UK firms exposed to corruption risk: Report

A lack of awareness of UK and US anti-bribery and corruption laws, and a failure to communicate the rules to employees, is exposing British companies to increased risk, according to a new report from KPMG Forensic.

Under the UK’s 2001 Anti-Terrorism, Crime and Security Act, UK companies can be prosecuted for bribery and corruption committed abroad by their employees. But nearly a third (31 %) of company secretaries and heads of legal departments at FTSE 350 companies admitted that they had taken no steps to communicate the significance and implications of the Act to their employees, while nearly one in five (19 %) were not aware of the provision in the Act at all.

The most frequently given reason for not communicating the significance of the UK Act to employees was that it was “not relevant” to the company’s business – even though 90 % of companies said that they do business overseas.

There is an even greater lack of awareness of the corresponding US legislation. Under the Foreign and Corrupt Practices Act (FCPA), the US authorities can prosecute American companies and foreign companies with a US footprint for corrupt practices involving public officials abroad. But almost half (46 %) of respondents who conduct business in the US either wrongly believe they are not subject to the FCPA or do not know whether they are subject to it.

Alex Plavsic, partner in KPMG Forensic, commented: “Companies appear to be exposing themselves to increased risk of prosecution through a mixture of lack of awareness of the anti-bribery rules, and a lack of engagement even when they are aware. In the UK, the Serious Fraud Office is known to be actively investigating a number of cases. Some UK companies may well suddenly sit up with a jolt and take notice as and when prosecutions are announced.”

“The lack of awareness by companies of the scope of US anti-corruption laws is especially concerning.

Jennifer Hammond, director in KPMG Forensic

Opinions on the virtue of the UK Act were mixed. Three quarters of survey respondents agreed that the UK authorities should have the power to prosecute UK businesses for corrupt practices abroad, and eighty % agreed that the Act was a laudable attempt to put an end to unfair practices. However, nearly six in ten respondents (58 %) felt that the Act ignores the fact that in many countries bribery is simply the way business is done, and nearly forty % thought the Act puts UK companies at a competitive disadvantage. In addition, half of respondents thought that difficulties in collecting evidence meant that the Act was unlikely to be effective.

In the US, the Department of Justice and the Securities and Exchange Commission have been active in prosecuting companies under the FCPA, for conduct occurring both within and outside the US including on foreign businesses with a US footprint. The fact therefore that nearly half of respondents whose companies conduct business in the US believe they are not subject to the FCPA, or do not know, is worrying. In addition, 56 % of respondents who said they are subject to the FCPA did not have, or did not know whether they had, an FCPA compliance program.

Jennifer Hammond, director in KPMG Forensic, said: “The lack of awareness by companies of the scope of US anti-corruption laws is especially concerning. The US regulators take an uncompromising approach to this issue, and have carried out an increasing number of investigations since 2001. Some UK companies may not be paying much attention to it because FCPA compliance is handled out of their US operations – but given the extra-territorial nature of the rules, they need to fully understand the requirements. Ignorance will not be an acceptable excuse to the US regulators.”

In terms of how widespread corrupt practices are, only ten % of respondents thought they occurred frequently in their business sector to gain contracts or commercial advantages abroad. However, over a third (36 %) believed that they sometimes occurred, and over a fifth (22 %) that they occasionally happened. Interestingly, most respondents (55 %) believed that instances of corruption were less common in their own business sector than in others, while only nine % thought that they were more common.

Over a quarter (27 %) of respondents admitted that their organisation had carried out investigations into suspected bribery or corruption in the previous three years, although ten % said they didn’t know. Of those that had carried out an investigation, most commonly they had carried out only one such investigation (45 %), although nearly a quarter (24 %) had carried out two.