Busting bribery

When the UK Bribery Act came into force last July it forced private equity firms to adapt to some of the toughest anti-bribery legislation in the world. And its reach extended far past UK border lines, capturing any GP with operations in the private equity capital of Europe. 

Nearly one year out from the bill’s live date and GPs are still sweating over its implications and anxious to discover what is expected of them in the UK’s battle against corruption. 

What is clear is that the Act requires captured firms to put in place “adequate procedures” to prevent situations of bribery. Credit goes to UK regulators for providing guidance on what “adequate” procedures look like in practice, but GPs knew it would never be an exact science of compliance. 

UK regulators say courts should follow six principles in determining an adequate anti-bribery policy. The principles advised firms to implement compliance procedures proportionate to the bribery risk they faced through their activities. It further called for firms to implement due diligence programs and periodically undergo bribery risk assessment initiatives. Moreover senior executives should foster a culture of integrity, for instance by communicating its anti-bribery policies or training staff on compliance.

“Firms should look at the risk assessment that the portfolio company has done so they can see for themselves what risks have been identified, what might be missing from the risk assessment, and whether they have done enough to address any risks,” says Jonathan Pickworth of law firm Dechert. 

Pickworth advises firms to also look at the nature of the business itself. Is it high risk? What about the jurisdiction in which it operates in? How does the company train its employees and its agents? Who are they training and how does it test and monitor its processes and controls? And, very importantly, how does the company test this understanding of correct behaviour so as to measure the effectiveness of the training?

“They can either sit back and ignore the warning lights that are on and flashing or they could actually do what the Serious Fraud Office  is trying to encourage them to do which is start asking a few questions,” he adds.

LIABILITY CONCERNS

Liability concerns can also result from persons or businesses simply “associated” with a GP or one of its portfolio companies, the act says. It loosely defines “associated persons” as those performing “services for or on behalf of” of a commercial organisation, and so presumably including employees, agents, subsidiaries, contractors or suppliers.

David Green: taking the helm during challenging times

Consequently one of the industry’s burning questions has been to what extent they could be held criminally liable for the actions of their portfolio companies. 

In a recent statement Richard Alderman, a former director of the Serious Fraud Office (SFO), attempted to offer some insight:  “My view is that we shall need to look at the nature of your interest. If this is simply a portfolio investment and your role is simply one of owners, then employees and agents of the company are not performing services for you. 

“It could be different though if you were far more actively involved in the management of the company and were running it. There would also be issues if one of your representatives was a senior officer of the company. They will be guilty of an offence if they consent to or connive in bribery. They might be personally liable.”

The new SFO director, David Green, who took office at the end of April, was unable to respond to multiple requests for comment by press time regarding any further specifics. 

HOW MUCH YOU SHOULD WORRY

Ironically, for all the preparations GPs are making for the act enforcement may be a challenge for the SFO, the UK office responsible for investigating and prosecuting violations of the Act. 

The SFO’s resources and capabilities were hampered when the office merged with the UK Justice Ministry. It’s budget was subsequently decreased to £34 million (€43 million; $54 million) from a high of £51.5 million in 2008, leading some commentators to ponder just how much political support the SFO has. 

At the start of his four-year term Green defended the office’s relevancy, saying in a statement: “The SFO is here to stay. It is and will remain a key crime fighting agency targeting top-end fraud, bribery and corruption.”

However, he takes charge of a department in a state of flux with its chief executive, general counsel, chief investigator, head of anti-corruption and proceeds-of-crime units, head of fraud, and a senior policy adviser all having left. 

This has led commentators to view the UK Bribery Act as far less of a game changer than it was originally perceived, and see it not as a highly significant risk for most global businesses, as was first feared.  

However fund managers should by no means treat the Act lightly, warn lawyers. An investigation introduces reputational risk. And some have argued the Act itself is simply codification of what should be part of the industry’s participation in the battle against corruption.