Rahman Ravelli
Rahman Ravelli Solicitors Logo
Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539

About Us Expertise PEOPLE International Legal Articles News Events Contact Us toggle button for phone toggle button for search
Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539
search
Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539
search

Anti-Corruption Due Diligence - An In-depth Guide

Author: Niall Hearty  12 December 2023
8 min read

Anti Corruption 3

What is corruption?

Corruption is dishonest (and illegal) behaviour that is carried out by those who are in a position of power. They may be acting as individuals or in their position within an organisation, such as a senior manager in a company or a government official.

Corruption is a word that covers a number of actions, including giving or accepting bribes and defrauding investors. In general terms, corruption could be described as the abuse of power for personal gain.

This article goes into more detail about the various forms of corruption and the responsibilities it places on those in business.


What are the common forms of corruption?

The most common forms of corruption are:

  • Bribery: The offering, giving, receiving or requesting of money or any item of value (which is the bribe) to influence the actions of an individual. The person who offers or gives the bribe is guilty of bribery, as is the person who asks for or receives the bribe.
  • Embezzlement: When a person takes advantage of their position of trust to steal funds or assets, usually over a period of time.
  • Nepotism: When someone in a position of power or influence gives a friend or relative a benefit – such as a job – that they would not normally be entitled to receive.
  • Extortion: The use of force or threats to obtain a benefit
  • Fraud: The use of deception to obtain an illegal gain.


What is grand corruption?

Grand corruption is the term used to describe the abuse of high-level power that benefits the few at the expense of the many. It has three main features:

  1. A systematic, well-organised plan of action involving high-level public officials.
  2. Large amounts of public money being redirected into the accounts of a few powerful individuals at the expense of those people who were supposed to benefit from those funds.
  3. The high-level officials involved may use their positions to prevent their activities being identified, investigated or prosecuted.

 

What is petty corruption?

Petty corruption is the abuse of power at a lower level than the abuse involved in grand corruption. It involves:

  1. The day-to-day abuse of power by public officials when they deal with members of the public.
  2. Public officials using their position to seek payments or other advantages from people who are trying to gain access to basic goods or services.
  3. Payments on a smaller scale than those involved in grand corruption.


Examples of Corruption

As explained above, corruption can take many forms. It can also involve many people in many different business, professional or political positions. Here are two examples;

  • Example 1: A senior figure in a company may offer a secret payment to a government minister in another country to try and win a multi-million pound contract. This would be bribery.
  • Example 2: A person working in a firm’s accounts department diverts money from the company account into their own account. This would be embezzlement.


Corruption can vary in its size and frequency. If a council planning officer took a payment from someone to write a favourable report about that person’s planning application that would be bribery.

But this is likely to be viewed as petty corruption rather than grand corruption, as it is a one-off and is not on a large-scale. But if the whole council planning department were seeking – and receiving - bribes from the hundreds of people making planning applications each year, this would be grand corruption, due to it being a large-scale and systematic operation.


What is anti-corruption due diligence?

Anti-corruption due diligence is a term that is used to describe the background checks and investigations that a company may carry out on another individual or business that it is thinking of doing business with to see if they pose any risk of corruption.

It involves a close examination of this potential business partner. By doing this, the company can identify any risks and, if there are some, either take steps to reduce or remove them or decide not to do business with that potential partner.

Due diligence involves looking for “red flags’’ – signs that the other company may pose a corruption risk. But it has to be carefully planned and conducted.

Due diligence cannot be viewed as something that involves just ticking boxes. A one-size-fits-all approach cannot be taken, as every set of circumstances is different. When due diligence is carried out, it needs to reflect the level of potential risk that is known about.

Factors such as where the business is to be carried out (and the corruption risks associated with any particular country), who is involved and what their role will be, and the known risks in that business sector all need to be examined closely. It has to be thorough and any issues it identifies have to be examined carefully in order to decide the best course of action.

 

Why is anti-corruption due diligence important?

Due diligence is something that can be extremely important for those in business. This is because:

  • It helps companies and individuals identify any potential risk of corruption or other wrongdoing – and so reduces the chance of being prosecuted in the future.
  • A lot of legislation relating to corruption expects those in business to have good due diligence procedures in place.

A lot of business involves dealing with potential trading partners, which is when due diligence is required. But such business may also involve one or more third parties. A third party is an individual or company that is not one of the two main partners in a deal but who may be playing some part in it, such as bringing the two partners together or acting as a middleman between them and a company in another country.

It can be as important to conduct proper due diligence on any third party as it can be on a potential trading partner.

Due diligence is also important in other circumstances. If one company is looking to merge with another company, invest in it or even acquire it, due diligence is necessary for both companies so that they know everything they need to know about each other.

No company wants to find itself doing business with those who are involved in corrupt activity or who use third parties that carry out such activities. In modern business, trade can involve a company using complex supply chains and a number of other firms, sub-contractors and/or third parties.

If any of those are involved in corruption, it can be extremely damaging for the company at the start of the chain. Under the UK Bribery Act 2010 and the United States’ Foreign Corrupt Practices Act, a company can be held responsible for the corrupt activities of any company or individual acting on its behalf. Due diligence, therefore, has to be carried out on everyone within a supply chain.


What is an anti-corruption risk assessment?

An anti-corruption risk assessment is at the heart of due diligence. It ensures that a company has an accurate and comprehensive assessment of the risks that it faces.

By enabling a company to identify where the risks of bribery and corruption might be - and the size and nature of them – a risk assessment gives the company the opportunity to devise rules and procedures to minimise or even remove those risks.

If risk assessments are carried out on a regular basis, they will ensure that a company’s efforts to prevent bribery are always meeting the challenges faced – rather than failing to respond to new or changing developments in corruption.


What should an anti-corruption risk assessment include?

As corruption can develop in many different circumstances, any risk assessment conducted by a company needs to look at all aspects of its activities: the type of business that it does, who it does that business with, where it is conducted and the involvement of third parties.

In doing this, a company needs to examine issues such as:

  • Beneficial Ownership: The Ultimate Beneficial Owner (UBO) of the other company needs to be identified and checked. This is necessary in order to avoid the risk of doing business with a company that is being run for the benefit of those involved in crime and/or sanctioned individuals.
  • Financial Background: The financial history of a potential business partner has to be scrutinised to ensure it is financially sound and is not known for failing to pay what it owes. Public records, news reports and references can all be used to establish a company’s commercial track record.
  • Ethics and Compliance: A company’s approach to ensuring it operates within the laws of the countries where it is active needs to be analysed, with checks made to see if it has been investigated and prosecuted over its activities.
  • Third Parties: Any third parties that have any role in a deal have to be assessed as closely as the other company to ensure that they will not create corruption-related problems.
  • Supply Chains: As any potential deal may involve a string of other companies and third parties, they all need to be examined to determine if any of them pose a corruption risk
  • Geographical Location: Corruption is rife in a number of countries. Any proposed deal has to take into account the chances of it attracting those looking to make corrupt gains. The corruption risk posed in any particular country can be ascertained from the Corruption Perceptions Index.


Important Considerations when Conducting Anti-corruption Due Diligence

Any anti-corruption due diligence will only be effective if it is properly planned and conducted. For this, there has to be:

  • Top-level Commitment and Involvement: A company’s senior figures have to take a lead on due diligence so that everyone within it is aware that it is a priority and needs to be taken seriously and conducted professionally.
  • Proper Planning: An effective risk assessment requires careful planning in order to determine its scope, the roles individuals will have when conducting it and how everyone is told about their role.
  • Information Gathering: All possible bribery risks a company could face need to be identified.
  • Risk Evaluation: The size and nature of the risks need to be determined. The likelihood of them occurring and the harm they could cause also need to be assessed.
  • Use of the Risk Information: The results of a risk assessment should be used to help create an anti-bribery programme. Future risk assessments will be needed to review and, when necessary, modify this programme.


Whose responsibility is it to manage bribery and corruption risk in a business?

Managing the bribery and corruption risks facing a business is the responsibility of that company’s board and senior management. They are obliged to ensure that their company is not involved in corruption, either directly through its own activities or indirectly through the behaviour of other firms and third parties with which it does business.


Who investigates and prosecutes bribery and corruption in the UK?

The authorities that investigate and prosecute bribery and corruption offences in the UK include;

  • Crown Prosecution Service (CPS).
  • National Crime Agency (NCA).
  • Serious Fraud Office (SFO).
  • Financial Conduct Authority (FCA).
  • Scotland’s Crown Office and Procurator Fiscal Service (Crown Office).

These investigations are not limited to the UK’s borders, due to the international nature of a lot of corruption. The SFO will take on bribery and corruption investigations that are high value and /or are complex and multinational. While the NCA was created in 2013 to oversee the law enforcement response to bribery and corruption, the SFO remains the main UK enforcement agency for such cases.


What are the potential consequences for failing to carry out anti-corruption due diligence?

In the UK, the Bribery Act covers the activities anywhere in the world of all companies with a UK connection. The maximum sentence for individuals found guilty under the Act is 10 years in prison.

Companies can face an unlimited fine and can have any gains made from their illegal behaviour confiscated. Companies can also be barred from bidding for public sector work and their directors can be disqualified from acting as a director for between two and 15 years.

A UK company could also face investigations by other countries. For example, any company that has been found guilty of bribery under the US Foreign and Corrupt Practices Act can be fined up to $2 million for each offence. Individuals - including company officers, directors, stockholders and agents - can be fined up to $250,000 and imprisoned for up to five years.


How should businesses respond to bribery and corruption allegations?

If a company or individual faces an investigation into alleged bribery or corruption, they need to seek advice from legal specialists who can coordinate all aspects of what could be a complex, international case that involves a number of investigating authorities.

At the first suggestion of any possibility of involvement in corruption, a company should consider conducting an internal investigation. Such an investigation can help identify if there has actually been any wrongdoing, how it has happened, what needs to be done to prevent it happening again and the next steps that need to be taken.

If a company becomes aware of the problem before the investigating agencies, it could receive more lenient treatment if it then self-reports it to an agency after conducting an internal investigation. Even if an investigating agency finds out about the possible wrongdoing first, the company may still be given credit if it then carries out an internal investigation.

Advice should be sought from legal experts about conducting an internal investigation, dealing with the authorities and the best way to tell customers, trading partners, investors and other interested parties about any problems that have been identified.

Niall Hearty C 07998

Niall Hearty

Partner

niall.hearty@rahmanravelli.co.uk
+44 (0)203 910 4565 vCard

Download Profile PDF

View Profile

Niall has a wealth of corporate crime expertise and an ability to coordinate global bribery and corruption cases. His achievements in such investigations have made him a logical choice for corporate clients.

Share this page on