Mitigating Bribery Risks With Financial Controls

by Michael Volkov
Contact

ic5Anti-corruption compliance is not as hard as it looks.  In fact, by taking a step back, compliance professionals can gain insights.

At the direction of compliance professionals, companies like to develop and adopt compliance policies and procedures.  Compliance policies and procedures give the board, senior managers and the CCO a feeling of comfort.  They are gaining a measure of control over something they have identified as a significant risk – bribery of foreign officials.

Some of these policies and procedures are important; some are not as important.  In the scheme of things, policies and procedures sometimes give a company a false sense of comfort, especially if the program is a “paper” compliance program with no follow up.

One area CCOs focus on is gifts, meals, entertainment and travel expenses.  Often, they spend too much time on these expenses and the surrounding policies and procedures.

The FCPA Guidance suggested that companies were spending too much time on these expenses and not enough on more serious risks.  DOJ and the SEC made a good point.  Companies should reallocate their programs to make sure resources and attention are devoted to serious risks, not payments for gifts, meals and entertainment.

I am not suggesting that gifts, meals, and entertainment expenses should be ignored.  To the contrary, they should be monitored and controlled just like any other financial expenditure – with appropriate justifications and thresholds for heightened scrutiny.

In fact, I recommend that companies change their focus from such expenses and develop a broad focus – who has authorized access to money and for what expenses?

In some respects, the focus on money is the same focus on internal fraud risk.  It is important to understand that company officials who want to bribe foreign officials have to gain unauthorized access to funds, just like those officials who want to steal from a company’s funds.AML DD3

When the focus becomes authorized access to money, the risks become more apparent: (1) unauthorized payments to internal officials and employees for a variety of purposes, including gifts, meals, entertainment and travel expenses; (2) unauthorized payments to third parties, including vendors/suppliers, agents and distributors.

Within these two categories, bribery risks increase when financial controls are not in place to verify the purpose of the payment and that the products or services were actually provided.

For example, third parties submit invoices for services and payments have to be matched up to an authorized contract and for legitimate services.  If the third party does not provide adequate justification for services, the company should withhold payment until such information is provided.

This is an example of how a financial control can reduce the risk of bribery.

In the case of fraud, companies assess the existence of financial controls as a way to minimize the ability of individuals to gain unauthorized access to funds.  Similarly, companies focus on these risks when considering whether an employee, can take money from the company and use it to bribe foreign official.

Often, bribery schemes involve relatively sophisticated schemes involving inflated invoices, unauthorized access to money and use of shell companies and bank accounts.  With the risk2assistance of third party agents and distributors, bribery schemes usually incorporate third party financial controls to circumvent a company’s internal controls.

Instead of spending inordinate amounts of time on policies and procedures relating to anti-corruption issues (e.g. hiring relatives of foreign officials, charitable contributions, or gifts, meals, entertainment expenses), companies should spend more time and effort on the broader issue of financial controls to tighten access to money and verify the proper use of their funds.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Michael Volkov, The Volkov Law Group | Attorney Advertising

Written by:

Michael Volkov
Contact
more
less

The Volkov Law Group on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!