Staff vetting an extra string to your bow to combat bribery and corruption

In recent years, UK regulators and law enforcement agencies have taken a tougher approach to the supervision and oversight of regulated firms and listed business.  As financial markets hardened, there are greater risks of businesses and employees being persuaded to commit acts of bribery in order to meet sales targets, win tenders and new business.

New Bribery laws have empowered the Serious Fraud Office (SFO) to tackle criminal acts of bribery and corruption, and not wishing to be left out the Financial Services Authority (FSA) the city regulator is actively pursing regulated firms for failures to implement robust anti-bribery systems and controls.  In light of the Chancellor of the Exchequer’s Mansion House speech, a possible merger between the SFO and the FSA, perhaps with elements from the Office of Fair Trading, Revenue & Customs and the Fraud Prosecution Service, to form an Economic Crime Agency could see bribery and corruption being tackled from many angles by one agency.

New corporate bribery offence

The UK has been under pressure to reform its bribery laws for a considerable time and the Bribery Act 2010 (“the Act”) and to meet this demand the Act finally received Royal Assent on 8 April 2010. The Act is due to come into effect in October 2010 which leaves relatively little time for business to grasp and action implications to the Act.

Of significance is the introduction of a new corporate offence, making an organisation liable for any employee bribery if it fails to put in place adequate procedures to combat .  The Act provides that a relevant commercial organisation will be guilty of an offence if a person associated with the organisation bribes another person, intending to obtain or retain a business advantage for the organisation regardless of where the bribe takes place if that organisation carries on any activity, business or part thereof in the UK.

The Defence - “adequate procedures”

However, there is some reprieve for businesses.  A defence to the offence is available if the commercial organisation can show that “adequate procedures” were in place to prevent such persons connected and associated to the commercial organisation from undertaking such conduct.

Although the Act imposes a statutory duty on the Secretary of State to produce guidance on what such “adequate procedures” actually means, there is no guidance at the moment.  There is no firm date for the guidance to be issued and there is real concern about the time given to companies to digest the guidance, review internal policies and make the necessary changes. Employers should start preparing for the implementation of the Act now.

Key considerations for “adequate procedures”

In a letter from Lord Bach (the then Parliamentary Under Secretary of State) dated December 2009 to the House of Lords, he set out the government’s intention that the guidance be flexible and not regulatory in nature as they did not wish it to be prescriptive in standards, so that organisations can develop procedures appropriate to their own circumstances and business sectors.  Lord Bach highlighted key areas which are likely to be considered important by the court where they are appropriate to the particular organisation and the level of risk it faces:

• A company’s board of directors should take responsibility for implementing an anti-corruption programme within a company.
  
• A senior officer should be directly accountable for oversight of the anticorruption programme.
  
• Commercial organisations should have a clear and unambiguous code of conduct which includes an anti-corruption element, should publicise this code adequately internally, and should publish the code on its website.
• There should be a gifts and hospitality policy and measures put in place to monitor this activity.
• Anti-corruption training should be provided.
• Due diligence should be carried out on the country in which the business is to be conducted.
• Decision-making processes should be formalised, so that where a greater risk of corruption is perceived to exist, the decision is taken be a suitably senior individual within the organisation.
• Financial controls should be put in place to minimise the risk of the company committing a corrupt act.
• Procurement and contract management procedures should be used to minimise the opportunity for corruption by subcontractors and suppliers.
  
• Whistleblowing procedures should be implemented for employees to report corruption in a safe and confidential manner.

Key considerations in relation to employers

In relation to employers, wherever possible:

• employees should be vetted before they are employed to ascertain as far as is reasonable that they are the type of person who is likely to comply with the company’s ethical policies;
• employment contracts should include express contractual obligations and penalties in relation to corruption; and
• disciplinary procedures should be in place which, where appropriate, entitle the company to take suitable disciplinary action against an employee who commits a corrupt act.

Vetting staff

One of the most important controls that firms can put in place to root out bribery and corruption is to ensure they have robust procedures in place when recruiting their staff.  Certainly in the financial services industry, the recruitment and vetting of staff has consistently been raised by the FSA during recent thematic reviews, most notably, Data Security in Financial Services (April 2008), The Small Firms Financial Crime Review (May 2010) and Anti-bribery and corruption in commercial insurance broking (May 2010) and is certain to feature when the FSA focuses its attention on anti bribery and corruption systems and controls in the investment banking sector.

The FSA has indicated that firms should adopt a risk based approach both to implementation of staff recruitment and vetting procedures and receipt of adverse information which results from these procedures.

In terms of anti-bribery and corruption, this means that firms should consider enhanced vetting for staff who are to be employed in higher risk positions regardless of whether they are senior or junior members of staff.  Examples of individuals who hold such positions would include account staff who are responsible for processing payments to third parties and individuals who are responsible for approving or reviewing third party relationships with the firm.

Enhanced vetting procedures

In order to undertake comprehensive enhanced vetting procedures for employees who are to work in roles where it is considered they will pose a greater bribery and corruption risk to the firm, firms should consider performing checks of credit and criminal records, financial sanctions lists, intelligence databases and the CIFAS Staff Fraud Database and if the individual has previously worked in the regulated sector, firms may wish to contact the relevant regulators in order to ascertain whether the individual has a history of misconduct.

These vetting process should be undertaken both at the initial recruitment stage and then revisited regularly during an employee’s employment with the firm in order to capture, for example, changes in a member of staff’s financial circumstances which may make them more susceptible to committing a corrupt act.  Firms should not just rely entirely on an individual’s reputation in the market as the basis for recruiting staff.

In relation to the financial services industry, the FSA has highlighted that the vetting of staff in many commercial insurance broker firms was weak compared with other financial services sectors.  The FSA found there was a heavy reliance on market reputation when firms were making decisions as to who it would employ and that many firms’ pre-employment checks were limited to references with no formal checks being undertaken into their criminal records or financial soundness.

Adverse information

In the event firms complete their staff recruitment and vetting procedures and come across adverse information, the seriousness, relevance and individual’s role or proposed role should be taken into consideration.  In some cases, firms may consider the adverse information against an individual to be either not serious or relevant in the context of the individual’s role whereas in other instances it may result in firms making the decision not to employ the individual or terminate the individual’s contract of employment due to the seriousness of the information.

Employment agencies

As far as firms who outsource their recruitment process to employment agencies are concerned, firms should ensure they are aware and understand the checks conducted by the agencies when considering prospective staff.  Furthermore, firms should audit periodically the employment agencies to ascertain whether the agencies are complying with their vetting standards.  Once again, firms should ensure these standards are being adhered to regardless of the seniority of the position or whether the contract being offered is temporary or permanent.  The risk of bribery does not decrease either because a member of staff is junior rather than senior or because a temporary member of staff handles higher risk business rather than a permanent member of staff.

Whether the FSA remains in its current state or becomes part of a larger financial crime agency, the fight against bribery and corruption will remain centre target for years to come.  Through robust initial and ongoing staff vetting, firms can remain on target.

“Companies need to recruit and train people in whom they have confidence and whom they can trust. It is confidence and trust that are real safeguards against fraud and disaster, and they can only be fostered and instilled on a sound ethical basis”

Sir Adrian Cadbury, Committee on the Financial Aspects of Corporate Governance, 2002

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