Ethical shortfall

With its soft-touch approach to regulating anti-bribery laws, Britain is not doing much to shed its image as a pushover jurisdiction. This is bad news for the country’s reputation as well as the companies based here.

The OECD’s working group on anti-bribery has once again blasted the UK’s failure to bring its laws in-line with international standards. The group said it was ‘disappointed and seriously concerned’ about the UK’s continued failure to address deficiencies in its laws. It follows similarly harsh criticism in 2003, 2005 and 2007.

'UK legislation makes it very difficult for prosecutors to bring an effective case against a company for alleged bribery offenses,' said the Paris based organisation.

That view has been backed up by government inaction. In 2006, the UK’s enforcement authority, the Serious Fraud Office (SFO), abandoned a probe into the £43bn (Euro54.5m) Al-Yamamah arms deal with Saudi Arabia. BAE, a defence contractor and one of Britain’s biggest companies, was accused of handing out kickbacks to secure the deal to supply fighter aircraft and services to the Saudi government. The investigation was abandoned after Tony Blair, then Prime Minister, said it was a threat to national security.

BAE denied the claims but launched its own internal investigation. The inquiry revealed top management admitted failing to pay sufficient attention to ethical standards that could have damaged its reputation.

This approach contrasts sharply with that taken in the US, a jurisdiction that strictly enforces its corruption rules around the world. In August, two former US Virgin Islands government officials were sentenced to 16 years in prison for a $1.4m bribery and kickback scandal.

“UK legislation makes it very difficult for prosecutors to bring an effective case against a company for alleged bribery offenses

OECD

Just because Britain is incapable of enforcing the rules doesn’t mean someone else won’t. After the SFO abandoned its inquiry into BAE, the US Department of Justice launched its own investigation, which led to two BAE executives being detained and questioned when they touched down on US soil.

US legislation allows prosecutors to take action against companies overseas as well, even though the corruption may be taking place in a foreign country. The US authorities are worried foreign competitors could be earning an unfair advantage because they are rarely prosecuted by their own domestic regulators for corrupt practices overseas.

As well as putting directors at risk of prosecution by foreign countries, the apparent inadequacy of Britain’s own rules could be having other knock on affects. In its recent report, the OECD warned that uncertainty in the UK’s legal framework could trigger increased due diligence over UK companies by their commercial partners.

And in the absence of an effective domestic corporate liability regime some UK companies may not be taking the issues that seriously. A survey by Ernst & Young found that bribery and corruption still plays a role in the conduct of business in Britain. 13% of all UK respondents said that their organisation had experienced at least one incident of bribery or corruption in the last two years, compared to 6% in Germany and 6% in France.

Promoting ethical behaviour is not just about staying on the right side of the law it is good business too. Siemens has done untold damage to its corporate reputation by failing to spot that some of its people were engaging in questionable business practices.

BAE’s report noted: ‘In the global economy, corporate reputation has become an essential part of an enterprise’s value and the effective management of ethical and reputational risks has become a critical element of corporate governance.’