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Costly Compliance

Author: Azizur Rahman  3 November 2014
4 min read

Compliance is something that companies may wish to avoid investing in. But such avoidance can lead to businesses suffering a much greater cost later on. Aziz Rahman argues that companies need compliance now more than ever.

Wrongdoing in business has always gone on. But there can be no doubt that there is now a stronger appetite among the authorities to track it down and prosecute those responsible.

Earlier this year, Business Secretary Vince Cable declared that he wanted anyone convicted of a business crime anywhere in the world barred from running companies in the UK. In a way, it is not too surprising to hear a ‘’get tough’’ comment from a politician. But it is worth noting that now, more than ever before, companies’ activities all around the world can be monitored. Some of the biggest names in world business are either under investigation or have been fined hundreds of millions of pounds forillegal behaviour. Mr Cable can speak as someone who knows global business crime is now more commonly detected.

The argument against making sure your company was legally compliant was that it cost time, money and effort. And, if many senior business figures are honest with themselves, they probably felt sure their companies were either doing nothing wrong or would not be found out even if they were. And yet it may be worth asking those at the top of Rolls-Royce, GSK, Alstom or Hewlett-Packard – all of whom have been in the spotlight foralleged wrongdoing in recent weeks – if they are now dismissive of the value of compliance.

True, a lot of those companies’ activities that have caused them such unwanted attention have been in what we would consider far-flung parts of the world. Parts of the world where they seem to be taking the issue of corruption more seriously.

But this increasing receptiveness to the identification and punishing of business crime is also being seen in the UK. We have had the Bribery Act in effect for three years; making UK companies responsible for the activities of their staff, agents and representatives anywhere in the world. The Fraud Act has made it easier to bring fraudulent trading prosecutions against sole traders, trusts and partnerships, the Enterprise Act has been used to tackle anything regarded as anti-competitive measures and the Money Laundering Regulations place a huge responsibility on companies to comply.

Costly Compliance

There is also a far greater amount of collaboration going on between authorities such as the police, the Serious Fraud Office (SFO), HM Revenue and Customs, the Financial Conduct Authority (FCA) and their foreign counterparts. It is also worth noting that advances in technology have made searches for wrongdoing and national and international anti-crime operations far simpler to conduct.

The result is that the legislation is now more comprehensive and the bodies that enforce it now have more power and capability. Which will make it harder for any company to escape detection if it is not following the law – wherever it is doing business.

Recent figures show that about 1,200 directors are disqualified in the UK each year, for periods ranging from two to 15 years. It is hard to see that figure dropping due to the developments we have just outlined. If anything, it can only rise unless companies (and especially the senior figures within them) take clear, well thought-out steps to make sure that  all their staff and other representatives are acting legally here and abroad. Failure to do so is now more likely to lead to prosecution and conviction.

The way to avoid such a problem is simple: obey the law wherever you do business. But while this sounds obvious, it is not as straightforward as you may assume. How can you be sure you are following the relevant law at any given time, in any particular place? What guarantees can you seek that your staff, agents and representatives are acting legally at all times, wherever they are?

Company directors need strong compliance procedures in place. Such procedures cannot be cobbled together to give a quick-fix peace of mind. They have to be devised after an in-depth examination of the company, its workforce, customers, suppliers and any other individuals or organisations it has dealings with. These procedures have to be carefully devised and publicised, regularly monitored, reviewed and revised when necessary and seen to be followed by all staff; from the highest levels downward.

As a firm that advises companies, organisations and individuals on compliance, we are aware of the demands and responsibilities senior figures face in their day-to-day working lives. Finding the time and money – not to mention the willpower – to devote to ensuring a company is legally compliant may seem onerous. Such resources could, after all, be put towards boosting the company’s activities in other ways. However what boost would the company receive if it became embroiled in a money laundering investigation? Or was found to have bribed foreign officials? Or had failed to meet its tax obligations?

Nothing can be more damaging to a company’s prospects anywhere in the world than having anyone associated with it investigated, charged or convicted. In our dealings over the years, we have helped many firms instigate robust compliance procedures. We have also come across many people who have been disqualified as directors; none of whom would now question the value of compliance.

Costly Compliance

As business crime specialists, we can say with confidence that the most appropriate, informed legal advice can minimise many problems that may arise. For example, the recent introduction of deferred prosecution agreements (DPA’s) into UK law means that the authorities can come to an arrangement with a company suspected of wrongdoing rather than prosecute it. A DPA involves a company admitting its illegality and giving a formal undertaking to make agreed changes to prevent further wrongdoing. A criminal prosecution is deferred on condition that the company honours its undertaking. Yet a DPA should not be considered a “let off’’. If anything, entering into a DPA with the Serious Fraud Office or any other body should only be done with expert legal advice, in the same way any other dealings with investigators should be conducted. Otherwise the consequences could still be undesirable.

We would also argue, therefore, that even with DPA’s now part of the legal landscape, a lack of compliance can very often lead to major legal problems that no amount of expertise can erase. If a firm finds wrongdoing under its roof it should definitely speak to experienced lawyers who can evaluate the potential for either a plea bargain or leniency in exchange for co-operating with an investigation. But business is facing a crackdown on crime. And that can only mean that it is more worthwhile to prevent problems rather than respond to them or ignore them.

Senior figures in companies know their businesses, their staff and their markets better than anyone. They are likely to be less familiar with the harsh reality of a criminal investigation. With this in mind, it would be for the best if they used their desire for their company to succeed to help make it legally compliant rather than risk coming face to face with those who may convict them.

Compliance does not come free. But it can prove far less costly than complacency. For more information go to www.rahmanravelli.co.uk/articles/ the-only-way-is-ethics/

Azizur Rahman C 09369

Azizur Rahman

Senior Partner

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Aziz Rahman is Senior Partner at Rahman Ravelli and its founder. His ability to coordinate national, international and multi-agency defences has led to success in some of the most significant corporate crime cases of this century and top rankings in international legal guides. He is recognised worldwide as one of the most capable legal experts regarding top-level, high-value commercial and financial disputes.

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