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Directors fall foul of corruption laws

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6th Mar 2009
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Andrew Webster from Navigant Consulting is experienced in helping companies manage fraud and crime issues and believes that companies can do far more to prevent corruption. He warns that both national and international legislation is likely to become more vigorously enforced.

Imagine, if you will, a scene that has been played in many countries for decades. The deal is nearly done. A businessman sits with the government representatives responsible for making the deal that will make his company a healthy profit. The subject of rewards or commission to those who have influenced the deal's success is then raised.

How does he react? How would you react?

In May 2007, an adviser to the Ugandan government signed a contract worth £210,000 with CBRN Team Ltd to supply training and equipment to the Ugandan army, for the forthcoming Commonwealth Heads of Government meeting held in Uganda in November 2007. Following the agreement, the adviser approached CBRN claiming that he would need to make additional payments to meet a local tax of 10%. CBRN's Financial Director, Niels Tobiasen, no doubt keen to ensure the deal was sealed, agreed to a total of five ‘local tax' payments worth over £83,000. The payments were made into two bank accounts opened by the adviser in the UK.

Tobiasen, who was charged under section 1 of the Prevention of Corruption Act 1906, later pleaded guilty to five offences under the Proceeds of Crime Act 2002 and received a five-month prison term suspended for one year.

Anti-corruption laws, of which there are many, do not discriminate against public companies any more than private. Indeed the UK's most recent prosecution of Tobiasen highlights not only the generic corruption typologies but the continued susceptibility of business to its illicit charms.

Those whose responsibility it is to manage a company's financial affairs have a very important part to play in the prevention and detection of corruption. The tone set by company principals will be an essential lead to senior managers, employees and those third parties with whom the company interacts in the course of business. In small concerns like CBRN, management appears to have been afforded the influence to override any controls which existed. This highlights the fact that internal audit risk-based programmes have a valid role. However, they need to be enhanced and work in parallel with other preventative measures such as the provision of ethics and compliance hot lines, which can be used by internal 'whistleblowers' and third parties.

Based upon the information these sources provide, specific investigative methodologies can then be targeted at those who continue to conduct business in this way. Detective Superintendent Cowan of the Overseas Anti-Corruption Unit has summarised the position: "Companies themselves are not fraudulent; it is individuals within organisations who are committing the crime. Corruption in the workplace is happening and we need staff members who are witnessing it to come forward and share what they know with us."

Many UK and international companies have robust internal mechanisms which promote anti-corruption behaviour and investigate thoroughly when it arises. However, many could do a lot more to prevent corruption. Companies need to take a critical view of all their operations, particularly any sales or procurement functions. Multinationals who use agents and distributors are particularly vulnerable.

Want to know more? Read the full version of this story on AccountingWEB.co.uk's sister site Finance Week.
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