Lawyers Warn Wealth Managers On UK Bribery Act

Tom Burroughes

2 May 2012

Wealth managers are increasingly demanding guidance in how to avoid falling foul of recent UK anti-bribery legislation and many private organisations appear to be unaware of the impact, according to lawyers and advisors on compliance.

The UK Bribery Act, which came into force last July, “introduces some of the toughest anti-bribery legislation in the world” and raises significant issues even for transactions not directly linked to the UK, as well as particular issues in the context of acquisitions and joint ventures, Gide Loyerette Nouel, the international French law firm, said in a note.

Later, Lucy Frew, who is head of investment funds and regulation at the firm's London office, told this publication that some organisations mistakenly think that only large, listed businesses will be affected. This is a serious mistake, she said.

“Much of the discussion about the Bribery Act to date has focused on the ramifications of the act for public companies and corporations. However, private banking/wealth management businesses, not only in the UK but also overseas, which fail to consider the implications of the act may find themselves facing aggressive prosecutors and regulators intent on sending the message to the international community that the UK has taken a strong stance against bribery,” she said.

Around the world, it is estimated that up to £1 trillion (around $1.62 trillion) is paid in bribes; in the case of the UK, a country thought to be relatively free of such activity, the country dropped from 17th to 20th in the Corruption Perception Index last year. (To view more on the matter, see here.) There has been some discussion of the legislation’s impact on wealth management in the months before, and after it was enacted.

Wealth management impact

“The Act has serious implications for the private banking/wealth management industry, not only in the UK but also overseas. It is the corporate criminal offence of failure to prevent bribery which is most likely to be relevant to the industry. This offence applies to commercial organisations that have a business presence in the UK (regardless of whether the bribe was paid in the UK or the UK part of the business was even involved in the bribe). Violation of the act carries potential penalties of 10 years in jail for individuals and an unlimited fine for companies,” Frew said in an email to WealthBriefing.

The three most common risk areas for wealth management are: agents and consultants; travel, entertainment and gifts and (depending on the business model) private equity investments, joint ventures and portfolio companies.

“Wealth managers should certainly consider seeking advice from their legal advisors as to the extent to which the Act may impact their business models and what changes to existing procedures and contractual documentation that may need to be made,” she said.

“Law firms and some consultants are advising about the act. We continue to see a significant rise in demand for guidance. This is unsurprising, given the serious implications for firms which fail to take the act seriously. The need for firms to have adequate anti-bribery procedures to mitigate risks is yet another aspect of the ever-increasing regulatory burden with which firms are faced,” she said.

The legislation is broad in scope, going well beyond the scope, for example, of the US Foreign Corrupt Practices Act and it explicitly disregards local customs and practices outside the UK which might otherwise soften the test (unless permitted or required by the written law applicable in the relevant country).

Strong warnings

Other firms warned that the legislation needs to be taken seriously by the wealth management sector.

"The Act affects the private banking and wealth management industries in the UK to the same extent that it affects all financial services firms," Jennifer Desai, associate at Bovill, a regulatory consultancy in London, told this publication.

"Private banking and wealth management firms have historically been more exposed to higher risk individuals and PEPs needs to prove ‘beyond reasonable doubt’ that bribery has occurred in order to criminally prosecute firms, the FSA need only prove that bribery or corruption could have taken place in order to be able to take enforcement action against firms. Given the regulator’s recent focus on anti-bribery systems and controls, firms would do well to ensure that their controls in this area are robust and effective," Desai added.