What accounting records should be kept to meet Bribery Act requirements?

In today’s economy it is vital that companies think globally and act locally – particularly with regard to the way they manage and report on their accounts, writes David Lawler

 

In practical terms, this means companies with any US affiliation or presence must adhere to the Foreign Corrupt Practices Act (FCPA)  – as well as any local accounting laws and corporate compliance statutes (for example, the Bribery Act and the Companies Act in the UK).

FCPA adherence is important from an accounting perspective, as it’s not just an anti-bribery law. There are also penalties for US and foreign issuers that fail to maintain adequate records or put in place appropriate internal controls. Such infractions can form an entirely independent source of liability. It is therefore vital that any effective anti-bribery policy also deals with financial controls, as well as accurate and transparent accounting. Under the FCPA, issuers must:
– Keep books in reasonable detail that ‘accurately and fairly reflect the transactions and dispositions of the assets of the issuer’;
– Devise and maintain a system of internal accounting controls to provide reasonable assurances that the company has accurate books and records, and GAAP-compliant financial statements.

In contrast, the UK Bribery Act does not mandate that a company maintains adequate accounting records; this duty is instead set out in both the Companies Act and UK tax legislation.

Most OECD member countries have laws governing accounting books and records, and prohibiting falsification. However, in many of these countries the penalties are limited to criminal sanctions, often with an accompanying knowledge requirement; corporate liability for inaccurate books and records is often limited or non-existent. In reality it is best to work to the tightest set of accounting rules, based on the location of a company’s headquarters and its global presence.

Keep in mind that companies do not need to produce more extensive documentation than is typical in the ordinary course of business. However, they must record more than the bare financial facts (such as the invoice number and the amount).  There must be full transparency regarding date, recipients and purpose of payment. A bribe accounted for as a ‘sales cost’, for example, would be considered misleading – although literally true (in that the bribe was paid to increase sales) it would be inaccurate in that it did not sufficiently specify the nature of the payment.

It is also important to remember that there is no facilitation payment exception under US accounting rules, which makes such payments exceedingly difficult to account for. The only way to do so properly under the FCPA is to account for them as something like ‘FCPA-permitted facilitation payments’ – but in reality this simply puts red flashing lights around the matter, inviting potential scrutiny!

The Bribery Act, unlike the FCPA or OECD Anti-Bribery Convention, has no facilitation payments exception. It criminalises the making of all bribes, worldwide, no matter how small. Perhaps even more importantly, if a company has a policy of allowing facilitation payments, then the courts may not view its policies as constituting ‘adequate procedures’ under Section 6 of the Act. This would be the case even if it was a US-based entity trading in the UK and therefore thought itself able to make facilitation payments with impunity.

We recommend that companies follow these three simple rules to ensure they are operating within the law:
1) Keep adequate records – companies need to be able to satisfy any investigator about the nature of their company transactions with reasonable accuracy at any time.

2) A third party must be able to get a good understanding of each transaction – that means including date, reason for transaction and purpose of payment

3) Facilitation payments? It’s a grey area for everyone, so better just to avoid them!

A partner at Forensic Risk Alliance (www.forensicrisk.com), David Lawler covers these issues further in his book Frequently asked questions in anti bribery and corruption (Wiley 2012)