Author: Niall Hearty
12 December 2023
8 min read
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.
The most common forms of corruption are:
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:
Petty corruption is the abuse of power at a lower level than the abuse involved in grand corruption. It involves:
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;
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.
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.
Due diligence is something that can be extremely important for those in business. This is because:
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.
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.
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:
Any anti-corruption due diligence will only be effective if it is properly planned and conducted. For this, there has to be:
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.
The authorities that investigate and prosecute bribery and corruption offences in the UK include;
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.
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.
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 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.