K2′s Matteo Bigazzi on FSA’s Willis Ruling

Posted on July 22nd 2011, by K2 Global London Office

K2 Managing Director, Matteo Bigazzi, was recently quoted in a Strategic Risk article on FSA’s Willis ruling.  According to the piece, “Willis was found to be making payments to oversees third parties which helped them to win business without adequate anti-bribery and corruption controls in place.” Matteo commented on the role of intermediaries in the case, a subject he has explored in depth on this blog.

Here’s Matteo’s full comment on the case, which was excerpted in the article:

One of the greatest compliance challenges companies face is gaining a full understanding of the activities and methods of intermediaries acting on their behalf. The FSA fine handed to Willis, which follows that to Aon in January 2009, also confirms the focus by regulatory bodies on this particular aspect of corrupt practices. The good news is that identifying and assessing exposure to intermediaries has become possible thanks to new methods reliant on technology, such as continuous monitoring, data mining and web-based incident reporting platforms, and that boards now have tools at their disposal to actively contain their risk.

Being the First to Know – Corruption in the 21st Century

Posted on May 13th 2011, by K2 Global London Office

This year corruption has become part of the most prominent and pressing political story in the world. Decades of inequality between the powerful and the poor in Arab states have resulted in mass public demonstrations and changes of regime; elsewhere, governments have responded to this threat to their legitimacy by clamping down on protest and the free press. Broadly speaking, the people of the world are beginning to act on a long-held desire to have their fair share of political representation and economic reward.

The problem is complex, entrenched, and affects all strata of business in all countries. It is not susceptible to easy solutions. Western governments have quite rightly passed laws that seek to control how Western companies behave, but these laws are frequently incomplete and in many instances confusing. Inadequate guidance leaves companies having to make decisions about how to tackle the problem without clear priorities.

K2 Global’s position is that the basis of any anti-corruption approach should be to possess the best possible information about the real and evolving corruption risks in your company. Only by doing so will you be able to find strength and even competitive advantage in your response to legislation and business challenges that might otherwise severely weaken your organization. In short, it pays to be the first to know.

The UK Bribery Act

The situation is particularly acute for companies incorporated in, or otherwise linked to, the UK. The UK Bribery Act 2010 comes into force on 1st July 2011. This legislation has attracted supporters and detractors alike; lauded by some as a belated and necessary fix to the regulatory vacuum surrounding bribery and corruption, the Act has also drawn strong criticism for imposing significant impediments to the way that businesses connected to the UK are able to operate in international commercial markets.

Notwithstanding additional, more lenient guidance, the Act remains inconsistent and adds to a patchwork of international laws and guidelines on corruption that frequently conflict with each other. More worryingly, perhaps, the political, legislative, regulatory and judicial bodies responsible for enforcing the legislation appear to differ significantly about how to interpret and apply it.

Some of the Act’s shortcomings derive from an understanding of bribery which is narrow and, as a result, overbearing on one party to a corrupt transaction; the one paying bribes. The fundamental flaw with this interpretation is that it artificially simplifies the nature of corruption: bribe-payers seeking an advantage coerce passive officials in order to obtain such advantage. Reality is different; parties to bribery are either coercers who pay or extorters who demand. Targeting one side of the relationship does not eradicate bribery, as extorters are able to shift focus to other coercers who are prepared to play by their rules.

Clarity essential

This creates one set of problems, with companies adhering to the Act encouraged to wonder how doing so might affect their competitive strength internationally, something which may undermine overall compliance. But the bigger difficulty, in our view, is lack of clarity around the Act’s enforcement.

There is no question that Western countries should actively and forcefully pursue eradicating corruption. This requires, however, political realism, commitment and engagement and not mere condemnation. Above all, it requires a clear enforcement framework whereby the applicable rules and regulations are clearly laid out beforehand. So far, this has not been the case with the Act. The guidance published by the Ministry of Justice to businesses is at variance with the guidance to prosecutors issued by the Serious Fraud Office and the Crown Prosecution Service. Perhaps the most blatant example of such difference relates to the extra-territorial reach of the Act: whilst the Ministry of Justice does not consider an international company to be bound by the Act if its sole presence in the UK is a listing on the stock exchange, the Serious Fraud Office takes an opposite view. There is similar divergence in respect of whether facilitation payments could prompt prosecution.

Guidance elusive

Such confusion is harmful. Nor does it help that businesses seeking to comply with the Act have nowhere to go to seek clarification. The Serious Fraud Office, which is the regulator for the Act, has not specified what would be regarded as adequate procedures and has stated that it will use its prosecutorial discretion on a case-by-case basis (and with the benefit of hindsight!). There is also confusion with regard to the benefits of self-reporting. The Act contains no requirement to this effect, but the Serious Fraud Office has made it clear that any commercial organization that discovers acts of bribery and does not make a full and frank voluntary disclosure will be treated harshly.

Being the first to know

Companies that will fall under the jurisdiction of the Act have one of two choices to make: either to adopt a passive stance and put in place what they believe are adequate procedures, hoping that no instances of bribery come to light; or to actively pursue a “first to know” policy, whereby positive steps are implemented to identify and mitigate risk exposure under the Bribery Act.

There is no right or wrong answer. But there is, in our opinion, a preferable one; and that is to be the first to know.

Uncertainty surrounding the Act and its enforcement framework may lead companies to think that whatever proactive measures they take will not provide them with immunity from prosecution. It is this very uncertainty that should drive companies to seek assurance by understanding how vulnerable they are to corruption and how able their systems and processes to counter it. An accurate assessment of exposure to corruption coupled with effective preventative measures provides the best tools available to businesses to not only limit their exposure to the uncertainty surrounding the enforcement of the Act but also, more importantly, to eradicate corrupt practices that may be occurring.

An effective “first to know” policy requires solid analysis and stress testing. It requires a comprehensive understanding of existing exposure to corrupt practices, followed by a full review of the policies and procedures in place to counter these, and finally a thorough testing of their usefulness and strength.

Conclusion

Being the first to know offers a number of distinct advantages. Apart from providing an organization with a clear understanding of its exposure to bribery and corruption, it enables it to stop the conduct, limiting further liability; to plan with care how it will manage any instances of bribery that it uncovers, rather than passively watch events unfold; and to self-report, should it deem it appropriate to do so. In brief, a company that knows of bribery taking place will maintain a degree of control over the consequences; and in an environment that is rife with uncertainty over the rules that apply, confusion over how they will be enforced and understandable fear about the penalties, that is no small thing.

K2 Hosting London Event on the UK Bribery Act

Posted on May 3rd 2011, by K2 Global London Office

On Thursday, May 12th, Jules Kroll, Co-founder of K2 Global Consulting, will be joined by acclaimed investigator and author Mike Comer, to host a special discussion on the implications of the UK Bribery Act. The event, which will take place at The May Fair Hotel on Stratton Street in London, will touch on such issues as: the shortcomings of the Act; its practical implications; and what businesses and legal teams can do to put themselves at a competitive advantage post-implementation.

Why is the UK Bribery Act worth talking about?  Charles Carr, Executive Managing Director at K2, argues that:

-The Act is inconsistent and merely adds to a patchwork of international laws and guidelines on corruption that lack consistency.

-The political, legislative, regulatory and judicial bodies responsible for enforcing the legislation appear to differ significantly about how to interpret and apply it.

-There is a lack of clarity around the Act’s enforcement; in its current form it does not lay out a clear enforcement framework. For example, whilst the Ministry of Justice does not consider an international company to be bound by the Act if its sole presence in the UK is a listing on the Stock Exchange, the Serious Fraud Office takes an opposite view. Such confusion is harmful: businesses seeking clarification have nowhere to go for guidance.

-Companies that fall under the jurisdiction of the Act have one of two choices to make: either adopt a passive stance and put in place what they believe to be adequate procedures; or actively pursue a ‘first to know’ policy, whereby positive steps are implemented to identify and mitigate risk exposure under the Bribery Act.

-There is no right or wrong answer, but there is a preferable one: be the first to know, as the basis of any anti-corruption approach should be to possess the best possible information about the real and evolving risks in your company.

When: Thursday 12th May, 6-8pm
Where: The May Fair Hotel, Stratton Street, London, W1J 8LT

To secure a place at the event, or for further details, contact:

Lucy Minshall: +44 20 7618 9100 or lucyminshall@luther.co.uk or fill out the form below:

Your Name (required)

Your Email (required)

Your Contact Number

Please sign me up for the UK Bribery Act Event on May 12, 2011

Analyst’s View: Document Sharing Sites and Investigations

Posted on September 28th 2010, by K2 Global London Office

Whether we’re doing diligence on a potential executive hire, identifying and tracking corporate fraud, or developing strategies to deal with security threats, the most daunting moment in an investigation often comes at the outset, when we first realize exactly how much information we need to sift through. (As Bruce Goslin recently noted, the wealth of information available on the Internet just makes this harder.)

Most frequently, the first person to take the plunge into a sea of investigative data is the unsung hero of any case: The Analyst. Analysts have an array of tools and techniques at their disposal, but experience and judgment are their greatest assets as they slowly build a case from seemingly disparate and unrelated sources of information.

We thought it would be interesting if we presented an ongoing series of posts in which our analysts share a bit more about how they search, assess, and assemble information into a coherent case.

The first contribution comes from an analyst in our London office, and deals with ins and outs of conducting research via document-sharing Web sites:

Document sharing sites such as Scribd and Docstoc can be useful resources for gathering background information on companies and people you do business with. These sites allow content creators to upload and sell (and content consumers to download or buy) virtually any kind of document, from market studies to academic research to whitepapers. Scribd is one of the most popular document sharing sites, and claims to distribute documents to tens of millions of readers per month.

These document sharing sites are less refined than sites with strong editorial supervision or specific content strategies – they’re full of oddities such as romance novels and travel guides, and usually don’t serve up any damning, Wikileaks-style revelations. But for prospectuses, résumés, annual reports and the odd court case, these sites can be a gold mine.

Scribd and Docstoc are two of the most popular uploading sites, but there are many more out there, including those specializing in foreign language documents (eg. Docin.com for Chinese) and magazines and newsletters (Issuu.com). As with any Web source with virtually unbounded content, it takes some practice to use these sites properly, but I certainly think it’s worth the effort.

Our next Analyst’s View will focus on the differences between online mapping tools offered by major search engines. If you want to be notified as soon as it’s published, be sure to subscribe to alerts from “The Discreet Science” using the tools on the left side of this page.