Failure to prevent – a panacea for regulators? - Legalworks

Failure to prevent – a panacea for regulators?

”Failure to prevent” has become an important issue in the combat of bribery and an important tool to force the management of companies to take anti-bribery regulations and rules seriously. In simple terms it will force the management to secure that the company becomes compliant and that all rules and regulations are observed. As a result, many companies today are introducing, following up, up-dating, training and re-training its employees in the codes of conduct applicable for the company as well as in international and local rules on bribery and anti-corruption. In addition, they have introduced due diligence methods regarding its business partners – customers as well as suppliers – and current and new contracts are analyzed and registered into various types of data systems. As a consequence, it is impossible to approach a (new) customer without having performed a proper due diligence.

The multinational companies – in particular those which has been subject to or have realized that a breach of the US legislation – the Foreign Corrupt Practices Act (FCPA) – is extremely expensive and does pose a real threat to the management who is not properly securing compliance. Consequently, recognizing this risk management is forcing the company to apply all types of actions to secure that the company is compliant. Under the FCPA the concept of failure to prevent has been applied in practice while other countries have included the concept in the anti-bribery legislation, e.g. UK Bribery Act. In Sweden a form of the concept was introduced in the modifications and updates made in 2012 of the Swedish anti-bribery legislation. This was made in the form of a new crime – Gross Negligent Financing of Bribery – which in reality means that the management must secure a due diligence system for the control of the parties the company is dealing with. However, the legislator seems to live under the impression that Swedish companies are particularly clean in this regard – Sweden is ranked high on the Transparency International’s so called “perception index” and as a result the Swedish rules have been designed relatively weak. It seems to be the classic mistake of not realizing that TI’ perception index only is the view or perception the citizens have of the public officials and nothing to with regard to the behavior of the private sector – in Sweden or else-where.

Regardless of the lacking ability in Sweden other countries rules – primarily UK Bribery Act and the US and FCPA – are highly effective and requires most companies, also Swedish, to implement control- and training programs to show that the management of the company takes compliance issues seriously. From the perspective of the authorities this is of course also a relief – the regulations puts if not all a substantial burden of proof on the companies that they are compliant. The companies which are not living up to the standards also have an upward battle to defend themselves. Right or wrong, the principle failure to prevent and the system it has entailed has proven to be very effective and rewarding – in particular for the US Department of Justice and also slowly to the Serious Fraud Office in the UK.

Compliance and the requirement to abide by the rules have spread to a number of areas – finance, anti-trust and tax to mention a few. New areas of the law are added – the most recent within the EU is the General Data Privacy Regulation which shall be implemented at the corporate level by May 2018. They all include demands on the companies to live up to the same idea and in the case of the GDPR-regulation those companies which has not implemented the new rules will be held responsible regardless of a data breach or not. The failure to prevent principle may not be clearly stated but it is there in my opinion. And more and more management teams will be held responsible in these areas if the company proves not to be compliant. In my personal opinion, we will see more of the principle in other areas of compliance. As a (small) indicator I recently learned that Iceland has introduced legislation where the company/employer must be able to show the reason for different pay for the same work to its employees.

This article is written by Peter Utterström, who is an independent advisor and member of the Swedish Bar Association. One of his speciality areas is anti-corruption. If you want to hear more from Peter come to Clarion Hotel Wisby on the 5th of July in connection with Almedalen and the event Tillsammans mot korruption.

M: +46 725 862 224


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