Stamping out bribery and corruption is a noble ideal, but how can wealth managers most effectively comply with new rules?

As the regulatory changes continue to sweep through financial markets, one area that has not received perhaps as much attention among the banking crowd as it might is what countries are doing – or say they are doing – to stamp out corruption.

The UK, for example, has recently passed a new Bribery Act (coming into force from 1 July last year). The scope of this act is something that firms, including the wealth management profession, need to be aware of. Some types of bribery – like paying a civil servant or legislator money to sway a regulatory ruling – are obviously wrong. However, certain forms of corporate hospitality – hardly an unknown aspect of private wealth management – appear more ambiguous in terms of how the law applies. As Oliver Gardner, managing partner at Howards Solicitors, has written in these pages, the courts have been left to interpret the scope of the law. That’s not ideal. One of the causes of our current economic malaise, after all, is what has been called “regime uncertainty” – the lack of clarity of where companies and banks stand amid the profusion of new rules and regulations.

But while the UK position might appear to have some loose ends, other countries also have work to do in stamping out corruption, according to a report recently issued by the Organisation For Economic Co-Operation and Development. The Paris-based OECD has run the rule over three nations: Italy, Japan and Switzerland. All three nations need to improve, it said. The organisation recently examined how the countries enforce laws to prevent bribes of foreign public officials. And if its recommendations are accepted, that means businesses in these places must keep their compliance controls under review.

One of the most significant findings of the report, when it discusses the case of Switzerland, is the OECD’s statement that “whistleblowers” of suspicious activity must be able to act without fear of personal consequences. That sounds easy in theory, but is hard in practice. What happens if a person who is alerting the authorities to dubious behaviour can only do so by violating Switzerland’s legendary bank secrecy laws? How does an upstanding banker, say, do his or her public duty if they are worried about the threat of jail? This is an issue that the OECD report does not appear to directly address.

The report has much food for thought. In the case of Japan, the OECD said: “Japan is still not actively detecting and investigating foreign bribery cases and, as a result, the enforcement of Japan’s anti-bribery law remains low.” It wants Japan to step up detection and prosecutions in bribery cases and set out a legal basis for confiscating money paid in bribes. It also wants Japanese legislators to make it a crime to launder the proceeds of foreign bribery. (It is astonishing that it is not yet a crime.) The OECD has kinder things to say also: it said Japan is raising awareness of its anti-bribery laws, and police and other groups are working more closely together.

Italy

With Italy, a country notorious for problems with organised crime, the OECD’s language is fairly blunt by the standards of such organisations. “Italy should urgently extend [the] timeframe for prosecuting foreign bribery,” it said. The OECD wants the Italian authorities to provide more time to go after and punish firms and individuals; the report pointed out that the country has concluded prosections against 60 defendants over the past decade but only three firms and nine individuals were sanctioned. One of the biggest hurdles to getting results is a statute of limitations on such cases, the OECD said.

The OECD also wants to scrap a practice, called concussione, as a possible defence, which allows bribers to escape liability for foreign bribery in a wide range of situations where bribes are solicited.

As mentioned earlier, the OECD raised the issue of whistleblowers in the case of Switzerland. Perhaps as a relief for a country assailed on all sides for its bank secrecy laws, the OECD is rather kind to the Swiss as far as efforts against bribery and corruption are concerned. “[The] OECD recognises Switzerland’s commitment to the fight against foreign bribery and recommends further improvements,” it said.

“The OECD Working Group on Bribery congratulates Switzerland on its first conviction of a company for foreign bribery and recommends that it continue its enforcement efforts,” it said.

But as ever, there is more to be done. “However, the OECD is concerned that there has been only one other conviction, of an individual, for foreign bribery since Switzerland enacted the offence in 2000. The report notes that Switzerland is particularly exposed to the risks of bribery of foreign public officials due to its important financial sector and the large number of multinational enterprises based there,” it said.

As regulations spread and certain taxes become more onerous, it is highly likely that some people and firms will attempt to survive, and thrive, by bending rules. In the end, the best way to stamp out corruption is for jurisdictions not to create a plethora of often self-defeating, wealth-destroying rules in the first place. As with tax evasion, so with corruption: the best way to combat bad behaviour is to increase the rewards of honest hard work.