SHFA Fraud and Corruption Control Framework - Employee Briefing

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Dissecting the UK Bribery Act: The High Watermark of Anti-bribery and Corruption IQPC Australian Anti-Bribery and Corruption Summit, Melbourne 17 September 2015 Dr Darren O’Connell FGIA

Transcript of SHFA Fraud and Corruption Control Framework - Employee Briefing

Page 1: SHFA Fraud and Corruption Control Framework - Employee Briefing

Dissecting the UK Bribery Act: The High

Watermark of Anti-bribery and Corruption

IQPC Australian Anti-Bribery and Corruption Summit, Melbourne

17 September 2015

Dr Darren O’Connell FGIA

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A Little-known Historical IronyThe origin of the Bribery Act (UK) 2010

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The Impeachment of Warren Hastings

The core issue was:• The employees of a British listed company bribed local businessmen (Brahmins) and

government officials (Rajas / court dignitaries) for private gain;• Hastings sought to rule India using traditional forms of governance;• Hastings’ claimed there were two competing “moralities” those of Englishmen

and those of Indian;• Englishmen overseas should be free to engage in customs or activities that

were morally reprehensible to the laws and customs of England; • Burke wanted British norms of governance to apply to overseas and rejected

Hastings’ claim, “This geographic morality we do protest against…”;• In other words, there was only one set of laws, and one standard of behaviour

– those of England (and he was Irish born);• So if bribery was illegal in 18th Century Britain then it was illegal and morally

wrong to bribe in India.• After a seven year trial, Hastings was unanimously acquitted of all charges.

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The Bribery Act (UK) 2010• This Act covers the criminal law relating to:

• Bribing of, or being bribed by, anyone to induce them to act improperly; and

• The failure of the commercial organisation to prevent bribery on its behalf.• The Act became operational on 1 July 2011; • Described as the toughest anti-corruption in the world;• It has near universal jurisdiction, allowing for the prosecution of an individual or

company with links to the UK regardless of where the crime occurred;• Penalties for violation include:

• Maximum of ten years’ imprisonment;• Unlimited financial penalty;• Confiscation of property under the Proceeds of Crime Act (UK) 2002; and• Disqualification of directors under the Company Directors Act (UK) 1986.

• Vocal criticism of the Act due to the criminalisation of behaviour that is acceptable in certain parts of the world (i.e. “geographic morality”);

• Potential disadvantages British business interests in the global marketplace.

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Principals of the Framework

1. Proportionate Procedures

2. Top level commitment

3. Risk Assessment

4. Due Diligence

5. Communication and Training

6. Monitoring and Review

Procedures to prevent fraud and bribery that are proportionate to the risk that a commercial organisation faces

Commitment by the Board and Executive to foster a culture where fraud and corruption are never acceptable

The periodic assessment of the nature and extent of exposure to the potential external and internal (i.e. high risk roles) risks of fraud and corruption

Taking a risk based approach, the application of due diligence processes and procedures in respect to customers, agents, suppliers and third parties who do business with the commercial organisation

Embedding and understanding fraud and corruption control through periodic and regular communication and training

Periodic and regular reviews of risk exposure, procedures designed to prevent fraud and corruption, and make improvements where necessary

Key Principle Description

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Comparisons to the FCPA (US) 1977Provision FCPA Bribery Act

Who is being bribed? Only bribes paid or offered to a “foreign official” are prohibited

Prohibits bribes paid to any person to induce them to act “improperly” (not limited to foreign officials)

Nature of advantage obtained

Payment must be “to obtain or retain business” Focus is on improper action rather than business nexus (except in case of strict corporate liability)

“Active offence” vs “Passive offence”

Only the act of payment, rather than thereceipt/acceptance of payment, is prohibited

Creates two offences: (1) offense of bribing another (“active offense”) and (2) offense of being bribed (“passive offense”)

Strict Corporate Liability

Strict liability only under accounting provisions for public companies (failure to maintain adequate systems of internal controls)

Creates a new offence for the failure of a company to prevent bribery (subject to defense of having “adequate procedures” in place designed to prevent bribery)

Jurisdiction U.S. companies and citizens, foreign companies listed on U.S. stock exchange, or any person acting while in the U.S.

Individuals who are UK nationals or are ordinarily resident in the UK and organizations that are either established in the UK or conduct some part of their business in the UK.

Business promotionexpenditures

Yes for reasonable and bona fide expenditure related to the business promotion or contract performance

No similar defence (but arguably such expenditures are not “improper” and therefore not a Bribery Act violation)

Allowable under local law

Affirmative defense if payment is lawful under written laws/regulations of foreign country.

No violation if permissible under written laws of foreign country (applies only in case of bribery of foreign public official; otherwise a factor to be considered)

Facilitating payments Exception for payment to a foreign official to expedite or secure the performance of a routine (non-‐ discretionary) government action

No facilitating payments exception, although guidance is likely to provide that payments of small amounts of money are unlikely to be prosecuted

Enforcement Civil and criminal proceedings by DOJ and SEC Criminal enforcement only by the UK Serious Fraud Office (SFO)

Potential penalties For individuals, up to five years’ imprisonment and fines of up to $250K; for entities, fines of up to $2M million

For individuals, up to 10 years’ imprisonment and potentially unlimited fines; for entities, potentially unlimited fines

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Prosecutions under the Bribery ActSFO nails its first convictions

under new bribery laws - Reuters • Between April 2011 and February 2012 three men engaged in a £23M biofuel investment scam;

• Executives of Sustainable AgroEnergy Plc, a company that promoted biofuel investment products linked to southeast Asian plantations of jatropha trees;

• Charges included fraud-related offences, bribing and taking bribes;

• The three men received jail sentences of 13, 9 and 6 years respectively.

As of February 2015:• Sixteen cases of small scale domestic bribery convictions have been recorded since 1 July 2015;• Of these, 13 cases were brought under S. 1 of the Act, two under S. 2 of the Act and one is unknown;• No S. 6 or S. 7 cases have yet been brought to trial.

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Application to Australia• How does the Bribery Act (UK) 2010 apply to Australian businesses?

• UK companies operating directly in AU or through wholly-owned AU subsidiaries must comply; and

• AU companies operating directly in the UK or through wholly-owned UK subsidiaries must comply; however

• AU companies operating domestically do not need to comply.

• It should be noted that in 1999 the bribing of foreign public officials legislation was incorporated into the Commonwealth Criminal Code (Cth) 1995;

• All state-based legislation expressly criminalises fraud and corruption activity for public agencies;

• Any Australian individual or company engaged in bribery, fraud or corruption with a non-public official will fall foul of domestic and/or international law.

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Implications for Australia

• In general:• Where a foreign customer of a UK company or subsidiary does not have an anti-

bribery compliance framework in place, or agree to be bound by that UK firm’s compliance framework, then further commercial activities could cease depending upon the level of bribery risk inherent in the customer and its country of registration;

• There have been examples in Australia of UK companies threatening to walk away from contractual obligations because the Australian firm did not have, or agree to be bound by, the UK’s anti-bribery compliance obligations.

• Such a position would be tenuous at law and would be prefaced by respective bargaining power, and probably arose over confusion by the UK firm operating in Australia about how to comply with the Act.

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Implementing a Compliance Response

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Why comply with the Act? There are at least four reasons why voluntary compliance should be encouraged:

1. Bribery is a topical risk in Australia in both public and private spheres have demonstrated e.g.:

Securency convictions

Note Printing Australia convictions

BHP Biliton US$25M civil penalty

2. Managing and mitigating bribery risk can be worked into existing fraud & corruption policies (e.g. ASX Principle 7) and the various state government ordinances; and

3. The Commonwealth may well decide to beef-up bribery provisions in the CCA to harmonsie with the US and the UK

4. Australian companies are demonstrating a zero tolerance appetite for bribery and signalling a global commitment to good corporate governance

A competitive advantage would be gained that would offset the incremental compliance cost.

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Suggested Compliance ResponseKey Principle Compliance Response

Proportionate

Procedures

Stocktake of internal structure, business activities and customers, suppliers etc. to determine the risk for bribery,

fraud and corruption.

The procedural response to bribery, fraud and corruption control will depend on the risk of these activities occurring.

The higher the risk of bribery, the greater the organisational response must be.

Top level commitment The Board communicates a commitment that the organisation has zero-tolerance to bribery, fraud and corruption.

The Board and Executive performance includes KPIs on bribery, fraud and corruption prevention.

Risk Assessment Conduct a bribery, fraud and corruption risk assessment on the types of business activities and the customers the

company deals with.

Understand and mitigate what anti-bribery, fraud and corruption measures are in place when dealing with domestic

and foreign public officials/agencies.

Internal and external mechanisms to be introduced to report and investigate instances of bribery, fraud and

corruption.

Implement a Code of Conduct, Conflicts of Interest and Gifts & Hospitality Register.

Due Diligence Reviewing procurement and tender procedures to alert potential third parties that the organisation has a bribery,

fraud and corruption policy in place.

Providing copies of the policy to third parties prior to commencing procurement or tender operations.

Ensuring overseas agents conform to the requirements of the policy.

Communication and

Training

Organisational broadcast alert on bribery, fraud and corruption controls.

Staff briefings.

eLearning modules.

Monitoring and Review Biennial review of policies and procedures, or reviews triggered by specific changes in law or by specific bribery, fraud

and corruption incidents.

Develop and disseminate an organisational bribery, fraud and corruption survey to gauge employee sentiment.

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Suggested Corporate Architecture

Leadership and executive visibility on ABC considered paramount;

An ethical framework is essential (e.g. code of conduct, values etc);

Policies must reflect zero tolerance to bribery, corruption and fraud;

Framework should contain prevention, notification, detection and investigation systems;

A system for managing third-party risk is crucial;

Clear lines of responsibility need to be established;

Regular ABC awareness and training should be delivered and recorded.

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In summary The origins of the UK Bribery Act can be

traced by 227 years;

The Act itself is the toughest anti-bribery legislation in the world;

It has significant differences to the FCPA that must be clearly understood;

Limited prosecutions under the Act so far

There are applications and implications for Australian companies;

Voluntarily compliance need not disrupt existing frameworks to combat fraud and corruption;

Competitive advantages can accrue from complying with the Act.

The Premier’s

Choice

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Questions or Comments?