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UK Firm Fined for Inadequate Internal Controls and Bribe Risks

Proactive Action by the UK Sets a Positive Example for the US

I have blogged about foreign bribery in the United States a few times before including yesterday when I addressed the Foreign Corrupt Practices Act (FCPA) in the U.S. This morning I read that the United Kingdom’s Financial Conduct Authority (FCA) has fined JTL Specialty Limited (JLT) over £1.8 million for failing to have appropriate checks and controls in place to guard against the risk of corruption or bribery when making payments to overseas third parties. I felt obliged to comment on the actions of the FCA because it illustrates the seriousness with which the UK government deals with foreign bribery.

Like its counterpart in the United States, the FCPA, under the UK Bribery Act companies doing business overseas are supposed to have in place internal controls that help to prevent and detect payments made to foreign government officials to induce them to engage in conduct they might not otherwise do.

As I have previously discussed in another blog, the UK Bribery Act is more sweeping than the FCPA because, in addition to prohibiting illicit payments to foreign officials, the UK Bribery Act bans bribes between private business people. It applies even if the person making the payment doesn't realize the transaction is a bribe. In other words, ignorance of the law is no defense. The Bribery Act prohibits grease payments, small bribes common in some countries to get mail serviced, phone hook-ups or other services that otherwise would be delayed. In the U.S., the FCPA permits such “facilitation payments” under the theory they are necessary to get a foreign official to do what he or she should ordinarily do as part of his/her ministerial duties.

Addressing the internal control problems at JLT, the FCA’s director, Tracey McDermott, said:

"These failings are unacceptable, given that [JLT] actually had the checks in place to manage risk, but didn't use them effectively, despite being warned by the FCA that they needed to up their game. Bribery and corruption from overseas payments is an issue we expect all firms to do everything they can to tackle. Firms cannot be complacent about their controls -- when we take enforcement action, we expect the industry to sit up and take notice."

The essence of ethical behavior is to carry out business operations with honesty and integrity. The underlying mechanism is to have a strong set of internal controls that establish standards of behavior to ensure business operations are conducted in an above-board manner so that all businesses operate on a level playing field. Justice and fairness demands nothing less especially when companies operate in foreign countries and compete with other foreign companies for a share of the global business market.

The UK can be proud of taking measures proactively against JLT by identifying potential ethical problems in advance based on inadequate internal controls that can lead to bribery payments if left unchecked. True ethical action is proactive, not reactive, and based on a commitment to enforce laws and set examples that help to instill an ethical organization culture. Kudos to the UK’s Financial Conduct Authority.

Blog posted by Steven Mintz, aka Ethics Sage, on December 20, 2013