UK anti bribery Act-From the FCPA blog

Once in a while i will be posting articles from other bloggers that i fing relevant/interesting..here is the first one. For those not familiar with the UK Antibribery Act-here we go.

By Michael Volkov

The year 2010 was another record-setting year for anti-bribery enforcement. Headline after headline reported yet another bribery scandal with the usual results: corporate fines, jail sentences, new and aggressive law enforcement strategies. Business anxiety is on the rise. Compliance is the new mantra for businesses.

The new year brings even greater concerns for businesses around the world – the UK Anti-Bribery Act is scheduled to become effective in April 2011.  Fear of the new Act is on the rise. Contrary to the current hysteria, when all is said and done, the UK enforcers will act reasonably, build a track record and focus on egregious cases of bribery, with the focus on UK-based companies. While the law literally can be stretched to cover a number of far-out scenarios, commentators and law firm marketing agents forget about the most important factor – prosecutorial discretion.

A careful look at the issues and a fair consideration of the risks will help to reduce anxiety and focus organizations on what really needs to be done – a commitment and execution of real compliance.

The top three myths are easily addressed:  (1) Extraterritorial Reach; (2) Strict Liability for Failing to Prevent Bribery; (3) The Absence of a Facilitation Payment Exception.

Extraterritorial Reach

Lawyers, consultants and others have pushed this issue to the extreme. In the common scare scenario, a business which is headquartered outside the UK but conducts business in the UK will be found liable under the Act for bribery conduct which occurs entirely outside the UK. While it is true that such conduct may fall within the ambit of the Act, this scenario is unlikely to occur for two reasons – first, the Serious Fraud Office (SFO) recognizes that it has the authority to prosecute such a scenario but will decline to do so for political and precedential reasons. When asked about this scenario, Richard Alderman, the head of the SFO, has suggested that they would not prosecute such a case; second, such a prosecution would raise political concerns and the SFO recognizes that the last issue it needs to contend with is political inquiries. In fact, I expect the SFO will initially enforce the Act conservatively against UK-based companies.

Strict Liability For Failing to Prevent Bribery

A second issue of great concern is the new corporate offense for failing to prevent bribery.  Under the Act, a company can raise a defense that it had “adequate procedures” to prevent the bribe.  The SFO is in the process of issuing guidance on what constitutes “adequate procedures.”  Commentator after commentator has been raising questions concerning this issue. But the answer boils down to a simple equation – if the company institutes a basic compliance program, which is designed to include the basic elements outlined in the United States Sentencing Guidelines, the organization will be fine. If the effort is half-hearted or disingenuous, then the organization will be in trouble. This is not rocket science and there is no need to try to characterize it any other way.  But those self-interested parties seeking to promote fear and possible liability will not tell companies what really needs to be done.

The Absence of a Facilitation Payment Exception

Another issue which companies have heard about is the absence of a facilitation payment exception. Under the Foreign Practices Act, there is an exception which allows companies to make payments to foreign officials for routine services which the company needs to provide the government with a good or service. This exception is rarely relevant given the scale of the government’s investigations and prosecutions. However, for some reason, there are some who believe that the absence of such an exception under the UK Anti-Bribery Act will lead to significant liability for such actions. Again, such claims ring hollow in the face of reality – does anyone really believe that the SFO will initiate prosecutions for such payments which are by definition made without the requisite intent to illegally influence the recipient of the payment? I find it hard to believe that the SFO will no be focused on more serious allegations of corruption and bribery, working in close coordination with other international regulators, including the Securities and Exchange Commission and the Department of Justice in the United States.

Conclusion

While I am tempted to join the chorus of doomsayers on the upcoming implementation of the UK Anti-Bribery Act, I consider it more important to adhere to a belief based on my own 17 years as a federal prosecutor in the United States – prosecutors will reasonably interpret the law, prosecute cases that are strong and appropriate, and exercise discretion in a way to minimize political interference or backlash.  My comments, however, should not be taken as to minimize or excuse companies from designing and implementing appropriate compliance programs.
Michael Volkov is a partner at Mayer Brown LLP in Washington, D.C. His practice focuses on white collar defense, compliance and litigation. He regularly counsels and represents clients on FCPA and UK Anti-Bribery Act issues. He can be contacted here.

Reflections of a fraud investigator

So when they continued asking him, he lifted up himself, and said unto them, He that is without sin among you, let him first cast a stone at her.And again he stooped down, and wrote on the ground.
And they which heard it, being convicted by their own conscience, went out one by one, beginning at the eldest, even unto the last: and Jesus was left alone, and the woman standing in the midst.
When Jesus had lifted up himself, and saw none but the woman, he said unto her, Woman, where are those thine accusers? Hath no man condemned thee?
She said, No man, Lord. And Jesus said unto her, neither do I condemn thee: go, and sin no more.

First things first. I don’t consider myself a religious man. My Sunday school teacher must have been incompetent or maybe...Just maybe I have been reading too much of Richard Dawkins and Christopher Hitchens. But I have also immersed myself in the fine religious works of Karen Armstrong.

I am not about to get into preaching and neither is this post has anything to do with the bible or religion for that matter. However I have been thinking about this bible verse ever since the first day I got involved in fraud investigation and the profession of fighting fraud in general. Ever since I started writing reports detailing misuse of company resources and outright fraud by employees I have always wondered, are there levels of inappropriate behavior where as a "normal" (i shall explain later)  human being you should turn a blind eye on when carrying out  investigation. Is  my expectation of ethical conduct reasonable, do I expect of others to hold a higher moral ground than I would if were in their shoes. Should organizations deliberately set levels of tolerable
In most cases when organizations detect fraud and call in investigators, the investigator is tasked to bring out any element of fraud or deviation from the internal regulations of the company that he comes across.

To be continued….

What is forensic Audit?

Dishonest and fraudulent activity is present in virtually every organization of significant size, perpetrated by employees, customers, agents, claimants, providers, contractors, and vendors. With growing appreciation of the fact that there is an inherent risk that fraud will occur in an organization, auditors are becoming more vigilant in their duties with the aim of identifying fraud. However when fraud is discovered many organization’s are not sure who or where to turn to.

So, what happens when auditors or any other party do identify fraud in an organization? What should management do?

Management in most firms prefer to handle matters of alleged fraud as an internal affair. Most managers consider matters of fraud an internal affair that needs no external or independent intervention. Many managers expect or hope that the fraud will somehow go away once action has been taken on the suspected individuals.

No manager wants to have or be seen to have fraud problems. In fact most managers are often reluctant to acknowledge that problems exist -- unless the problem falls under someone else's area of responsibility.

This tendency toward willful blindness and/or willful ignorance results in a weak response just when a strong one is demanded. The organization sends a powerful message that it will at least tolerate, if not actually encourage, wrongdoing. Perpetrators know that they are safe. When such actions are taken there is a high likelihood of re occurrence of fraud.

How do you handle suspected fraud?

There is a misconception that once an external auditor has given an unqualified audit opinion on a firm’s financial statements, the firm is free from any fraud. It should be noted that in as much as an auditor has a duty to detect fraud and error, this is not his primary responsibility. Even when an external auditor discovers fraud and reports the same to management, the firm is unlikely to have necessary resources to investigate and take appropriate actions. Even internal auditors are not specialised to handle fraud investigations.

The concept of engaging professionals who have specialized in fighting fraud is yet to take root especially in Kenya. The term forensic audit and what forensic auditors do is still not well understood. In Kenya the concept of forensic audit is associated with government scandals. Organizations are reluctant to engage forensic auditors or accountants because such moves could be viewed as an acknowledgement by management that they are unable to handle fraud in the organization.

So what is forensic audit and how is it helpful to organizations faced with fraud.

Forensic audit can be defined as the application of accounting methods to the tracking and collection of forensic evidence, usually for investigation and prosecution of criminal acts such as embezzlement or fraud.

Forensic professionals provide assistance where facts and figures do not agree, or where behavior does not comply with expectations or regulations. Forensic auditors help investigate how long the fraud occurred and how the perpetrator carried it out, according to the Association of Chartered Certified Accountants. Forensic auditors can also act as expert witnesses in court proceedings.

Forensic audit aims at identifying whether a fraud has actually taken place, identify those involved and quantify the monetary amount of the fraud (financial loss suffered by the client), and to ultimately present findings to the client and potentially to court.

 Globally forensic accounting/ auditing has grown and today firms that provide forensic accounting services engage professionals with varied skills and have in their ranks Certified Public accountants, Forensic accountants, Forensic technology professionals, Data analysts, Lawyers, Finance professionals, Former investigative and law enforcement professionals. Forensic auditing professionals provide a wide range of services that include investigations, dispute advisory services, fraud risk management, regulatory compliance (incl. anti bribery & corruption and anti-money laundering services), intellectual property & contract governance, corporate intelligence, economics and forensic technology.“fraud is like cancer, once it starts, it grows spreads and if left untreated, it destroys its host”. There is therefore need for more appreciation of the immense benefits that could be derived by firms in engaging forensic accountants/ auditors whenever they are faced by a possibility of fraud.
Forensic accounting/auditing is a highly specialized field requiring highly skilled personnel who understand not only auditing and accounting techniques but also the relevant legal framework. Given the specialized nature of forensic accounting and the special skills and experience required, forensic services are usually provided at cost higher than traditional auditing. This may explain partly why most organizations are reluctant to engage forensic auditors but opt to leave the task of fighting fraud to their internal audit departments. Internal audit professionals may lack the requisite skills to effectively manage fraud in an organization and this may have adverse effects to the organization in the long term. As it has been observed

Kennedy Waituika

Kennedy is a forensic auditor working in Nairobi. He can be reached on Kenneddy86@yahoo.com

An introduction to this blog

This blog is for everyone. Fraud affects virtually all aspects of our life today. We hear about fraud in Government, private sector, NGOs, Education institutions etc. The effects of fraud cannot be under stated. This blog aims to provide an online platform where the growing community of fraud prevention professionals  in Kenya may congregate to discuss the tools, technologies, challenges, best practices, resources, and rewards of their chosen profession.

We look forward to a healthy discussion that will contribute to the growth of the "fraud fighting professional".

Welcome.