[authors: David Pang and Prajakt Samant]
The International Corporate Governance Network (ICGN) has published best practice guidelines on political contributions (the Guidelines). The Guidelines adopt a multi-jurisdictional approach, outlining a global policy for political donations for companies. The Guidelines are designed to assist all companies in ensuring that resources are not being abused in an attempt to seek political influence. While the ICGN recognises that corporate political activity can be legitimate and have a positive effect, it also notes the potential risks for corruption and reputational damage. The policies and procedures set out in the Guidelines echo many of the principles of the adequate procedures defence in the UK Bribery Act 2010 (the Bribery Act), indicating a shift in the dynamics of international attitudes towards anti-corruption.
Corruption in a Global Context
The very nature of companies providing funding to individuals or institutions that hold the power to determine economic policy - such as taxation - and have responsibility for overseeing controls that directly affect businesses - such as licensing - renders political donations by companies highly susceptible to allegations of corruption. Keeping this in mind, companies should not only be aware of national laws relating to political contributions and corruption in the jurisdiction in which they are operating, but also the extra-territorial effect of anti-corruption legislation, such as the U.S. Foreign Corrupt Practices Act 1977 (FCPA) and the Bribery Act.
Global attitudes towards political donations are not uniform. A recent study indicates that almost 60 per cent. of U.S. companies listed in Standard and Poor’s 500 index provide funding for political purposes. In the United Kingdom, political donations by companies are not common practice, but can be made lawfully if shareholders approve the aggregate sum for any political expenditure in accordance with the UK Companies Act 2006. In contrast, in France there is a total prohibition on political donations by companies. The fact that corporate political donations are not permitted in all jurisdictions indicates that this is an area for debate and which is seen to be open to abuse.
Political donations can take the form of money, gifts or services provided directly or indirectly to a candidate, political party or other third party. The Guidelines discourage companies from making monetary political donations, either directly or through third-party organisations, irrespective of jurisdiction. In particular, the Guidelines warn against making donations to individual candidates, owing to the risk of, and perception of, corruption associated with such transactions. The Guidelines acknowledge that in certain situations companies may decide to make political contributions, so a policy framework and procedures for donations are set out.
The Guidelines: Policy Framework and Procedures
The Guidelines’ policy framework, akin to the Bribery Act’s adequate procedures defence, consists of four guiding principles: legitimacy, transparency, accountability and responsibility. The Guidelines focus on ensuring that any political activities undertaken are in the long term interests of the company and are governed in a way that manages potential risks robustly. The Guidelines set out the following procedures to assist companies with minimising the risk of engaging in political activity:
Communication – company policy and processes in relation to political donations should be communicated clearly by company management both throughout the organisation (including company agents and external representatives when representing company interests) and publicly (with disclosures relating to the timing, amount and intent of political spending easily found on a company’s website)
Training – appropriate and regular training should be given to all company representatives who engage in corporate political activity
Risk management system – companies should establish robust internal controls and reporting processes to monitor compliance with company policies on corporate political activity. Material breaches of the policies should be brought to the immediate attention of the board
Board responsibility – the board should approve explicitly the company’s policies with regard to political donations and have oversight of all political activity
Client and employee background – companies should be transparent about the issue of hiring employees, including board directors, or dealing with individuals who have, or have had, influential roles in politics
Shareholders’ approval – shareholders should be able to vote on a company’s political donations policy.
The Bribery Act: Corporate and Political Offences
Under the Bribery Act, it is an offence for a person to intend to influence a foreign public official in their official capacity in order to gain a business advantage. This includes intending to influence individuals holding legislative, administrative or public positions outside the United Kingdom, which clearly encompasses political figures. As only UK citizens and UK-established companies can commit this offence, the greater worry for any international company operating in the United Kingdom is the “corporate offence”, introduced by the Bribery Act. Under this offence, commercial organisations carrying on business in the United Kingdom can be directly liable for bribery committed on its behalf by any “associated” person anywhere in the world. In this context, a bribe is an advantage of any kind offered with the intent to obtain or retain a business advantage for the company. An “associated person” is anyone who provides services on behalf of a company (inter alios, employees, agents, distributors and subsidiaries).
The only available defence to the corporate offence is proving that “adequate procedures” were in place to prevent bribery occurring. The Bribery Act does not impose fixed standards upon companies, but the UK Ministry of Justice’s guidance outlines six key principles for designing and implementing adequate anti-bribery safeguards. These are communication and training, proportionate procedures, top-level commitment, risk assessment, due diligence and monitoring and review.
Similarities Between The Guidelines and The Bribery Act
The principles and procedures outlined in the guidance are very similar to the principles underpinning the adequate procedures defence in the Bribery Act. The concepts of communication, training, monitoring, review and senior management involvement are common themes. Together, the Bribery Act and the Guidelines reflect the global change in attitude towards anti-corruption, especially in a corporate setting.
The Bribery Act came into force eight months ago, and, as yet, no commercial entity has been prosecuted for any offence it sets out. This may not be the case for much longer. The director of the Serious Fraud Office (SFO), Richard Alderman, indicated recently in his address to the Annual International Bar Association Anti-Corruption Conference, that several companies are under investigation. He stated that the SFO has “been looking at a range of cases where it is suspected that Bribery Act offences have been committed…it will not be too long before we see court activity.” On this basis, companies should continue to follow all available guidance in relation to potentially corrupt activities, exercising extreme caution in relation to political contributions, in lieu of the first judicial decision concerning a corporate defendant.
Please click here for a copy of the ICGN Guidelines.
Keo Shaw, trainee solicitor at the London office, also contributed to this article.