Attempt to crack down on corruption?
Continued from last week
If one subjects the Section 42 obligation to further study, the following observations can be made:
(1) prima facie the phrase “property disproportionate to his legitimate income” raises the logical question, who determines whether property is disproportionate or not? It cannot be a wholly objective test. Determination must invariably invite a subjective evaluation – a judgment call as to what someone making X per year should/should not have.
(2) The burden of proof is placed on the poor public official. Since the act assumes a “quasi-strict liability” tone, Section 42 operates as a reverse onus provision – in layman’s language, you are guilty before a trial. Guilty before a determination of one’s innocence; and
(3) the legislation is invasive.
So far focus has been on the first limb of this address and we have explored the implications for Government, or rather on Government officials. It is clear, so far, that not all sectors of Government fall easily within the intent of the act and moreover, that only those in the top echelons of Government, elected officials, judiciary, trade unions and magistrates are captured.
With respect to the business, the act refrains from attempting to identify certain businesses and instead focuses on practices that amount to corruption, fraud or bribery. In this regard its scope is similarly broad.
Generally as far as businesses are concerned, the cost of doing business is dictated by common law and statute. Given that I was invited by the Institute of Chartered Accountants of Barbados, it is prudent to restate the pivotal role that the auditor performs in detecting fraud and corruption.
In this regard, the auditor as the watchdog must vigilantly peruse financial statements and detect corruption and fraud. While auditors are more than “mere upper adders” and their duty is to the client company and not the public at large, there is increasing evidence of a disconnect between what an auditor’s role and function is and what auditors are required to do in law.
It is also important to be aware that there is an abundance of recent case law addressing the question of fraud. For instance, in the decision of Kensington International Ltd vs Republic Of The Congo, a decision in which the actions of the government/government agencies and/or a person of influence in government led to the inescapable conclusion that there was fraud to the tune of £121 million (BDS$375 million).
And in House Of Lords Moore Stephens (a firm) vs Stone Rolls Limited (appellants, in liquidation), a client company unsuccessfully sued the auditors for breach of their duty in their failure to detect the fraud earlier!
Prevention Of Corruption Act and accounting practices
The Prevention Of Corruption Act, like the common law and statute, acknowledges the vital role that auditors perform. Thus the act in the same vein addresses businesses’ accounting practices so that a private entity is required, inter alia, to comply with general accounting and auditing principles. Businesses are strictly prohibited from, inter alia,
• entering liabilities without correct identification;
• establishing off-the-books accounts;
• recording nonexistent expenditure.
Turning to the specific question as to how the Prevention Of Corruption Act 2010 impacts on business, Part V of the act governs businesses – the private sector.
The implications are, as for public officials, severe. Any breach renders a business liable to a fine of $500 000 [or its chief executive officer or chief financial officer] to imprisonment for a term of five years or both.
Breaches identified under the act embrace
• overt action or inaction;
• solicitation, direct or indirect;
• bribery whether for himself or someone acting on its behalf;
• obtaining an advantage for himself or another person or entity. “If a business seeks to gain a concession, exemption or licence” or improperly gain an advantage, then it is subject to a fine of $500 000 or to imprisonment for a term of five years or both;
• a person who directs or works in any capacity for a private entity and who embezzles, misappropriates or diverts to himself property entrusted to him in the course of economic, commercial or financial activity by virtue of his position is liable on conviction to a fine of $500 000 or imprisonment for five years.
Apart from the general prohibition imposed on companies, it expressly prohibits companies from bribing public officials. Businesses are cautioned against promising, offering or giving any advantage to a public official as an inducement or reward for himself which would assist, hinder or delay that person in any transaction, and any public official who accepts or solicits an advantage to himself or another person similarly is subject to a fine and/or imprisonment or both.
Furthermore, for the avoidance of doubt, the act delineates bribery with respect to contracts.
The spread of the legislation is without doubt extensive and all-encompassing, covering
(i) bribery and embezzlement of and by public officials;
(ii) foreign public officials;
(iii) public international organizations;
Additionally there are myriad supporting mechanisms. The act establishes a commission which, seized with all of this information, is understandably subject to an oath of secrecy and confidentiality. And provision is made for the protection of witnesses, and cooperation with orders of extradition, freezing and detention of assets.
Before concluding, it is ironic that according to a recent report, Barbados is the least corrupt nation in the Caribbean. Moreover, that Barbados is the only regime to be afforded “white” status on the Organization For Economic Development And Cooperation’s list of offshore tax havens.
The Prevention Of Corruption Bill must be viewed against the backdrop of the extensive reshaping and tightening that is occurring internationally and regionally. And that it is seemingly designed to provide a more effective framework for regulators to bring the force of law to bear on bribery.
For businesses, it could be worse! In Britain the soon to be introduced Bribery Act heralds a new corporate offence of “a failure of commercial organizations to prevent bribery”. This corporate offence places the onus on corporates to ensure that their anti-corruption procedures are robust and up to date, the sole defence being proof that “adequate procedures” to prevent bribery were in place. A “corporate offence” of failure to prevent bribery triggers directors’ liability for failures in corporate governance.
The Prevention Of Corruption legislation signals a transition from the “you can hide and buy land but you can’t hide and work it” philosophy. Hiding will clearly no longer be tolerated. Its introduction prompts obvious questions. Why is such legislation needed? Does it fulfill a perceived gap in the current legislative framework? Does the legislation, as presently constituted, safeguard against corruption on the part of businesses and public officials?
Its quasi-strict liability form and its broad reach, its treatment of solicitation, bribery, corruption on the part of foreign public officials, public international organizations and its blanket penalty of $500 000 or imprisonment for five years or both, a tactic dispensed liberally throughout the act, is perhaps evidence of “don’ wait till de horse get out de stable to shut de door”.
• Lesley Walcott is an attorney-at-law and law lecturer, Law Faculty, University of the West Indies, Cave Hill.