Companies failing to take bribery and corruption risk seriously

UK companies risk falling foul of anti-bribery and corruption rules, according to a new report by KPMG Forensic.

Two thirds of companies believe that there are countries in the world where it is not possible to do business without being involved in bribery and corruption, and yet only a third (35 percent) say they have stopped doing business in any countries due to the bribery and corruption risk. The majority of companies say they rely on enhanced controls and third party due diligence when doing business in such countries in order to minimise the dangers.

However, less than half of companies (42 percent) say they conduct regular audits of third party business partners and local country representatives as part of their anti-bribery and corruption compliance controls, despite the fact that it is often third party agents that represent the biggest threat of governance breakdown.

Over four in ten companies (43 percent) do not have an anti-bribery and corruption compliance programme in place, the majority of them believing that the issue is not relevant to their business.

Alex Plavsic, Head of Fraud Investigations at KPMG Forensic, said: “Companies have a greater awareness now of the bribery and corruption threat due to increased investigations and regulatory activity from the UK and other authorities. However, with the recession companies are having to fight harder than ever to win new contracts, and as a result there could be an increased pressure on those in the front line to over-ride anti-bribery and corruption laws. Compliance processes need to be robust, with special emphasis on due diligence with regard to third party agents, if companies are to protect themselves from regulatory scrutiny and reputational damage. The signs are that many companies could be doing more to manage the risks.”

The findings – from a survey of over 100 FTSE listed UK companies – come as companies report an increase in their own internal investigations into possible bribery and corruption breaches. In a similar survey two years ago by KPMG, 27 percent of companies said that they had carried out internal investigations in the previous two years – but this has now grown to nearly four in ten companies (39 percent). The average number of investigations has also grown, from one or two a couple of years ago to three or four now.

Despite this growth in internal investigations, many companies appear to remain sceptical as to whether the UK’s Anti-Terrorism, Crime and Security Act 2001, within which anti-bribery and corruption laws are enshrined, is effective. Half of respondents believe that difficulties in collecting evidence will mean the Act is unlikely to be effective – a proportion unchanged from two years ago, despite the SFO’s increased activity in the area with a number of high profile cases. Last month, the SFO brought its first successful prosecution for bribery overseas, in a case involving Mabey & Johnson, the bridge builder. In addition, the draft Bribery Bill currently being scrutinised by the Parliamentary Joint Select Committee is anticipated to come into force in 2010, creating a new offence of negligent failure of a commercial organisation to prevent bribery.

Awareness of the extra-territorial nature of anti-bribery legislation has increased amongst companies over the last two years. However, KPMG’s research uncovered a continuing uncertainty about the United States’ Foreign Corrupt Practices Act (FCPA). The FCPA gives the US authorities far-reaching powers to prosecute companies that have any US footprint or even just any American employees for bribery committed anywhere in the world – powers which the Department of Justice has been very active in utilising. The signs are that many UK companies are hazy on the extent to which they could be caught up by the FCPA, as while 59 percent of companies said they conduct business in the US, only 31 percent thought that their company was subject to the Act.

Brent McDaniel, director at KPMG Forensic, commented: “Our survey has revealed that although some steps have been taken in recent years, many of the largest UK entities need to do a lot more to adequately equip and protect themselves in this area. With the threat of severe fines and penalties, not to mention possible imprisonment, the consequences of not doing so are likely to be extremely serious.”

If you would like a copy of report, please email forensicreplies@kpmg.co.uk

•Date: 13th August 2009• Region: UK •Type: Article •Topic: Operational risk
Rate this article or make a comment - click here