International - Written by on Tuesday, November 29, 2011 15:46 - 3 Comments

Opinion: Is the world flat and does your toast land butter side up?

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Howard Sklar wrote an excellent piece here with some home truths about the compliance industry entitled “Scare the crap out of them”.

In summary Howard called out the use of scare tactics by in and out house compliance professionals to motivate businesses to spend more on compliance initiatives.

The scare tactics broadly fall into two buckets.  First, that prosecutors and investigators may go unchecked and prosecute every violation under applicable anti-corruption laws (unlikely).  Second, that fines will be telephone numbers and jail time (not the case to date in the UK and ‘it’s all relative’ in the US).

However, some openly question the tough enforcement rhetoric and have concluded that governments will not pursue cases in the current economic climate.

Recently we were told that while anti-bribery compliance had moved up the list of priorities for some businesses it remained a discretionary spend.

The perception was that with current economic challenges governments lacked the political will to prosecute corruption in circumstances where the upshot could be loss of jobs.

This is very bad news for those many corporates who have invested in ethical policies and processes.  They stand to lose out as a result of bribes paid by the competition to win business.

In our view, for what it’s worth, the SFO will match its strong rhetoric with public action.

As the Director of the SFO is on record saying:

“There will also be instances of alleged bribery where we decide that…we must start to develop the investigation ourselves. These investigations are going to be complex and will range across many jurisdictions. There are some we are considering now. This will happen.”

Translated this means raids and search and arrest warrants.  A scary prospect or a risk priced in?

In the meantime, the SFO has taken steps to enforce the Bribery Act behind the scenes.  We are aware and Richard Alderman, the Director of the SFO has confirmed, that:

“…there is already Bribery Act activity by the SFO. It is not out there in the public domain because our approach is to corporations and the work we are doing with them at this stage must inevitably remain confidential. There may be outcomes in future depending on what we find that may become public but that is for another day.”

Some will believe these threats and be sufficiently concerned to take preventative steps.

Others will not either because they don’t believe it (the world is flat) or taking the chance that they will not be unlucky and will go undetected (toast lands butter side up).

On the other hand some corporations will suffer financial penalties and economic sanctions and all the hassle and inconvenience that goes with it.  Some individuals will face lengthy investigations and some of them will be found guilty and receive custodial sentences.

In view of the growing list of enforcement actions there would appear to be plenty who take the chance they won’t get caught.  Or, put another way, who in spite of the best efforts of the compliance industry refuse to have the crap scared out of them.  BTW: Point of Order – defence counsel are as happy to defend as they are to help corporations comply so there should be no real motivation to over cook the enforcement risk.

The unvarnished truth is that companies and individuals have a choice which they freely exercise against an increasingly publicly reported risk of prosecution.  We have dubbed the choice the burglars analysis.

That choice: Do they feel lucky?



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Nov 29, 2011 16:34

I absolutely believe—and did even before I read Alderman’s piece on Mike Koehler’s blog today—that the SFO isn’t sitting on their hands. I fully accept that there’s a lot of behind-the-scenes activity. Cases don’t appear out of nowhere: every single enforcement action takes time to investigate, negotiate, and settle. For the SFO, that’s more important than normal because they’re just starting out and they need to make political statements and indicate strategic priorities with their first cases.

Companies shouldn’t ignore anti-corruption risk, and I hope no one takes my post today to indicate otherwise. What I would say is that they need to take a good hard look at what their actual risk is versus what their theoretical risk is. Training, due diligence, monitoring: these are all places to spend time and money. They are also areas, by the way, that apply to a theory of compliance convergence: spending money in these areas pays dividends in other areas also.

There’s enough real risk to merit at least some resource allocation. Compliance has to be about helping the firm succeed, in a compliant way. Overstating risk in order to get more resources smells a little parochial and contrary-to-mission, at least to me.

I also agree with you 100% about outside counsel being just as happy to take on an enforcement action as they are compliance design. Probably—the cynic in me says—more so. I’ve heard again and again from outside counsel that compliance design is a loss leader, and the “real money” is in the internal investigations. If I wanted to insult and upset my outside counsel friends, I’d write a post about that.

Barry & Richard
Nov 30, 2011 2:46

Hi Howard, As usual we are in violent agreement.

There was (and remains) plenty of misinformation about the Bribery Act and enforcement generally. This ranges from the headlines at the beginning of the year that said golf days would be illegal to more recent commentary on corporate hospitality. We have seen references to gifts now being outlawed under the Bribery Act.

We totally agree about focussing on real risks instead of imagined (or worse) risks. We also see very different interpretations of the requirements in relation to corporate hospitality. Frankly, in our experience for all the coverage of the draconian Bribery Act FCPA compliant corporations often have far more stringent rules on gifts and hospitality, for example, than corporations subject to the Bribery Act.

Unrealistic policies are often poorly received in emerging markets and often miss the bigger picture.

So an absolute prohibition on the Lai See festival in China and the gifting of money in the lowest denominated bill (red not brown envelope) is hard to explain culturally. Is this something that the FCPA or Bribery Act is really aiming at? We don’t think so. But if someone puts 100k in a Lai See envelope to win a contract then clearly it would.

The real focus of compliance programs should mirror the real focus of enforcement: Namely as you put it “huge, obvious, blatant, right-in-the-wheelhouse, didn’t-care, out-and-out bribery”.

We’d like to see your post about internal investigations! They will never be ‘cheap’ (and we have been involved in plenty) but some of the numbers which appear in public filings about the costs of running them are mind boggling.

James Vine (@JamesPSVine)
Nov 30, 2011 3:11

I recently had a fascinating conversation with a Chinese business adviser about the culture of the Lai See envelope.

Coming as she does from an ancient established culture that is to the UK, what ours is to the USA, and then some,(only kidding Howard), her understandable approach was effectively, “We don’t need your ‘written law’ to understand the importance of the red envelope. Who are you to dictate to us?”
Doubtless Richard Alderman would be able to put her in her place on that one…..

My gripe about “Compliance Professionals” (and I specifically exclude present company) is what I call the “Fire Salesman” approach.
Many of us in UK and USA will remember the methods of unscrupulous sellers of “in the home” fire prevention kit.
They’d knock on your door, smarm their way in, sit the family down in front of the TV, and then slot a video into the machine for the whole family including kids, to watch.
It contained graphic scenes of the most horrific nature, including damage to houses, and people. Viewers were shocked into buying their wares.
There is a significant element in the compliance market doing just that.

I have one example among many in mind.
After Munir Patel’s sentence, posts started appearing on LinkedIn and elsewhere headlining the six year sentence “for a Bribery Act conviction” thus ignoring the Misconduct aspect which was arguably far more serious, and launching straight into a sales spiel for that company’s Compliance Package, “to save your directors for the alternative destiny that otherwise would undoubtedly be theirs.”
That is the “Crap” that I am delighted to see Howard and are doing their best to flush down the toilet where all crap belongs.

The article also reminded me of the opening remarks made by our Equity and Trusts lecturer at Bar School on the day he was due to deal with Wills.
“We don’t teach the Bar how to draft Wills. There’s far more money to be made afterwards in the Chancery division, sorting out the mess created by incompetent solicitors.”

Happy Blogging!

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