

The Act brings together laws going back to 1889 which covered corruption in public and private office but in our modern interconnected, international world, the 2010 Act also lays duties on UK companies with overseas operations in jurisdictions where commission payments and the use of 'connected' intermediaries are the norm. For the first time, it is made clear that UK law will be applied to transactions carried out by individuals and organisations in these countries and if inducements are judged to be for the purpose of gaining 'financial or other advantage' in exchange for 'improperly' performing a 'relevant function or activity', then a prosecution is quite possible. These 'financial or other advantages' could include contracts, non-monetary gifts or offers of employment, so it's not just the classic and infamous brown envelope stuffed with cash which is covered. Wherever a UK business or individual is involved in carrying out activity in the public or private sectors at home or abroad, the law will apply.

The penalties (and they apply for receiving as well as offering corrupt payments) are severe. Not only could the guilty party have assets seized under proceeds of crime legislation, but individuals could see themselves serving up to 10 years in prison and receiving an unlimited fine. The risk of being disqualified from being a company director seems trivial by comparison.

What then should organisations be doing in the light of this new law?

The immediate challenge for organisations, both public and private, is to ensure that they have given serious consideration to the legislation as it might apply to their operations and have taken steps to introduce procedures which will minimise their exposure. Starting with the Board and penetrating into the organisation at every level, the education of managers and staff in the points to look out for in the legislation will show that the organisation is taking its responsibilities seriously and acting to 'own' the issue. From this initial start, it will be possible to review current procedures to ensure compliance and to amend any processes which fall short. By having a codified approach and enforcing its application, the organisation will have a strong defence should one be needed, and should avoid falling foul of the legislation in the first place.

The Act applies to companies, associates, employees, agents and individuals providing services, so unless you fancy the idea of 10 years as guest of Her Majesty, it might be worth taking action now to minimise your risk!

Ian Donald
Managing Consultant
©Abbeywell Associates Limited 2011
iandonald@abbeywellassociates.co.uk

(Abbeywell Associates offers in-house briefings on corporate governance including the Bribery Act 2010)

"The general feeling among the electorate is that it is impossible for an MP to be truly independent if he or she is in receipt of largesse."

"Moral and ethical dilemmas such as these are nothing new; they have been part of the social/business scene for decades."

"Wherever a UK business or individual is involved in carrying out activity in the public or private sectors at home or abroad, the law will apply."

"The education of managers and staff in the points to look out for in the legislation will show that the organisation is taking its responsibilities seriously."