Oiling the wheels?
John Taylor’s guide to the Bribery Act 2010 serves as an uncomfortable warning to charities and NGOs.
So you have a consignment of water pump parts stuck on the dockside and the official in charge is clearly looking for some form of ‘encouragement’ to release them to you; the documentation for your new aid workers is taking ages to be ratified by the ministry but the clerk in charge of the relevant stamp indicates “that there could be a way” of speeding things up; the grain is still in the warehouse and deteriorating whilst the population starves and the man who controls local distribution is quite blatant about what he wants. All these are problems that can easily be solved, smiles your local fixer, in the way they have always been – with a little cash or a new Mercedes.
So slip the guy a few quid – what’s the problem? Important work to be done – lives to be saved; a necessary expense, morally dubious perhaps but in the grand scheme of things the greater good is what matters. If this is a scenario you recognise, if your organisation has had to come to terms with these kind of payments to ‘grease the wheels’, things are about to get a whole lot tougher.
Enter the Bribery Act
In April 2010 the Bribery Act came on to the statute book. It replaced a lot of very antiquated nineteenth and early twentieth-century legislation with some wide ranging offences designed to tackle the spread of corruption both in the UK and, more importantly, overseas.
The Act covers the whole of the UK but also takes into consideration illegal acts committed anywhere in the world if those acts would be illegal in the UK. So a bribe given in Africa is a bribe given in the UK for the purposes of the Act.
The first mistake to make is to assume that the Act applies only to businesses or commercial operations – it doesn’t – it applies to everyone and that includes individuals, charities and NGOs. For the technically minded the parts that mainly affect non-commercial operations are sections 1 and 2 and s.6.
Active bribery
Section 1 outlaws what might be called ‘active’ bribery, which is basically giving or promising a bribe or inducement to someone either directly or through some third party. This covers the types of ‘incentive’ payments made in the scenarios described earlier.
Passive bribery
Section 2 makes illegal the acceptance of a bribe, so called ‘passive’ bribery, so this, of course, won’t apply to aid workers!
Bribery of foreign officials
Section 6 is the tricky one. This contains the prohibition on active bribery of a foreign public official in order to induce them to carry out their role. This includes, for example, the men, or, indeed, women, from the ministry, the local police or those in charge of inspections or authorisations and the rules are akin to existing law in the US Foreign Corrupt Practices Act 1977 which many organisations may be familiar with.
There is, however, one big difference between US law and the new Bribery Act. The US legislation actually contains exemptions for ‘facilitation payments’ and specific exemptions for bribing foreign government officials to do their job! In other words, under US law, if you, an American citizen, bribe the man from the ministry to get your goods out of customs impound this is entirely OK, if it was his job to issue that permit. Under UK law as it stands now – it is not – it is a bribe and is caught by the UK legislation.
Disguises don’t work
Harsh and impractical as it may be that is the effect of it. Payments can be disguised as ‘administration’ or ‘consultancy’ fees or be in something other than cash, such as goods or entertainment, but are likely to be considered by the Serious Fraud Office, who will investigate these matters, to be what, fundamentally, they are – bribes.
Good causes are not exempt
There is, of course, always a moral ambiguity about making such payments, particularly if the payer is some form of aid agency or charity with a non-commercial purpose. In this case it might be supposed that the agency concerned is standing slightly higher on the moral ground than some sort of sordid commercial operator looking to make a grubby profit, but, in the words of the old song, “it ain’t necessarily so” and it certainly isn’t under the new rules.
Managing your operations chain
The problem is that making what appear to be perfectly sensible, practical arrangements on the ground, at the time, to help get the job done can land the organisation in a deal of trouble later on. A key point here is that it need not, necessarily, be the employees of the organisation who land it in the soup.
Organisations are responsible for the acts of contractors working in their name just as much as they are for acts perpetrated by their own employees. What the local fixer might see as routine business practice, as something they may have been doing for years, now contravenes UK law and can result in their principals being prosecuted.
Effects of prosecution
The consequences for the organisation concerned, should it be successfully prosecuted, involve fines, and possible imprisonment in the most egregious cases, but perhaps the most damaging aspect would be the adverse publicity and consequent reputational damage such legal action might cause. There are instances where allegations of corrupt or fraudulent behaviour, allegations which may subsequently be proved to be baseless, have severely damaged the fund raising capability of a charitable body. Charities involved in corruption scandals also run the risk of losing the support of government and financial institutions. The benefit gained in the short term though a policy of paying bribes to get things done may be outweighed by longer-term damage if a successful prosecution is brought.
Risk management
Commercial organisations face a much stiffer task than do non-commercial bodies insofar as they can be penalised for failing to prevent bribery, that is for not having the infrastructure in their organisation which takes active steps to prevent corrupt acts from taking place. These steps have to be more than simply writing and circulating a few policy statements or exhortations to honest dealing; they must institute a comprehensive programme of risk prevention or minimisation requiring such things as:
- Senior management involvement and leadership – ‘tone at the top’ is critical, senior management must be seen to support anti bribery initiatives;
- the carrying out of risk assessments into areas where corruption may take place;
- the institution of strong policies and clear procedures that are communicated to all staff and, most importantly, to third party contractors or agents as well as employees
- training and information initiatives for staff at the sharp end; and
- the monitoring of relationships and review of the operation of procedures. Charities and NGOs could do worse than to adopt some of these principles.
Of course there is a cost and resource issue, charities don’t have spare personnel who can carry out compliance reviews for example, but they do have the ability to communicate with their people and to put some preventative measures or alternative strategies in place.These can act as mitigation should any potential prosecution materialise. At the least a full risk assessment should be instituted to identify the shape and size of the potential problem. See figure 1 for some scenario checks.
What it all means charities and NGOs
Let us be pragmatic. Realistically the chances of a major prosecution involving a charitable body are slim; this legislation is aimed firmly at commercial organisations who bribe their way in to business or out of difficulties. However it is there and it is real.
The government will not enact enabling measures to bring the provisions of the Act on stream until 2011 so now would be a good time for charities and NGOs, working in some of the more dubious parts of the world, to have a serious look at their activities and to be seen to be taking active steps in the area of compliance before the Act is fully functioning. Charities and NGOs may consider that these provisions will seriously hamper their ability to achieve their objectives in some areas.
It may be that, in the period between now and 2011 there is time for some intensive lobbying to either remove non-commercial organisations from within the scope of the Act or, alternatively, to dilute it so that it falls into line with the US legislation and permits facilitation payments. Until that happens non-commercial bodies should be seen to be taking steps to identify and to limit their risk in this area.The Serious Fraud Office will no doubt be looking to make an example of some organisation pour encourager les autres – best make sure it’s not yours.
Author: John Taylor
John Taylor is a chartered accountant and a senior lecturer in accounting and auditing at Leeds Metropolitan University.
Before that he spent many years as a professional accountant in the audit profession and as the financial director of a company in the clothing industry.
His book, Forensic Accounting, the only UK based book on the topic, is due to be published in October 2010.
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