Implications for businesses in Japan
The first case tried under the UK Bribery Act was relatively minor: last November, an administrative clerk was found guilty of taking a bribe to clear convictions of speeding motorists from an English court database.
While this matter is unlikely to have unduly worried large corporations, increased resources and improved international cooperation are giving British regulators the teeth to pursue more claims, placing further pressure on firms conducting business in the UK to weed out corruption.
UK regulators join war on bribery
The Bribery Act, which came into force in July 2011, shows the international community that the UK is taking a strong stance against corruption. It is the toughest anti-graft legislation to date, with more rigorous obligations than the US Foreign Corrupt Practices Act (FCPA).
Senior executives risk a maximum jail sentence of 10 years for giving or receiving bribes, while corporations can receive an unlimited fine for failing to prevent bribery.
This new so-called corporate offence is of particular concern to global corporations, since a firm assessed to be conducting business in the UK may be found guilty, even should an associated party pay a bribe outside of the UK to obtain a business advantage.
For example, in the case of a Japanese firm with branches in London and Beijing, the corporate headquarters could be found culpable if a contractor of the Chinese branch paid a bribe to win a contract.
The only defence in this situation would be for the firm to demonstrate that it had introduced adequate procedures to prevent the payment of improper inducements.
Japanese firms particularly at risk of violating the Bribery Act include those having regular contact with foreign governments and state-owned enterprises, especially when operating in industries known to have a tendency towards corrupt practices in certain jurisdictions, such as oil and gas, real estate, construction, medical supplies and pharmaceuticals.
Meanwhile, supported by the strength of the yen, more Japanese firms are seeking investment opportunities in developing countries that often present significant challenges. Although these jurisdictions offer impressive growth potential, they can be more susceptible to corrupt business practices, particularly given the culture of gift giving found in many countries.
In the context of a resurgent M&A market, firms should also be aware that, under the Bribery Act, the acquiring firm may be held liable for any prior or continuing unlawful payment on the part of the firm being acquired.
Some firms already have various measures in place to combat corruption, but the Bribery Act necessitates a review of these policies, since private-sector bribery is also prohibited. Even corporate hospitality may violate the regulations, should it be linked to the securing of inappropriate business gain.
While this may seem onerous, especially in a country such as Japan where business entertainment is commonplace, routine expenditure within reasonable industry norms should not be criminalised. Nevertheless, in order to demonstrate a genuine attempt to combat bribery, Japanese firms should review their hospitality policies, reduce lavish expenses, and introduce appropriate safeguards.
Measures to deter and detect corruption
Considering that the cost of being unaware or underprepared is substantial, FTI Consulting recommends that firms be proactive in introducing a robust anti- corruption compliance programme and review their current procedures. We have recently advised clients on the following procedures to ensure business practices are in compliance with the Bribery Act:
• Compliance policies
Introduce global anti-corruption programmes, including guidelines on business gifts and entertainment (such as a pre-approval system) and frameworks for employees seeking advice, customised to account for cultural differences and local regulations.
• Periodic risk assessment
Understand which areas of the organisation are at high risk of corruption; identify these by reviewing interaction with government officials; identifying high hospitality expenses; identifying commission payments; and identifying the location of operations.
• Anti-corruption due diligence
Determine the background and reputation of current and potential business partners, principals and primary agents, including their relationship with foreign officials and any history of improper business dealings.
• Forensic accounting due diligence
As part of financial due diligence, analyse books and records of business partners and acquisition targets to identify any red flags for corruption, such as unusual commissions, lack of transparency in expenses, and relationships with third- party agents.
• In-house training programmes
Ensure a thorough, organisation-wide understanding of bribery regulations, their application and the repercussions of violations.
• Investigative resources
Build an experienced, multidisciplinary team of advisors able to respond to corruption allegations—by conducting vigorous, impartial investigations into alleged improper activity— and understand the implications of potential violations.
Proactive development of an effective, substantial compliance programme makes economic sense. The relatively low cost of introducing appropriate measures reduces both the likelihood of prosecution by increasingly aggressive regulators, as well as the potential financial consequences and damage to reputation associated with any investigation should violations surface.