On the fourth anniversary of  entry into force of the Bribery Act the UK government published “Impact of the Bribery Act 2010 on SME’s”.

For the purposes of the report an SME was:

The report broadly speaking attempts to frame the Bribery Act in the context of a success which has had little impact on SME’s who have been able to deal with it with minimal cost and with little effect on sales.

We have extracted the executive summary of the (lengthy running to 69 pages) report below.

But.  All is not what it seems…

“Two-thirds (66%) of the SMEs surveyed had either heard of the Bribery Act 2010 or were aware of its corporate liability for failure to prevent bribery. Awareness was greater among SMEs exporting to regions that are less developed, including the Middle East, Asia, Africa and South and Central America (68%) compared to those companies only exporting to developed regions including Europe, North America and Australia (56%).

Around eight in ten SMEs (81%) that had heard of the Bribery Act were also aware that the Act has extra-territorial reach (i.e. it encompasses bribery offences committed overseas).

Of all SMEs that were aware of the Bribery Act, almost three-quarters (72%) perceived that their company had sufficient knowledge and understanding to be able to implement adequate anti-bribery procedures. This perceived knowledge and understanding was greatest among those SMEs that were aware of corporate liability for failure to prevent bribery (79%) compared to those that had only heard of the Act itself (45%).

Three-quarters (74%) of SMEs that were aware of the Bribery Act were not aware of the MoJ guidance published in March 2011 to help commercial organisations understand the procedures they can put in place to prevent persons associated with them from bribing. Of those SMEs that were aware of the MoJ guidance, three quarters (75%) had read the guidance and the majority of these (89%) reported that they found the guidance to be useful.

Other guidance and associated costs

A third (33%) of SMEs aware of the Bribery Act or its corporate liability for failure to prevent bribery provisions reported that they had used some form of guidance other than or in addition to reliance on the MoJ guidance. When asked what the guidance that they had used was, 21% of those using other guidance reported guidance from lawyers or solicitors, 15% used guidance from other business consultants, and 14% used guidance from trade or professional bodies.

SMEs were also asked if they had sought any professional advice about the Bribery Act or about bribery prevention. Around a quarter (24%) of SMEs who were aware of the Bribery Act or its corporate failure to prevent provisions had sought such advice, which was most commonly offered by legal professionals (54% of those seeking professional advice).

Almost all (96%) of SMEs that had sought professional advice found the advice that they received useful (58% very useful and 38% fairly useful) and good value for money (45% very good value for money and 45% fairly good value for money). The mean cost to SMEs of professional advice was around £3,740, the median cost was lower at £1,000.

Bribery prevention procedures

A third of SMEs (33%) had assessed the risk of being asked for bribes, leaving just under two-thirds that had not assessed the risk of being asked (59%). SMEs exporting to the less developed export regions (36%) and in particular to China (52%) were more likely to have assessed the risk of being asked for bribes.

Around four in ten SMEs (42%) said that they had put bribery prevention procedures in place; defined as anything that they thought helped prevent bribery. Among SMEs that did have procedures in place, these procedures were most typically financial and commercial controls such as bookkeeping, auditing and approval of expenditure (94%) or a top level commitment that the company does not win business through bribery (88%). Just under half of those with procedures in place had written staff policy documents about bribery prevention which are signed by staff (48%) or raised awareness and provided training about the threats posed by bribery in the sector or areas in which the organisation operates (44%). Again, SMEs exporting to the less developed export regions (45%) and especially China (59%) were more likely to have bribery prevention procedures in place.

Of those that had bribery prevention procedures in place that incurred some cost, the mean spend so far on these was around £2,730; and the median spend £1,000. The median is much lower than the mean because there were a few companies quoting a very high expenditure, raising the mean. The average spend was clearly linked to company size with micro companies spending the least (mean spend of £1,030) and medium companies the most (mean spend of £4,610).

Small Scale Solicitation

Among the SMEs that exported only 6% reported that employees of their company or agents acting on the company’s behalf had ever been asked for cash payments, gifts, donations or goods in kind such as cigarettes or alcohol that could possibly be described as a bribe. The most commonly mentioned country where this has been experienced was China (mentioned by nine SMEs), followed by Russia and Saudi Arabia (three SMEs each).

Impact on exports

The majority of SMEs aware of the Bribery Act (89%) felt that the Act had had no impact at all on their ability or plans to export. Furthermore, when prompted as to whether they had any other concerns or problems related to the Bribery Act, nine in ten (90%) reported they had no specific concerns or problems.” [our emphasis]

Opinion

It is a worry – though no doubt an accurate reflection of the position.

Only 2/3 had heard of or were aware of the Bribery Act.

Of those aware, 1/4 perceived that their company had insufficient knowledge and understanding to be able to implement adequate anti-bribery procedures.  At least they were self aware.

Put another way, Less than half of SME’s surveyed, namely 75% of the 66% who had heard of the Bribery Act thought they understood what it was about!

75% of those aware of the Bribery Act had not heard of the Ministry of Justice guidance.

25% of those aware of the Bribery Act sought advice, the mean cost to SMEs of professional advice was around £3,740, BUT median cost was lower at £1,000.  Put another way the majority of those seeking advice spent less than £1,000.

Only 4 in 10 SME’s said they had put anti-bribery procedures in place and only 1/3 had apparently risk assessed the likelihood of being asked for bribes.

Against that backdrop Mike Penny MP, (pictured) responsible for the report introduced it saying:

“The Bribery Act 2010 came into force on 1 July 2011. Around the world it is now regarded as the legislative best practice standard and, along with the US Foreign Corrupt Practices Act (FCPA), is one of the two most significant legislative models for dealing with international bribery.

One of the principal policy objectives associated with the Bribery Act, and in particular the corporate failure to prevent bribery offence at section 7, is to influence behaviour and encourage bribery prevention as part of corporate good governance. The  ‘adequate procedures’ defence to a charge under section 7 is intended to encourage companies to realistically assess the bribery risks they face and put in place proportionate procedures to mitigate them. This is not, however a question of legal compliance to create a corporate safe harbour. Tick box compliance will not do. The aim is to promote the establishment of a bribery prevention dynamic in which policies, procedures and strategies are embedded in all aspects of business management, administration, and operations.

In March 2011, three months before the Act commenced, the Ministry of Justice published guidance to assist businesses in deciding what bribery prevention procedures will be right for them based on six guiding principles. The principles reflected already well-established good governance concepts but emphasised the importance of taking a proportionate approach. Procedures should be proportionate not only to the level of bribery risk but also to the key characteristics of a businesses, such as its size, management structure and business model. What is ‘adequate’ for a large company facing moderate to high risks will far outstrip the bribery prevention needs of a small company facing low to moderate risks.

A vibrant and efficient exporting SME sector is an essential element of the Government’s growth strategy. It is vital therefore that SMEs do not, as result of misapprehension of their impact and purpose, seek a disproportionate, burdensome and costly response to the Act and the Ministry of Justice guidance. The Government became aware that this message may not be sufficiently percolating through the SME sector. As part of a professional and business service industrial strategy to facilitate growth in the sector, the Government commissioned, under the auspices of the Red Tape Challenge initiative this study.

The extent of knowledge and awareness evidenced by this report are encouraging, many businesses have assessed the bribery risks they face and taken steps to mitigate them. The research reveals that SMEs are generally taking a proportionate, pragmatic and low- cost approach to winning business without bribery. There is, however, no room for complacency. The report identifies the need for the Government in association with key stakeholders to continue the work in communicating the simple key messages about the Act and existing guidance”.

Stripping out the political spin the report underscores that few SME’s understand the risks they face, they likely do not understand bribery and its guises and in our anecdotal experience they underestimate the risk of being investigated.  The refrain that the SFO will not be interested in a small company belies the reality.  For example the recent prosecution of Smith & Ouzman.

On the other hand. We could be wrong and it may be that if you have heard of the Bribery Act and have spent c. £1-5k on advice that HMG is of the view that businesses do indeed have Adequate Procedures.  We doubt the SFO would agree.

It appears the majority of SME’s are much more exposed than they realise.  Some may be taking an informed choice but on the statistics of this survey alone worryingly others are simply ignorant.

Sadly ignorance is no defence.