New corruption laws call investors to account

At the beginning of 2012, institutional investors were thrust into the spotlight when it became apparent that they would have to take greater responsibility for ensuring that the corporates in which they invest comply with anti-bribery legislation, writes Sarah Keeling, senior managing director, FTI Consulting.

It is no longer business as usual, and investors are going to have to adjust to the new rules. Ignorance, lack of available records, blind trust, hope that the authorities won’t look into a particular business – none of this will matter in the future if a company is found to be involved in criminal activity and it has not put the measures to detect it. But what do the Bribery Act, Foreign Corrupt Practices Act (FCPA) and EU anti-corruption policy actually mean in reality for companies that have many fingers in many pies?

The reality is that, investors will have to prove that there is no corrupt practice in the companies they have financed or, if misconduct is eventually found, that the investors did everything within their power to find it prior to investing. This creates the necessity for rigorous due diligence, and the ability to demonstrate and document it, before entering into any agreement with another party. 

What should investors do?

Looking at publicly available information such as accounts and financial statements should be the first step, but it is important that the person reviewing these knows what they are looking for, such as monetary irregularities that indicate suspicious activity. However, when you are considering entering into a business relationship with an unknown company, it is difficult to know what you are looking for. Forensic investigators are able to advise when company accounts cease to provide the answers and, in most cases in non-UK jurisdictions, this will be because they are not publicly available or the answers are more deftly hidden.

This is when business intelligence comes into play. As outlined above, new investments are more and more frequently being made in emerging markets and investing in new territories brings with it fresh concerns and issues. First of all, many investors will be unsure of the business environment they are entering into in a new market, so it is important to assess the country as a whole before looking at the individual company.

For a high-profile country, it might be apparent from the news agenda and general public opinion what their reputation on corruption is and an investor should know whether or not it is a sensible idea to do business in that country. But for some markets you will have to delve a little deeper in order to assess the country’s corruption history. 

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