Posted by Rebecca Ashmore on Monday, September 18, 2017

A Conversation on Anti-Bribery & Corruption


In this conversation in late 2016, in light of a number of recent high-profile bribery and corruption cases across finance and other industries, Alex Keetch spoke with the UK Money Laundering Reporting Officer for a major global financial institution, who is a qualified solicitor, an experienced industry regulator, and formerly a Metropolitan Police detective. Owing to the sensitive nature of his work, he asked to remain anonymous for the purpose of this conversation.

Alex: Financial crime prevention has undoubtedly become a major issue for banks and other financial institutions in recent years. In particular, there have been numerous high-profile scandals in the bribery and corruption space. It seems to be an area of focus for international regulators at present, and the FCA as ever is leading the pack. Where does the activity of an Anti-Bribery & Corruption team within a major financial institution fit into the wider financial crime dialogue?

Contact: The answer has two parts. Firstly, the direction of travel for regulators in UK, EMEA especially Germany, and the US, and secondly, the ongoing interplay of global financial institutions, and the transnational systems of control governing the flows of money between these. On the regulatory front, the FCA’s Financial Crime Guide, and their Financial Crime Conference are key indicators of the latest thinking in the field. Head of Financial Crime at the FCA, Rob Gruppetta, made a speech in Autumn of this year setting out clearly what is of interest to the FCA at present. Anti-money laundering is a key factor, and of particular relevance to financial institutions, because typically money laundering involves one or several of them, acting in cooperation to launder the proceeds of crime and corruption, whether intentionally, through corrupt employees, or unbeknownst to them. Very often, global banks are dealing with clients in high financial crime / corruption risk jurisdictions, and you have seen controls being strengthened globally and across the industry. Given the mistakes of the past, you are also seeing many globally significant investigations by the Department of Justice in the US into various facets of financial crime, from corrupt government officials to insider dealing, that are touching lots of organisations in lots of jurisdictions. These include the IMDB scandal in Malaysia, the FIFA investigation, and Petrobras in Brazil, which has led to the impeachment of their president, Dilma Rousseff. These high-profile cases all touch financial institutions across the map, so it really is a global issue.

A: Large firms and organisations like those that you mentioned will be banked by everyone, and generally speaking, within the world’s major companies, governance standards ought to be high. Regulatory investigations always cover the full gambit, although attention paid to financial crime in all its forms is continuing to increase, right?

C: Yes, many of the recent regulatory investigations of large firms have been related to financial crime, and given the scale of the risks that organisations face, there’s a recognition within financial crime oversight functions that an integrated approach is needed. Looking into the future, in the UK, the Criminal Financing Bill is coming in quite soon. Through this legislation, a higher degree of criminal liability will be associated with corporate bribery offences, along the same lines as increased liability associated with tax offences, leading to more punitive sentencing. Violations will include people in senior management roles failing to prevent or protect against bribery. Some major related cases have been working their way through the courts, and the UK government will be looking closely at the precedents set by these as guidance for future legislative activities. These include the Sweett Group, which was fined £2.25 million for bribery offences in early 2016, and the current case involving a specialist emerging markets banking group, which is where a major financial institution has simply failed to have adequate controls around basic due diligence. The question needs to be asked, when onboarding external financial intermediaries who are helping to arrange transactions: are the relevant risks being taken into account? Is the partner institution using the fees we are paying them to appropriately incentivise its partners and clients, or are they overstepping a mark, regardless of local customs?

A: This raises the question around how people can be incentivized in the modern financial services industry. Is there a point at which incentives cease to be appropriate?

C: Appropriate inducements are acceptable but when fairness, transparency and proportionality is compromised, that’s a problem. In the case of the aforementioned banking group, there was a bribery agent, plain and simple, involved in the transactional chain. The purpose of new legislation and practices is to root out those who play an unfair and unjust part in the transaction, versus the opposite.

A: Given the volume of issues involving government staff, does the job description for public officials need rewriting?

C: There’s certainly a recognition among firms that are looking to bring their products and services to certain markets that such activity brings obligations to cease practices that might have seemed to be normal in high-risk jurisdictions. At one of my previous firms, a major investment bank, we were going to bring a medical equipment company to market in London through an IPO, whose base of operations was a country in North Africa. They had a known and established process involving effectively unlawful incentive payments to doctors to use their products. This was accepted practice, but in bringing them to the Stock Exchange, we had to advise them as their broker that a clear and demonstrable change was needed.

A: How was that exposed as an aspect of the company’s behaviour?

C: Through very good due diligence - financial and legal due diligence in order to expose the purpose of those payments. And the fact that this was identified and flagged by a major banking group is a sign of the recognition across the industry that these practices are wrong, and that the general public won’t accept it anymore. The feeling is that whilst everyone else is suffering, through slower economic conditions and high unemployment, high-ranking officials and executives shouldn’t get away with such things.

A: This speaks to why this issue is in the spotlight: the financial crisis and the inequality in society have thrown such things, e.g. the ways in which ‘the rich get richer’, into sharp relief.

C: Yes, although there was always going to be a greater focus on enforcement eventually, and you see that across all compliance disciplines in a wide range of industries.

A: The financial regulators certainly seem to have some sharp teeth these days: high-calibre people with a real sense of mission, strong investigative capabilities, increased authority to take enforcement action. Beyond financial services, do you see bribery and corruption as an economy-wide issue?

C: Yes, absolutely, and indeed, the UK’s Bribery Act and Foreign Corrupt Practices Act are very far reaching, as are sanctions rules where they affect whole countries. These touch financial institutions and their clients across the board, so all industries are affected, and need to clean up. The resources and extractive industries are in the spotlight: the Extractive Industries Transparency Initiative’s Standard has been recently revised and is newly intrusive. I can think of one major commodities trading firm whose practices are under the spotlight as a result. Firms are being forced to provide increased clarity on payments to obtain drilling licenses and similar, that could be construed as bribes. Generally, there are greater expectations from the public and regulators of firms across multiple industries, especially the big names. Large companies are having to explain big deals they have done without any prior transparency. Tesco, Barclays, BHS and others are all having to explain why they have done secret deals without the appropriate level of transparency, and reputationally there is an enormous amount at stake.

A: Executives must need to be so careful these days, in order for honest or inconsequential activities to avoid misinterpretation. Everything seems to have to be accounted for, through careful documentation. Offers of once-quotidian entertainment like the races and the rugby must need to be politely refused on many occasions. In fact, a prospective client took us to lunch the other day so as to avoid filling in the necessary forms for what would have been a very nice but reasonably priced working lunch. Does this go too far at a certain point?

C: It’s become part of the ‘new normal’, within the regulatory environment as it currently stands. These days if I am in discussions with a law firm about working with them, I need to be very careful. There are only a couple of social events a year that I can attend, and I can’t accept any sort of gift or incentive during what could be construed as a pitch for business. It’s about perception, and not having your integrity called into question. This seems to be par for the course these days, most people get that. Some people are slower to get onboard, because they are so used to a lighter-touch environment, but on the whole, the corporate entertaining of yesteryear is in the past, or at least not on the company. Things can still be personally funded, i.e. out of the pocket of the individual, but compliance in general sees significantly fewer requests for high-value events these days. Perversely, the Bribery Act was never intended to kill off client entertaining - because there is of course an economic benefit to getting to know your client so that you can better serve their needs - but clearly too much of that creates the wrong impression in the public mind. The ‘fat-cat’ executive business model of the past is no longer acceptable. The MP expenses scandal has compounded things.

A: The MP scandal is one example of where a previously strong public institution has fallen into disrepute, thanks to plainly exposed wrongdoing as part of previously accepted as standard operating procedure.

C: And the government has responded by rebuilding confidence with strong anti-graft measures, across both politics and business. Clearly these can go too far in the current landscape but something needed to be done.

A: And efforts of this kind are international. Action on graft in China is particularly extreme at the moment. In an effort to clean up an extraordinarily corrupt system, the latest leader of the Communist Party, Xi Jinping, as of 2014, has been very aggressive in pursuing, exposing and punishing corrupt officials, so there is something of a global movement.

C: That’s right. And broadly speaking, in business, even at my last firm, senior executives such as ExCo members and board members, are getting the message that it’s a fact of life that their expenses are going to be scrutinised quite carefully. There are some who are less willing and they are falling away. The new breed have grown up in the new regulatory environment and the cleaner methods are in their blood. It’s important to say that the procedures now in place thanks to the Senior Managers & Certification Regime are contributing. It’s early days but Senior Managers are having to attest to quite significant things, and Certification catches a very wide demographic, wider than the previous Approved Persons regime. A lot of people are having to attest to the fitness and propriety of themselves and their organisations, meaning that things like this are coming under heavier scrutiny than they were. This accountability should inhibit any excessive risk taking from the business, and should influence the decisions of financial crime compliance staff, in terms of what they are allowing to take place.

A: To focus briefly on a real-world problem, FIFA’s issues have been incredibly well-publicised.

C: FIFA clearly did not have anything like the right governance mechanisms in place to control behaviours that had become the norm. There were no checks and balances around such activities; substantial sums of money were involved, and there was leadership-level acceptance of corruption as part of the normal order of business. All the ingredients were in place for a major scandal. They had an Ethics Committee apparently, but it sounds as though only lip service was paid to their activities. To my mind, it’s an organisation that needs to be disbanded and re-established with entirely new governance and controls structures appropriate to the activities undertaken. Corporate organisations with shareholders are beholden to regulated markets; that’s how FIFA or similar bodies should be run.

A: The world certainly seems to be airing a lot of dirty laundry. With the ongoing activities of Wikileaks, ethical hackers, and incentives offered to whistleblowers, it strikes me that there are more stories to come, and more work to be done.

C: That’s right. Keeping things clean requires relentless effort on the part of committed people who understand that their purpose is to get clean and good business done, not business at any cost. It is about getting this message across to people outside the compliance function; this is key, and that is how I measure success. When a person in the first line of defence, such as a senior salesperson, demonstrably understands that there are lines that one must never cross, I feel like I have succeeded in the work I have chosen.

A: Indeed, and those are the people with whom the regulator increasingly wants to directly communicate – the head of sales, the regional CEOs and similar. Compliance is no longer expected, nor able, to fend off the regulators.

C: Again, a big part of my job is ensuring that my colleagues in the first line of defence know what to look out for, so that they are credible when it comes to communicating with the regulator. They need to understand what forms suspicious activity on the part of potential and existing clients could take. I need to make sure that there is an 'open door’ policy if and when there is something to report, and that there are appropriate incentives for doing so. My job is to pursue excellence in financial crime risk mitigation, and taking of the regulators, I have my fair share of conversations where I need to explain exactly what I have been doing in order to achieve those aims and create and support that culture.

A: On the incentivisation front, I have heard of some large rewards being paid out to whistleblowers, particularly in the US I read about one person who had 'whistle-blown’ at several firms he had worked for, and in each case received a large payout. As a repeat whistleblower, he is clearly an anomaly, but those incentives are out there, aren’t they?

C: Yes they are, but I feel very strongly that this is the wrong cultural message to be sending: that people should be looking out for such opportunities in order to enrich themselves. In most cases I have dealt with, the people reporting issues are not motivated by any sort of financial incentive, they are doing so out of a strong moral sense of what is right, of being a good corporate citizen. Also, you sometimes find that people are putting their defence in before they get found out, because they will quite often have been involved to an extent in whatever has been going on. Whistle-blowing is important, but seldom simple. The ideal case scenario is for an organisation to have a positive and open culture of good compliance and learning from errors, where people are able to speak out on these issues at an early stage, before too much damage is done.

A: This has been very interesting, and highly topical. Thanks for your time.







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