Prior to joining A&L Goodbody, I spent a number of years working for the UK Serious Fraud Office, investigating and prosecuting corruption cases which have made headlines worldwide. This gave me an insight into the internal workings of various companies who found themselves on the wrong end of corruption investigations.
In all cases, there were a number of corruption indicators which should have caused alarm bells to ring for the management of those companies. Ignoring or mismanaging these issues sometimes led to multi-million pound fines for the companies and prison sentences for the individuals concerned.
Whatever the ultimate outcome, it invariably involved a long and expensive period of distraction for those companies, who had to focus on managing, resourcing and responding to a criminal investigation rather than on growing their businesses.
Recently enacted legislation makes prosecuting an Irish company for corruption more straightforward. Under the Criminal Justice (Corruption Offences) Act 2018, a company can face potentially unlimited fines, where a person or entity acting on behalf of the company, has engaged in a corrupt act with the intention of obtaining or retaining business or another advantage for the company.
The list of people who can engage the company's liability for this offence ranges from directors to very junior members of staff and includes subsidiary companies and even external agents. Since the act came into force in July 2018, Irish companies have been busy considering how to respond to the new corporate offence and how to protect themselves from liability.
No two companies are alike and every company will need to conduct its own corruption risk assessment, tailored to its business and the markets in which it operates. That said, the following are some of the red flags that should cause a company concern when carrying out a corruption risk assessment.
If any of these indicators apply, it is worth thinking about what steps you can take to manage them.
A culture of performance ahead of compliance
Some companies say all of the right things in public but do all of the wrong things behind closed doors. Lots of firms have appropriate anti-corruption policies in place and give annual anti-corruption training to their employees.
However, if in reality companies ignore or, worse, encourage corrupt behaviour by employees, this will become apparent very quickly in any investigation. These companies will often have a poorly-resourced compliance function and will reward and promote employees who achieve results, even if those results come at the expense of "cutting a few corners" from a legal perspective. Such companies are unlikely to reward or promote employees who raise compliance concerns.
Weak financial controls
Corruption usually involves a financial transaction of some description. If a company has weak financial controls, it makes it easy for corrupt transactions to take place and go unnoticed.
Expense accounts, gifts and entertainment provisions and consultancy fees were historically the preferred methods used to record corrupt expenditure.
However, methodologies have evolved. Financial controls now need to be able to pick up on things like inflated prices, bogus invoices and higher than usual subcontractor payments. Pay close attention to any financial control recommendations pointed out by auditors. If these are ignored, this will be seized on by the authorities in any criminal investigation.
Operating in high-risk jurisdictions
Transparency International publishes a corruption index annually, which ranks every country in the world from a corruption risk perspective.
This can be a useful guide for Irish firms operating internationally. If a firm ignores the obvious and fails to manage corruption risk when dealing with a high-risk jurisdiction, it can be a sign that corruption controls elsewhere in the firm may be deficient.
Inadequate oversight of third parties
For economic or strategic reasons, many companies outsource functions to agents or consultants. These relationships, particularly where they involve sales or marketing, are worthy of particular scrutiny.
Where a company relies on a third party to assist it in winning business, it should conduct thorough due diligence before any engagement. It should also monitor the agent's activities closely during the engagement and ensure that all payments are carefully checked. Many of the large international corruption cases over the past two decades have involved the engagement of third party agents and although methodologies are changing, companies should still be on alert where they have these relationships on their books.
None of this is to say that companies cannot encourage top performance, engage consultants or do business in high-risk jurisdictions. However, where these factors apply, you need to make sure that, in the words of the new legislation, you take "all reasonable steps" and exercise "all due diligence" to avoid the commission of a corruption offence.
This article first featured in the Irish Independent, Sunday 5 May.