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November 5, 2013updated 11 Jan 2016 1:34pm

At what point does client entertaining turn into bribery?

By Spear's

Bribery Alex


New laws against over-generous corporate hospitality are causing wealth managers to rethink how they win clients. Alex Matchett is not entertained

It’s not hard to see how it could have overstepped the mark. Some brokers, a senior wealth manager reports, had hired a steamship and flown ten of their clients (by jet and helicopter) to shoot clay pigeons off the bow and then enjoy, let us say, other entertainments. As client hospitality goes, I’m sure they found it most hospitable — but they might have trouble doing that today, as the boundary between entertaining and bribery becomes ever less obvious… and more punitive.

Since the Bribery Act 2010 came into effect, ‘hospitality that is overly “lavish”, and not of “genuine mutual convenience”, may risk being viewed as a bribe’, according to law firm Olswang. Its recommendation is that you ask: ‘Would my competitors think this hospitality is excessive/suspicious?’ Its guidelines say taking potential clients out for dinner or going with them to cultural or sporting events is fine — but not paying for them to go unaccompanied by you. A corporate pen is fine — but a corporate Montblanc is probably stretching it. So how has this affected those wealth managers and lawyers trying to win new clients (both private and institutional)?

Read more on wealth managers and the Bribery Act from Spear’s

Last year there was an object lesson in how to give the right level of corporate hospitality — with the potential for it to go reputation-damagingly wrong. The thirteen corporate suites in the Olympic Stadium provided a coveted space for business interests to overlap. A corporate hospitality manager I spoke to revealed the balance of integrity and ingratiation: ‘A lot of it was more of a kickback,’ and ‘they threw huge amounts of money into it, to thank the big top dogs… but there was definitely an element of working to interact with other people, potential clients, to do more business. You could tell by the layout of the rooms and the people invited.’

With influential figures such as Boris Johnson, Michelle Obama and Rupert Murdoch in attendance, it’s easy to see why accusations of unethical leverage surround such occasions. It’s undoubtedly a big event but it’s difficult to prove an illicit agenda beyond the high-end result of the logic that dictates wearing a shirt to meet the in-laws.

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Such ostentation in the world of wealth management would have repercussions, however. As with so much in wealth management, the challenge is one of discretion and integrity.

‘It’s about people buying into people,’ says John Hilson, business development manager at Duncan Lawrie Private Bank. ‘Hospitality is a very useful tool for any business, not just financial services, and I think the regulator understands that and appreciates that within given parameters it’s acceptable to have that as part of the normal course of business. From our perspective it’s an incredibly useful tool to be able to understand our clients.’ But for Hilson, being personable is more important than being prodigious, and he prefers the fireside rather than the trackside chat. Many of his competitors are, however, out at the races.

The test, says Rachel Clark, head of compliance at i2a Consulting, which has twenty years’ experience of advising clients on compliance issues, ‘is the creation of a feeling of obligation — does the client feel that he owes something in return? That might be the case where the hospitality is high-value or lavish, particularly if it coincides closely with a key business decision. Having said that, it doesn’t actually have to have a monetary value to be considered a bribe — it could be personal or professional favours.’

Don’t forget the press, either: ‘Whether the hospitality given would attract the interest of regulators and be legally considered as bribery is another matter, but the potential damage to corporate reputation through adverse media stories of extravagant hospitality should not be underestimated.’

The wealth manager who hadn’t been on the steamship describes himself as a ‘rather parsimonious’ soul who doesn’t ‘believe in swanky entertaining’, but he acknowledges it’s affecting his competitors, ‘hampering them and creating procedure and paperwork and embuggeration’. The Bribery Act is not, however, needed to correct a culture of client entertaining gone wrong, he says, but rather ‘gold plating’ for an industry which already takes care.


That is the client-facing side of (potential) bribery. Wealth managers face similar risks in their business operations. While it’s easy enough to be wary when dealing with foreign officials or partners, the inner dealings of portfolio investment can invite suspicion. That is one reason so many firms now talk about not taking retrocessions (‘fund-provider kickbacks’ as Spear’s has previously put it), and it is also why the government’s Retail Distribution Reform is forcing wealth managers to move from being paid by providers to being paid by clients.

Nevertheless, until these reforms are fully assimilated, the Serious Fraud Office and the Financial Conduct Authority will be keeping a close eye on corporate behaviour. You may have been dealing with issues such as one City insider described, where foreign pension funds are ‘front-running their own book on their personal accounts and always open to a broker coming to them saying, “If you give me a ticket which is worth x amount of commission I will pay back to you a certain proportion of that commission.”‘ If so, now might be the time to liquidate or come clean, especially in the post-RDR climate.

Wealth managers face a constant battle to stay on the right side of ‘best practice’; where authorities see shades of grey, they may look to exert pressure. A lawyer dealing with HNWs says: ‘There’s an increasing concern among clients that one of the risks they face is that the prosecuting authorities seem to have a tendency to be willing to leak to or brief journalists for the purposes of improving their position in any prosecution they’re bringing.’

Although the SFO has been criticised for being slow to prosecute under the Bribery Act, the FCA is alleged to be looking at no fewer than 22 asset-management firms for bribery and corruption in their business practice. When scrutiny from the law descends in such situations, the wealth managers can suddenly find themselves caught in a vice, being pressured from both sides. The FCA’s website states: ‘We do not need to obtain evidence of corrupt conduct to take regulatory action against a firm.’

This is chilling indeed if a non-UK citizen, not subject to the Act, wants to squeeze you for further kickbacks with the threat of a tip-off about your past misdemeanours, says the lawyer: ‘You’re moving into a very thin line between putting pressure on somebody as part of a negotiation strategy, whether you’ve got a litigation or a business deal you want to get the upper hand in, and actually blackmailing somebody.’

Give yourself up!

The scope the Act has given prosecutors is worrying for an industry reliant on reputation and integrity. Being able to act without proof means that in a competitive market dealing with billions, mud will stick, and the untested nature of the Act gives a worrying opacity to the law. Compliance departments have sprung up and large banks have taken on hundreds to raise their standards (HSBC now has 5,000 in its).

The SFO encourages businesses to draw up a protocol internally, report bribery approaches and liaise with other bodies where they can. Richard Sallybanks, a lawyer who specialises in bribery cases, underlines the need for diligence: ‘Your defence in the UK is to show that you have put adequate procedures in place. What is recognised is that you’re not going to be able to stop corruption instantly but you need to be encouraging responsible corporate behaviour.’ Whether that includes taking responsible aim at those clays as they fly off the bow is doubtful.

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