Governments in the UK and internationally are increasing their focus on bribery and corruption. The US Securities Exchange Commission and the UK Financial Services Authority are examples of two national regulatory bodies that have taken enforcement action against firms, and also imposed substantial financial penalties for historic mis-management issues.

Investors must be alert to the risk of bribey and corruption, and complete adequate due diligence before, during and after a proposed deal or acquisition. An investor may otherwise fall foul of historic corruption issues, or law enforcement investigations into historic issues; and suffer the consequencies of large financial penalties with on-going compliance programmes running for several years, causing substantial diversion of senior management time and resource. FCRM can assist clients with domestic or international corruption risk-assessments and compliance reviews.

Merger and acquisition deals are potentially higher-risk scenarios, specifically in relation to opaque fraud, bribery and corruption risk in a legacy context. Unless appropriate pre-contract due diligence is conducted, the post-contract identification of bribery or corruption issues increases an investor's risk of involvement in civil, criminal and/or regulatory action.

Identifying corruption in M&A activity

In addition to a target's nature of business, jurisdiction of operation and senior management culture, FCRM's anti-corruption due diligence programme includes consideration of:

• Bribery or corruption risk in how business is transacted.
• Risk associated with gifts, entertainment and local sponsorship practices.
• Staff awareness of anti-corruption arrangements.
• Agents, consultants and representatives, particularly where deliverables lack transparency or are intangible.
• Sampling documentation for evidence of improper payments, or the unexplained use of suspense accounts or journal entries.
• Contractual arrangements with representatives of foreign governments or government bodies/agencies.
• Detailed review of any red-flags identified, which may be indicative of increased fraud or corruption risk.

An effective Compliance Programme reduces corruption risk when designed to prevent and detect violations or breaches before they occur. Such programmes include:

• Tone from the top - High level Policy Statement or Code of Conduct endorsed by senior management.
• Guidance - Compliance Manual with written standards and guidelines for all employees, contractors, agents, etc,.
• Accountabilty - Designated senior manager responsible for oversight, monitoring and compliance arrangements.
• Education - Training and awareness for directors, management, employees and relevant contractors / agents.
• Alert mechanism - Confidential telephone hotline for reporting details of suspected breaches.
• Assurance - Independent reporting to Senior Management (i.e. The Board) and the Audit Committee (e.g. Results of Internal Audit reviews/compliance-based testing).

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To request further information about FCRM´s Anti-Corruption Services click-here, or to launch your local email application click here.