SFO relaxes clampdown on facilitation payments

The Serious Fraud Office (SFO) will not prosecute insurers and brokers that continue to make facilitation payments overseas in breach of the Bribery Act, so long as they are “working towards” stopping them.

In an exclusive interview with Insurance Times, director of the SFO Richard Alderman said he would not stick to the letter of the law – which comes into force on 1 July – so long as companies were moving towards compliance. He said the process could take anything from 12 months to five years.

Alderman said: “There’s a lot of scope in the interpretation of the act, and our focus is on the really bad companies. I would like to see people working towards zero tolerance of facilitation payments over a period of time. As long as they are doing that, even if they are officially breaching the law, I am not going to take any action.”

Facilitation payments are made to officials in foreign countries to secure basic services such as the processing of paperwork and connection to utilities.

Alderman said the SFO would also work with the UK and foreign governments to try to stamp out official corruption. He said any businesses facing demands for bribes should ask the UK government for help.

“The next big story is what we do about the demand side,” he added. “I would like to see businesses work with others in their sectors to stop the demand for bribes.”

He also called on UK companies to whistleblow on foreign competitors that beat them by paying bribes, pledging to take action where he could to ensure a level playing field.

Alderman was responding to an Insurance Times investigation that uncovered the routine expectations of brokers operating in countries such as Russia.

One said: “When the Bribery Act comes into force, and we don’t know the effect of it yet, it is going to make it very difficult for anyone to do business with countries like Russia. From the top down, the whole structure is utterly corrupt.”

David Chadwick, head of the London insurance and reinsurance group at solicitor Mayer Brown, welcomed Alderman’s comments and said they signalled a common sense approach from the fraud watchdog.

He said: “This is welcome guidance for the insurance industry. Our experience tells us that the industry has been reviewing and revising its policies and procedures in anticipation of the Bribery Act, and it is important it continues to do so.

“This is key in light of the SFO’s message that when it comes to prosecution, discretion will be exercised favourably where companies are moving towards compliance with the act’s objectives.”

Reynolds Porter Chamberlain partner Richard Burger said: “It is fortunate that we have a regulator taking a proportionate approach to the application of the act.”

But he warned insurers that they should not treat Alderman’s comments as a green light to continue making facilitation payments.

Insurance companies should only use such payments as a last resort and ensure that they have a properly documented paper trail in order to justify their actions to UK regulators, he said.

Alderman’s comments follow the publication of a survey by KPMG, which shows that 49% of UK corporate compliance executives admit their companies are susceptible to improper recording of facilitation payments.

The survey also shows that more than half (54%) of respondents agree with the statement that the Bribery Act ignores the fact that in many countries corruption is part of the way business is done.

And 39% agree that the new anti-corruption regime will put UK businesses at a competitive disadvantage – slightly more than the proportion (37%) who disagree.

We say ...

? Richard Alderman and the SFO should be commended for taking a proactive approach to the Bribery Act.

? Given these reassurances, any businesses unsure about complying with the new legislation should contact the SFO for guidance.

? The SFO wants to clean up international business to ensure that UK firms remain competitive under the new legislation. UK operators should take up Alderman’s offer to pursue unfair competition by whistleblowing where appropriate.