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Mahon Report Brings New Focus On Corporate Governance

27 March 2012

Governance procedures to forestall bribery and corrupt practices are likely to become a renewed area of focus in the light of the changes to the law advocated by the Mahon Tribunal in its final Report, published on 22 March 2012.

In the following Article, published in yesterday's Irish Times, Mason Hayes & Curran's Corporate Chairman, Paul Egan, outlines the background and likely direction of new law in this area, which will affect businesses generally, and not just those with a historic interaction with politicians.


Mahon looks to remove the 'ostrich' defence

Chapter 18 of the Mahon Report states the Tribunal’s recommendations arising from its findings in the Report’s first 2,515 pages and in its previous reports. Unsurprisingly, they are focused on law and procedure to do with planning, political finance, lobbying, bribery, corruption in office, money laundering and asset confiscation.

The first thing to say is that implementation of these recommendations will not result in any prosecution or convictions; horses have bolted and this is an opportunity to close the stable door for the future. Whereas many of the recommendations have a political and public-office focus, the key changes advocated by Mahon that will affect businesses are its proposals on bribery by intermediaries, defective corporate governance and on whistleblowing.

Mahon recommends: outlawing the making of payments to a third party where the payer knows or is reckless as to whether that third party uses that payment as a bribe to further the payers interests; outlawing a lack of supervision or control on the part of a commercial entity that facilitates the commission of bribery to the benefit of that entity by one of its employees or other business associates; whistleblower protection not only for employees but also for independent contractors.

Why, you might ask, is it necessary for such recommendations to be made? Like the whining schoolboy in As You Like It, Ireland has crept like a snail unwillingly to compliance with the OECD and other conventions on bribery and corruption. It was only an overdue 2010 Act that finally plugged an obvious gap in our law relating to bribery overseas.

So Irish anti-corruption law is at last compliant with our international obligations, but it wins no prizes for clarity or user-friendliness. Time will tell whether it is of any relevance to the Tribunal’s findings. It is spread across a series of statutes from 1889, containing several duplicative and inconsistent provisions.

In a February 23rd answer to a parliamentary question, Tánaiste Éamonn Gilmore promised to bring the heads of a Bill to reform and consolidate the existing law to Government before Easter. The objective would be to clarify, consolidate and reform the seven different enactments which make up the Prevention of Corruption Acts 1889 to 2010.

In 2010, the UK passed its Bribery Act, which was brought into force on 1 July 2011, together with official guidance for companies and for prosecutors. Irish companies carrying on business in the UK – which, let’s remember, would include having an agent on the road in Co Armagh, as much as having a full-blown branch in Birmingham or Glasgow – have had to get into compliance with the new law already.

The key change in the UK law is to automatically impute the improper act of a company’s employee or agent to the company, as Mahon now recommends. In the UK, a commercial organisation is guilty of an offence if a person associated with it bribes another person intending to obtain or retain business for the organisation or to obtain or retain an advantage in the conduct of its business. Unlike in Ireland, no proof of corporate intent is required.

However, a commercial organisation has a defence if it can prove it had in place “adequate procedures designed to prevent persons associated with [it] from undertaking such conduct”. The UK official guidance indicates that to be adequate. the procedures should be proportionate, they should include top-level commitment, ongoing risk-assessment and due diligence, communication (including training) along with monitoring and review.

The proposal to deal with intermediary behaviour is consistent with the requirement for adequate procedures; it will not be enough for an individual or company to put its head in the sand and pretend it knew nothing.

The whistleblowing proposals go further than the protections to employees proposed in the recently published draft Protected Disclosures in the Public Interest Bill, 2012.
The UK law provides an excellent model to implement Mahon’s recommendations. It focuses on the prevention and not just punishment of corruption. And the Tánaiste’s promised new law provides a perfect opportunity to incorporate these recommendations.

In February 2012, Mason Hayes & Curran published a compendium of the current Irish legislation on the bribery and corruption: "Ethics in the Private and Public Sector: the Legislation". If you would like a copy, please contact Elaine O’Keeffe at eokeeffe@mhc.ie

The content of this article is provided for information purposes only and does not constitute legal or other advice. Mason Hayes & Curran (www.mhc.ie) is a leading business law firm with offices in Dublin, London and New York.

© 2012 Copyright Irish Times. All rights reserved.

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