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Olympic hospitality - looking to avoid the high jump!

Source: Redmantle, Red Lion Chambers - Tue, 21 Feb 2012 14:26 GMT
Author: Ian Leist QC
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Any views expressed in this article are those of the author and not of Thomson Reuters Foundation.

By Ian Leist QC, barrister and partner at Redmantle

As the London Olympics draws closer this summer, rumours abound that compliance departments in the wealthier businesses and institutions in the City of London are getting  jumpy as they learn the size of hospitality budgets for the Games.

While many ordinary folk have failed miserably to get tickets to any event at all, corporates are reputedly spending a cool £4000 for a morning at the swimming pool to see a an event  where Great Britain has high hopes of a  gold medal.

Hospitality

Companies often struggle to tell the difference between a legitimate business gift and a bribe. New Ministry of Justice Guidance issued in 2011 on the Bribery Act 2010 offered some clarity by setting out enhanced standards of good practice. Many companies, however, still see the Bribery Act 2010 more as ‘how you play the game.’

In the foreword to the Guidance, Justice Secretary Kenneth Clarke offers clarity on how the law will operate by referring immediately to the thorny question of hospitality.

“Rest assured no one wants to stop firms getting to know their clients by taking them to Wimbledon or the Grand Prix,” he says.

This year sees the biggest party of all, the Olympics, coming to town on the back of the Diamond Jubilee, in the hope it will blow away ‘austerity blues’, stimulate the economy and help the government to a general election victory in 2015.

Setting out his game plan, the Prime Minister David Cameron recently said:

“This summer's Olympics will put the eyes of the world on Britain as we host not just an unparalleled sporting spectacle, but also a chance for companies from across the globe to interact and do business here in the UK. We expect these events to generate at least £1 billion for British businesses and they are vital to our efforts to secure a long-term return to sustainable growth.”

The Guidance explains that to prosecute an allegation that hospitality was intended as a bribe would require proof that the hospitality was intended to “induce conduct that amounts to a breach of an expectation that a person will act in good faith, impartially or in accordance with a position of trust.”

The Guidance strikes a sterner tone when considering the stand- alone offence of bribing a public foreign official under section 6 of the Act.

 “Bona fide hospitality and promotional or other business expenditure which seeks to improve the image of a commercial organisation, better to present products and services or establish cordial relations is recognised as an established and important part of doing business and it is not the intention of the Act to criminalise such behavior . It is, however, clear that hospitality and promotional or other similar business expenditure can be employed as bribes.”

It continues:

“The more lavish the hospitality or other similar business expenditure provided to a foreign public official, then generally, the greater the inference that it is intended to influence the official”.

The Guidance states “very careful consideration” on public interest grounds needs to be given before a decision is taken to prosecute an allegation where hospitality, promotional expenditure or facilitation payments do trigger the provisions of the Act.

Commenting on the Guidance in The Telegraph in 2011, Richard Alderman, director of the Serious Fraud Office, signaled his organisation’s approach to deploying the Act.

“I want to see companies police themselves and develop an anti-corruption culture,” he said. “I want to get on and investigate those companies that are putting our ethical UK businesses at disadvantage by offering bribes.”

It is important to note that prevention of bribery of foreign public officials is a significant policy objective of the Act and that different levels of risk are more likely to face companies operating in foreign markets.

The Guidance confirms companies and organisations are being encouraged to self report and take robust, positive action from the top level down to prevent bribery.

The Guidance specifically states its Guidance is not “prescriptive” and “not a one size fits all document.” This is an important observation because, in May 2010, a report by the FSA into the insurance industry, renowned as one of the biggest entertainers in town, found most firms were still adopting flawed thinking in their corruption risk management. In doing so companies frequently failed to take into account the different risk profiles of jurisdictions and industries, and, even where they did, they neither documented their findings, nor took remedial action by changing their procedures.

The Guidance recognises no company policy or procedure can guarantee the detection and prevention of all bribery, but a risk-based approach will focus the effort where it is most needed.

 In my view, in Olympic year, judicious compliance and audit departments will want to

  • Conduct a refresher on the Ministry of Justice 2011 Guidance and review procedures to prevent bribery.
  • Apply some thought to what constitutes proportionate hospitality for the Games, bearing in mind in the government‘s aims for the economic success of the Games.
  • Take extra care with unusual and lavish expenditure on foreign officials   particularly when linked to business in the 4 areas highlighted in the UKTI strategy document.
  •  Have the audit department flag up suspicious transactions.

    A proportional response to the Games

    Jeremy Hunt MP, Secretary of State for Culture, Olympics, Media and Sport, believes that hosting the Games is an “incredible stroke of luck” during the global economic crisis as it will provide a “huge plus sign” for the struggling British economy.

    Ministers have faced calls to pare back expenditure on the Games at a time when thousands of people are losing their jobs, public services are being cut and taxes are rising.

    But in an interview in December last year in the Daily Telegraph, Hunt said voters will never forgive the Government if it does not “make the most” of an unprecedented opportunity.

    “You can take two attitudes to the Olympics,” he says.

    “You can say ‘these are times of austerity and therefore we should pare them down as much as possible’. Or, you can say ‘because these are times of austerity we need to do everything we possibly can to harness the opportunity of the Olympics.’

    “We’re going to be the centre of global attention and it will be the first time that we’ve had a major sporting event that’s watched live by half the world’s population. People would not forgive us if we didn’t make the absolute most of this moment.

    “This is going to be an incredible expression of Britain’s culture, Britain’s history and Britain’s creativity. So, we decided that the sensible thing to do is to make sure that we finance it properly.”

    Let’s Party!

    London is set to give a generous national welcome to fellow ‘world citizens’. It is unlikely therefore that there will be great public interest in Olympic year in officiously prosecuting  ‘hospitality ‘cases, except in exceptional  and appropriate cases.

    Bearing in mind that old maxim ‘there’s no such thing as a free lunch,’ the greatest concern to corporates seeking to avoid damage to their business reputations is therefore likely to come from the media investigating extravagant hospitality at  a time when ordinary folk may be struggling to go to the party.

     Some proportionate self -policing may well prove a valuable response to bribery – and reputational- risks.

    Ian Leist QC is a barrister and partner at Redmantle, Red Lion Chambers

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