How can you protect you and your firm from bribery and corruption?

November 2019  |  EXPERT BRIEFING  |  FRAUD & CORRUPTION

financierworldwide.com

Imagine the scenario: two of your colleagues, both working hard on different projects, have asked you for help. You know each of them well. They are both hard workers and always helpful, but one has been particularly accommodating to you in the past and recently assisted on a deal you secured. You only have time to help one colleague – which one do you help?

The answer will most likely be that you want to help the person that has previously helped you the most.

The drivers behind human behaviour are complex and widely studied, and returning favours is one of the most fundamental aspects of human relationships. Indeed, it is so common that we have coined several terms to describe it. From ‘give and take’ and ‘quid pro quo’, to the more descriptive ‘you scratch my back, and I’ll scratch yours’ and ‘one hand washes the other’.

To return to our scenario, what if it was not a colleague? What if it was two vendors vying for a contract, one of whom had in the past treated you more favourably – how would this impact your decision? This leads us to the challenging question: at what point does business activity cross the line and become bribery?

This scenario is not a mere meditation on ethical behaviour, because the stakes are high. In the US, there is a long tradition of aggressive enforcement against individuals and companies engaging in bribery. There are countless examples of the long arm of the US Foreign Corrupt Practices Act (FCPA). And today it is not only the US tackling bribery and corruption, with governments around the world having introduced troves of new legislation over the last decade.

When we consider bribery and corruption, we often limit our thinking to the traditional perceptions of risk regarding gifts and hospitality and high-risk countries or industries such as the extractive sectors. Similarly, the focus of the laws around the world is often on ‘public officials’, as this is an area of heightened risk.

Such thinking is short-sighted, as regulators and prosecutors are increasingly looking at more sophisticated ways that bribes are made and the focus is moving away from traditional perceptions to other areas of ‘business as usual’ activity, including bespoke and tailored products and services. Some countries, such as the UK, have gone further, and do not narrow their scope to business conducted solely with public officials. They have also brought business-to-business dealings, where no government officials are involved, under the scope of their bribery laws.

Nor should we imagine that companies in countries with low corruption levels are immune. Denmark and Sweden are consistently ranked as the least corrupt countries in the world but have both seen high-profile cases in the form of Danske Bank and the telecoms company Telia.

It is easy for those working in the financial services to consider themselves one step removed, yet global prosecutors have been keeping an eye on the activities of financial services firms. The high-profile case of JP Morgan’s hiring practices being one example of FCPA enforcement of a bank. Another is the UK’s deferred prosecution agreement (DPA) with Standard Bank PLC for failing to prevent bribery.

Looking to other industries

We must keep an open mind to the ways in which bribery can occur in all areas of business. One way we can do this is to consider enforcement action, not just against financial services firms but also those in other sectors.

Take, for instance, the case of Fresenius Medical Care, whose misdeeds resulted in a $231m criminal penalty. Fresenius’ activities extended across multiple jurisdictions and schemes, which included the payment of ‘traditional’ bribes to government officials to both obtain and retain business. Of particular interest was Fresenius’ conduct in Angola, where it “offered or provided things of value to an Angolan military health officer”. This is where Fresenius started to get creative. It offered shares in a joint venture to a local subsidiary of Fresenius. The son of the official was awarded storage contracts to provide warehousing space – but no Fresenius products were stored there. Publicly employed doctors were awarded consultancy agreements, but when investigated, it was clear that no services were ever performed by the doctors.

All these activities – joint ventures, consultancy agreements and the awarding of contracts – are a legitimate part of business and occur daily in the financial services world. But the crux is the intention. In each of these instances, Fresenius’ intention was to influence or secure an unfair advantage, and an advantage it certainly was. The bribes resulted in profits of over $140m.

The nuances of business and the range of activities that companies engage in make it increasingly hard for them to communicate or train their employees on all scenarios that may constitute bribery. The traditional approach leaves many employees considering bribery to be a simple ‘black and white issue’ which concerns either facilitation payments or excessive gifts and hospitality.

When a code of conduct is not enough

Managing bribery and corruption risk is a balance of culture and controls. Culture to set the tone of what behaviour is expected and systems and controls to manage the risk, such as carrying out due diligence on third parties. The foundation stone must be a clear code of ethics, but it cannot begin and end there. It must be embedded into a business and the senior executives must ‘walk the walk’. Telia is proof. It had in place a code of ethics that sounded wonderful, but it did not stop employees engaging in bribery.

When asked at our desks when we are not under any pressure, most of us would never engage in unethical behaviour such as bribery, but human behaviour and our ability to make decisions is not always grounded in logic. We cannot assume that we or our teams would never behave in an unethical way. The figures tell a different story. In public procurement alone, the Organisation for Economic Co-operation and Development (OECD) estimates that around $400m is paid in bribes. But in the moment, when a crucial deal is near completion and a small ‘fee’ is holding the deal up, justification is used.

As humans we can be creative and imaginative in justifying our behaviour, telling ourselves stories to rationalise behaviour we would not normally engage in. Perhaps you have even heard some of these justifications: (i) it is the way business is done here; (ii) the business needs the profit from this deal; (iii) it is a win-win, no-one gets hurt; (iv) senior managers have signed this off, so it must be above board; (v) it is insignificant, just a small bit of money in the grand scheme; and (vi) I need to meet my performance targets.

Whilst you may not be responsible for the controls put in place within your firm, you are in control of your own behaviour and you can influence the behaviour of those around you. The strategies outlined below can be deployed, no matter who we are within an organisation.

An individual code of ethics. Do you have a personal credo? It is important to understand your company’s policies because as an employee you have agreed to operate in accordance with its code. But what about your own behaviour? Bribery can happen anywhere in an organisation, from the most senior levels of management to junior employees. But having your own code that guides your actions can help you in situations where you may feel compromised.

Employ the third-party test. Sometimes it is enough to take a step back and consider how a third-party would perceive the activity. How would you feel if your competitor was to engage in such activity? This test can be fraught with difficulty, particularly if you are operating in an industry or culture where bribery is seen as prevalent and the ‘normal way’ in which business is conducted. These justifications need to be countered: how would an impartial third-party judge this activity?

Be transparent. Make it clear to all involved why you are awarding the contract or engaging in activities, and that there is no obligation or expectations on anything else. It is often said that bribery and corruption thrive in the dark, so make it clear what you and your business stands for and be transparent in your behaviour.

Call out unethical behavior. This is not limited to the standard yet important avenues available to employees, which include escalation routes, whistleblowing hotlines or regulator interventions. Think of ways that you can lead by example, such as questioning behaviour you think is unethical. It is rare for activities to be overtly labelled as bribes. The language will be more subtle and allow for a level of inference. Challenge vague language and be clear on the intention.

It is easy for us to fall into a false sense of security of it not happening to us, and as much as we would not like to admit it, it is all too easy for people to engage in bribery and corruption. Our creative justifications may tell us that it is a victimless crime but in the words of the UN’s secretary general António Guterres, bribery and corruption “robs societies of schools, hospitals and other vital services, drives away foreign investment and strips nations of their natural resources. It undermines the rule of law and abets crimes such as the illicit trafficking of people, drugs and arms.”

Everybody has a role to play in combating these issues. Should we encounter bribery and corruption, we must be brave enough to act.

Simone Jones is a senior research and development manager at the International Compliance Association. She can be contacted on +44 (0)121 362 7536 or by email: simone.jones@int-comp.org.

BY

Simone Jones

International Compliance Association