David Buxton

David Buxton 

Posted Thursday May 8, 2014

Avoid corruption risks with strong due diligence

Sir, The FT article “JPMorgan shuts foreign diplomats’ accounts” (May 6) is symptomatic of an industry struggling to deal with increasingly vigilant enforcement of the US Foreign Corrupt Practices Act (FCPA) and to a lesser degree the newer UK Bribery Act.

We hear stories on a regular basis, especially from within the banking sector, of organisations wanting to do the right thing but not knowing quite what is expected of them. As a result, basic processes such as opening a bank account slow to a crawl for foreigners: one customer recently told us that their institution takes a minimum of 45 days to open a new private banking account, primarily because of an inefficient compliance process.

This reflects a number of challenges banks are facing internally, not least the issue of how to identify and assess the risk associated with “politically exposed persons” (PEPs). We calculate that, globally, there are currently 46,882 elected or appointed national political representatives. This does not include political candidates, which the FCPA includes in its definition of PEPs, or regional or local officials, who in countries ranging from Nigeria to Russia wield considerable power.

The task is daunting. As a result some banks and multinationals are cutting all ties with any possible foreign PEPs or rethinking their exposure to foreign markets. This is understandable but also avoidable.

Corruption risks can never be entirely removed but what the FCPA (and the newer UK Bribery Act) are looking for is evidence that effective due diligence has been done on any customer who may be politically exposed. A structured, systematic approach to due diligence can achieve this, even if such a restructuring can be costly. Walmart has stated that it expects to spend between $200m and $240m on FCPA-related compliance in 2015 alone.

It’s understandable that some companies feel that the easiest way to win this game is not to play. However this is a mistake. Companies need strong due diligence processes to protect themselves at home as well as abroad: as recent research from the Economist made clear, the US itself remains among the world’s most hospitable jurisdictions for money launderers. Simply turning inwards means fewer opportunities without the benefit of lower costs.

David Buxton, CEO, Arachnys Information Systems, London EC2, UK

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