The first company to face prosecution in the UK for failing to prevent bribery has just been fined £21.6m after reporting itself to the Serious Fraud Office (SFO).

ICBC Standard Bank – until recently the UK-based investment banking arm of South Africa’s Standard Bank – has admitted to failing to prevent bribery by senior staff at its Tanzanian division, Stanbic Bank Tanzania, in 2012 and 2013. 

The case, which involves the payment of ‘traditional’ bribes worth £4m to local government officials, may put some UK companies on edge for fear they could be breaking the same law through a less conventional route – by providing overly lavish corporate hospitality.    

Jonathan Middup, Partner and UK Head of Anti-Bribery and Corruption for EY, says any relief is likely to be short-lived. “This case may not relate to corporate hospitality, but [hospitality] is an element of several cases that are coming through under the legislation prior to the Bribery Act 2010,” he told The Review.

The SFO has consistently stated that it will only prosecute if a bribery case is a serious or complex one that falls within its remit. It also adds that “bona fide hospitality or promotional or other legitimate business expenditure is recognised as an established and important part of doing business”.

Predicting the endThe introduction of the Bribery Act 2010 filled many column inches in the UK media, predicting the swift end of an era of lavish corporate hospitality. The Financial Times said that in the run up to implementation it looked as though companies might be “swapping hospitality for hairshirts”. Some commentators suggested that UK-based companies could be at a competitive disadvantage to companies subject to less stringent anti-bribery regimes.

Research conducted by EY (a summary of which can be found here) in 2012, two years after the Bribery Act was passed and a year after it was implemented, found that only 18% of companies had cut levels of corporate entertaining as a result of the Act, and 68% of middle managers said the tighter rules on entertaining had either made no difference to them or they were unaware of any significant reduction to their spending. 
“Now I have to ask the price of everything that is offered. It’s embarrassing, so I tend to turn everything down at the outset”But those same managers still considered spending over £100 per head to be lavish, and more than half said they would like more clearly defined limits. It seemed that firms were concerned about what would be considered an appropriate level of spending and what would be too lavish in the new age of austerity. 

“Companies do not see themselves at risk of paying bribes in the traditional sense, but they do consider themselves potentially at risk through offering lavish corporate hospitality,” says Middup. “This is partly because the SFO and Ministry of Justice have provided guidelines and case studies, but the details of what is acceptable are poorly defined. They haven’t put any monetary values on it.”

Too draconian?Four years on from implementation, many companies have set their own guidelines and limits in the form of a written policy – an action that is considered essential if the company is to have any defence against prosecution for failing to prevent bribery (Section 7 of the Bribery Act). 

However, Middup believes that in trying to minimise risk of breaching the Act, a lot of companies have taken too draconian an approach. Rather than imposing hard limits that may not be breached, many have suggested soft limits, above which a prospective host must ask permission to spend money on a client. 

18% 
The proportion of companies that have cut levels of corporate entertaining as a result of the Bribery Act 2010 
Source: EY“For example, if you want to spend more than £100, you must seek approval from your line manager, and above £1,000, from your Managing Director,” says Middup. “The complexity of getting things signed off often means that, although companies have not cut their budgets, staff are deterred from offering hospitality to clients.”

Companies’ concerns about the Act have focused on Section 7 – the failure to prevent bribery, yet this part of the Act fails to cover the acceptance of bribes. As a result, Middup believes that many companies have not included information about this in their bribery policies. But this is illogical, as, of the 13 Bribery Act prosecutions in the four years since implementation, one has been for failing to prevent bribery, five for actively paying bribes and seven for taking a bribe.

One company that has introduced guidelines to prevent staff from inadvertently taking bribes has limited the value of acceptable gifts to that of a mid-range bottle of champagne, and £500 for a meal plus event. A senior manager at the company, who wishes to remain anonymous, says: “Before [the Bribery Act] it was left up to our discretion. Although a ticket to the men’s singles final at Wimbledon plus lunch and tea would have raised an eyebrow, I felt comfortable about accepting quarter-final tickets, or a day at the Six Nations rugby or cricket.

“Now I have to ask the price of everything that is offered. It’s embarrassing, so I tend to turn everything down at the outset.” 

Is corporate sponsorship a different kettle of fish?

While bribery may be fairly black and white, sponsorship of major sporting events can blur the line somewhat. Sponsorship is fundamentally a way to raise brand awareness to a television audience, for example, rather than a tactic to butter up clients or potential clients. 

Aberdeen Asset Management and Investec are two companies that continue to sponsor major sporting events. The former renewed its three-year contract to sponsor golf’s Scottish Open in 2014, four years after the Bribery Act was passed. But then, a company with Aberdeen in its name might be expected to sponsor a large Scottish event that promotes the country and itself. Sponsorship does not automatically imply that a company will offer lavish hospitality at said event – although, of course, the two practices could naturally fall hand-in-hand.Online serviceCorporate hospitality agencies such as Keith Prowse have developed an online service for companies that require complete transparency on their hospitality spend. “Business customers can mandate data fields such as the cost centre, a host’s name and business cases,” says Sam Coates, Head of Marketing. “Customers can also request the names of their guests, their job titles and the companies they work for to be uploaded into the hospitality portal. Ultimately, this allows companies to see who is internally purchasing the events and how much in total is spent on hospitality. By recording the names of guests, a company can see how many times a client is being entertained, the spend per client and the subsequent return on investment.”

Some investment companies have kept costs down by keeping everything in-house. Expensive tickets to sporting and cultural events have been scrapped in favour of office lunches with the fund managers to hear their latest views on markets and the economy.

Middup still believes there is an argument for more leisurely, and potentially costly, entertainment. “A round of golf or a day at the cricket gives you the chance to get to know the individual. You can learn about their family, their career, what motivates them. That’s very difficult to do over a breakfast or lunch briefing.”