THE MAGAZINE

Corruption Around the World

By Robert Elliott

Corruption is a major problem for companies doing business internationally. But few firms know how to address it.

Corruption remains a major concern for firms doing business around the world, according to a survey commissioned jointly by Control Risks, an international risk consultancy, and international law firm Simmons & Simmons. Ancillary risks associated with corruption - such as bribery that snowballs into violent repercussions - can affect the security of a company's global operations, the report's authors told Security Management.

"Corruption is a security issue within every bit of a company. One point we are making is that prevention is better than cure," says John Bray, a risk consultant and policy specialist for Control Risks, and the author of the report, titled International Business Attitudes to Corruption.

The survey polled 350 senior businesspeople from seven countries: France, Brazil, Germany, the Netherlands, the United Kingdom, the United States, and Hong Kong.

Respondents expressed pessimism about corruption trends: Close to three-quarters (74 percent) believed that corruption would either remain at its current scale or get worse. The French were the least hopeful. "It's a half-full or half-empty glass," says Bray. "The half-full is that western companies have codes of practice, but there are still questions as to the extent [that] they back them up."

The survey also asked respondents about laws governing these issues. Laws that forbid the payment of bribes to get business in other countries and allow prosecution of companies and individuals exist in all 30 nations of the Organization for Economic Cooperation and Development (OECD).

The survey found, however, that more than half of the companies polled were not aware of their own nations' legislation regarding bribes paid abroad. In Brazil, for instance, 70 percent of respondents were ignorant of their country's laws on foreign bribery.

"You have a lot of new players on the global stage where just going abroad is difficult enough," says Elaine Carey, national director of investigations for North America at Control Risks. "Sometimes it's just overwhelming for them to think about the OECD regulations or the Foreign Corrupt Practices Act."

But paying bribes is unwise even apart from the legality. Handing money to corrupt business or government officials in other countries mires the company in corruption and can devolve into violence against employees.

"Once you start making payoffs in a certain country to someone, if they up the ante and you're not willing, it quickly can turn into issues of safety of your employees, whether it's extortion, kidnapping, or the threat of some sort of violence," says Carey.

"It obviously all has an impact on productivity, and eventually might even impact the quality of whatever [a company is] producing in that region," she says.

Bribes can work against companies in other ways. "If you pay a bribe you may gain short-term advantage, but you are vulnerable from then onwards," says Bray. "Vulnerable not only to Mafia-type figures, but if there is a change of regime and your contract has been acquired through nontransparent means, you are vulnerable." Nontransparent methods can include money paid under the table, an exchange of favors, or cronyism involving government officials, Bray says.

Bribes also distort natural competitiveness in the market. Forty-three percent of survey respondents believed they failed to win new business within the last five years because a competitor had greased someone's palm. One-third said they had lost business to bribery within the last year.

In Hong Kong, 76 percent of firms believed they had lost out to bribe-happy competitors. Concerns were lower elsewhere but still significant; even in the United Kingdom, a quarter of the international companies polled said they had lost business to corrupt foes within the previous half decade. Firms in the construction and the oil, gas, and mining sectors were found to be the most likely victims of bribe-paying competitors.

While few companies said they would take action if they discovered that their competition had doled out bribes, a surprisingly substantial percentage of firms expressed willingness to withdraw from existing commercial relationships or investments with partners or countries because of concerns about corruption. For example, nearly a third of the Dutch companies polled were willing to make a fast exit from a corrupt environment, followed by the Germans, the British, and the Americans.

Bray says there are bright spots working against rampant corruption. Globalization is spurring enactment of rules that cover the market, making it harder for international companies to hide from their reputations. "They are exposed wherever they are," he says. "Legal cooperation is also increasing."

The survey also finds benefits to walking the straight line that go beyond the satisfaction of knowing you did the right thing. "If you have a name as a noncorrupt, good company, you are much more likely to be secure when problems arise, such as a [host] country becoming less stable, or a crime wave," says Bray.

Criminals tend to veer away from more stable companies that are popular in the public eye. "If a company is well-known and has a high profile, bad guys figure law enforcement is more likely to jump on it [investigation of crime] if the name and the perceived damage are big enough," says Carey.

The report recommends that companies fight corruption by backing up their antibribery codes with effective compliance procedures. It also urges national and international industry associations and governments to work together on the problem.

It will take all these measures and more to hold the line against corruption, acknowledge the report's authors. "It will be a bumpy ride," says Bray. "Even where progress is being made, it may be a case of two steps forward and one backward."

See the full report (attached).

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corruption_survey_2006_V3.pdf193.55 KB

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