Improvements still required by managers on Bribery Act compliance

InvestorsLegalOperational RiskRegulation
19 Jul, 2012

Hedge funds and other buy-side firms must undertake greater due diligence on intermediaries, particularly in foreign jurisdictions, so as to ensure total compliance with the UK Bribery Act, it has been warned.

Despite a year passing since its implementation, Nicholas Holland, partner at law firm Bircham Dyson Bell in London, said more progress was needed.  “The Bribery Act is incredibly broad and extraterritorial. While managers have made significant improvements, there is still more work to be done, particularly when reviewing how intermediaries, contractors or third parties operate in foreign countries,” said Holland.

This comes following revelations that oil giant BP is being investigated by the Serious Fraud Office (SFO) over bribery allegations made by a contractor working on an engineering project in Azerbaijan. Holland referenced the ongoing case and highlighted it should serve as a wake-up call to financial institutions.

“Certain markets are higher risk than others which makes it essential to ensure that there are procedures in place to mitigate the risk of falling foul of the Bribery Act. This can be achieved by having manuals and procedures in place to comply to the highest degree with the rules,” he said.

Nick Matthews, member at Kinetic Partners, agreed, saying certain jurisdictions and strategies were more vulnerable, adding the consultancy had been working to ensure managers were aware of the challenges.

The Bribery Act prohibits bribery and facilitation payments to any person for the procurement or advancement of business. Unlike the US Foreign Corrupt Practices Act (FCPA), widely considered to be the benchmark for anti-corruption legislation, the UK equivalent extends to private individuals as well as foreign public officials.

Concerns, however, remain about the level of compliance at financial institutions. An Ernst & Young (E&Y) survey of asset managers conducted six months after the law was enacted revealed major discrepancies.

Some 85% of European asset managers told E&Y they reviewed expenses claims and maintained records on donations, entertainment and gifts but numerous firms did not have clearly defined thresholds for such activities. Reporting thresholds for entertainment and gifts ranged from £25 to £500 although some organisations did not even bother with reporting thresholds at all.

There were widespread fears that corporate hospitality events such as Wimbledon could be prohibited although this has not materialised. Furthermore, several industry figures have said the SFO has been helpful in explaining what is acceptable and what isn’t. Nevertheless, one fund manager said he had heard anecdotally that some service providers had cancelled planned client events at the London Olympics for fear of falling foul of the rules.

There have been very few prosecutions under the Bribery Act, which has led several commentators to question its clout. However, Matthews disagreed. “The Bribery Act and the resolve of the SFO in enforcing it should not be underestimated.  Prosecutions will come but it will take time for cases being investigated to find their way to prosecution and the corporate offence will only apply to acts of bribery committed after the Act came into force last July.  The SFO is also likely to prefer to introduce it softly to give people time to get to grips with the rules rather than appearing to come down too hard, too soon. I also believe the SFO is more interested in offences committed by bigger players rather than small fry cases,” said Matthews.

Bribery ActE&YForeign Corrupt Practices ActKinetic Partners