An international director's challenge in managing corruption risks

April 2012

Contacts

Corruption continues to undermine economies and impede progress in the world, distorting markets and preventing aid from reaching those who need it most. Countries and companies in the Asia-Pacific region face considerable challenges in managing the corruption risks posed by the way business is traditionally done. By inference, the boards of directors and senior management are often confronted by leadership dilemmas in ethical decision-making. They also run the risk of incurring personal liability.

The starting point for any international director or senior manager is to have a reasonable grasp of the different types of laws which apply in the Asia-Pacific region. Some countries have legislation which prohibits bribery in both the public sector and the private sphere, such as Singapore and Hong Kong. Other countries focus more on bribes paid to domestic government officials and are looking to enact laws to criminalise corruption in commercial transactions as well, such as Indonesia and Thailand. A further dichotomy would be the treatment of foreign bribery versus domestic bribery. In this regard, China notably amended its laws in May 2011 to prohibit the payment of bribes to “foreign officials” and “officials of international public organisations” while the bribery of domestic public officials had always been a crime. In some instances, subtle nuances in the laws need to be understood. For example, some countries like Australia, the United States and Canada have the legal exception of “facilitation payments” to the offence of the bribery of foreign public officials - although Australia has recently shown intentions of amending its laws to remove the exception. For an overview of the relevant laws of countries in the Asia Pacific region, see the Norton Rose Group guide here: Anti-corruption laws in Asia Pacific.

Increasingly, private commercial enterprises are looking at their anti-corruption compliance frameworks, including their internal systems and controls, to ascertain their effectiveness and adequacy. This was prompted largely by the introduction of the corporate offence in the UK Bribery Act which came into force on 1 July 2011 (see our briefing on the implications of the UK Bribery Act). According to this corporate offence, a commercial organisation that is carrying on business in the UK can be liable for a crime of failing to prevent bribery carried out by its employees or agents anywhere in the world, including the Asia-Pacific region. The knowledge or intent of the commercial organisation is irrelevant, leaving only the motive and action of the wayward employee or agent to be assessed. The UK Bribery Act allows the commercial organisation only one defence - that it had “adequate procedures” in place designed to prevent bribery from occurring, entailing a critical review of its compliance framework.

Although the offence is targeted at corporations (and punishable by unlimited fines), there are personal consequences for directors - ranging from claims for breach of fiduciary duty by the company and shareholders (see our briefing on the Avon case), to failure to comply with corporate governance practices applicable to listed companies, and doubts as to the fitness and propriety of a director on the board of regulated entities, such as financial institutions. Directors and senior managers who consented to or connived in the payment of bribes may be personally guilty of a crime. Not only are they exposed to criminal sanctions but conviction may result in disqualification as director for years thereafter.

In addition to the anti-corruption laws of the various countries, corporate leaders also need to take heed of anti-money laundering legislation and whistleblowing regimes.

Money-laundering and bribery are often inter-related with one invariably giving rise to the other. There also is an emerging trend of regulatory and investigative authorities using anti-money laundering laws, which are in some aspects more draconian and onerous, in corruption cases. A recent UK enforcement action has seen anti-money laundering laws used to force the shareholder of a company to disgorge dividends it received on the basis that they represent the proceeds of crime committed by the company. It was not even necessary to show that the shareholder was guilty of corruption.

Whistleblowing is one of the most important ways of detecting bribery and corruption within an organisation. While some Asia Pacific countries have put whistleblowing regimes in place, it is the US Dodd-Frank Act’s offer of significant monetary rewards which has made the most impact. It may even have spawned a breed of whistleblowing claimants.

The internet and social media have provided another channel for complaints to be made. Websites such like www.ipaidabribe.com reveal much that was concealed or left unspoken in the past.

The challenges in managing bribery and corruption risks appear daunting but they are not insurmountable. An appreciation of the legal issues, the making of a firm commitment to address areas of concern and the deployment of adequate resources would be key elements to effectively mitigating the risks involved.

This article first appeared in the AICD International newsletter under the title “Anti-corruption laws in the Asia-Pacific region”.