Three quarters of the world’s biggest exporting countries are failing to punish corporations that pay bribes overseas, according to a new report from the NGO Transparency International. The report shows that there are vast differences in the level of risk of bribery and corruption in different countries.
Most of the world’s biggest exporters are failing to punish corporations that pay bribes overseas, according to Transparency International’s ‘Exporting Corruption’ report. The report rated 44 countries and found that three quarters have limited or little to no enforcement against bribe paying companies. These 33 states account for more than half of world exports and, incredibly, the countries with active or moderate law enforcement in place only account for a third of world exports. “It is unacceptable that so much of world trade is susceptible to consequence-free corruption,” says Della Ferreira Rubio, Chair of Transparency International.
The report shows how the level of enforcement against bribery and corruption varies between countries. Germany, Israel, Italy, Norway, Switzerland, the UK and the U.S. have the best record on enforcement. But there was only limited enforcement in major countries like France, the Netherlands and New Zealand and little or no enforcement in China, Ireland, Japan, Russia, South Korea and Spain. The 22 countries with little or no enforcement make up an enormous 39.6% of total world exports. Although the trend globally is moving towards tougher regulation against bribery and corruption, there have actually been declines in enforcement in the last three years in Austria, Canada and South Korea and Finland.
The report finds that foreign bribery has “huge negative consequences” for the economies of the nations targeted. It notes that in corrupt economies, money gets wasted on deals that are overpriced or do not yield real benefits. Too often, resources are diverted to benefit a few individuals and citizens are denied vital public services, such as access to clean water, safe roads or basic health services. Corruption also has serious consequences for companies operating in these countries who fail to identify bribery in their supply chains. The report singles out the massive foreign bribery scheme carried out in at least 12 countries by the Brazilian construction firm Odebrecht, which led to billions of dollars in fines.
But the risk of bribery and corruption to companies is considerably greater than just a financial cost. In an exclusive interview with LexisNexis earlier this year, the Director of Transparency International’s Business Integrity Programme highlighted myriad costs of bribery and corruption. “There are costs in investigating after a company first discovers the issue,” said Kathryn Higgs. “Then there are costs if the company is under investigation by a regulatory or law enforcement body in interacting with them, negotiating with them and defending themselves during legal proceedings. Then you have the cost of rebuilding the business, the damage to the brand, the loss of customers, and the risk of other litigations like shareholder class actions and competitor lawsuits. If a brand is damaged, it can take a tremendously long time to recover.”
The case for a company to prioritise compliance seems to be overwhelming. Yet Ms Higgs has warned that too many companies are putting increasing pressure on compliance departments. “There is constant pressure on compliance departments to manage risk as cost effectively as possible, but at the same time with increasing accuracy and sophistication,” she said. “Part of this pressure comes from the mistaken view from executive leadership that this is a risk that can be covered off and finished.”
Trying to cut costs on compliance is always a mistake. But there are ways a company can improve its compliance function cost-effectively. Databases allow companies to screen thousands of entities against legal documents, sanctions lists and negative news coverage. This screening can be regularly updated, which allows companies to carry out ongoing risk monitoring of all third parties. In the past, this would have to have been done manually which required significant staff time and resource. “Technology is a hugely vital tool to tackle some of that pressure on compliance teams,” says Ms Higgs.
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2. Read our Q&A with Kathryn Higgs of Transparency International on how companies can better manage bribery and corruption risk.