Defeating overseas corruption depends on proving the business case against bribes

The fate of Albert “Jack” Stanley is yet another warning to executives everywhere that bribery does not pay. The former KBR boss faces seven years in prison after pleading guilty in September to conspiring to bribe government officials in Nigeria to win construction contracts. His is the latest scalp for US regulators using the Foreign Corrupt Practices Act to lead the war against overseas corruption.

Like the wars on terror or drugs, the fight against corruption will take some winning. Its success depends on convincing companies that there are strong business reasons for not paying bribes. Companies will not stop paying bribes to foreign officials until the risks of doing so outweigh the benefits. Governments need to bring this about by investigating and prosecuting companies for overseas corruption offences.

A lack of political will has meant that, until recently, companies had thought bribes were an everyday fact of doing business abroad. Home governments in general turned a blind eye to the conduct of their companies in faraway places. For many European companies, foreign bribes were not only permitted; they were also tax-deductible.

Today business has more reason to think twice before bribing foreign officials because there is more chance offenders will be caught. This is certainly true for companies liable under the FCPA. These are mainly US firms, but also foreign companies that “do business” in the US – a criterion the Department of Justice has shown it will interpret as broadly as possible to get its hands on wrongdoers.

Companies from the 37 nations signed up to the OECD anti-bribery convention also have good reason to stop staff paying bribes abroad. Parties to the convention, initiated in 1997 by then US president Bill Clinton, have passed laws that criminalise overseas corruption, and are starting to show signs that they are serious about enforcing them.

For companies from these states, the business case against corruption is getting stronger by the day, as more individuals and firms are investigated and prosecuted for bribery overseas. Fines and other criminal penalties – including jail time for top executives and debarment from future public contracts – are strong deterrents against corruption. The damage a scandal can wreak on a company’s reputation is another reason persuading firms to stay clean.

Yet, for all the progress of recent years, corruption remains endemic in those parts of the world where the rule of law is weak. It is in these emerging markets that the war on corruption will be won or lost. Companies in these markets are on the frontline. By saying no to bribery, business in these places has an opportunity to rebalance markets and cut costs. Bribes add 10% to the cost of doing business globally, the World Bank says.

Companies should start by rolling out anti-corruption, ethics and compliance programmes to staff and subsidiaries in emerging markets. At the heart of these programmes should be a clearly communicated message that bribes will not be tolerated, with a system for checking that staff take note. Leading companies are doing this and becoming more responsive to cultural differences when training staff on ethics and compliance.

Companies should then make contractors and partners around the world sign anti-corruption clauses. Global companies are starting to require this of joint venture partners, major vendors and agents. Many still do not. Under these contracts, counterparties are asked to demonstrate that they are doing business in an ethical manner. In this way, companies can not only avoid becoming an easy target for corrupt officials, but can also help spread anti-corruption best practice.

Better lending

Banks too should require borrowers to sign “integrity pacts” – or no-bribe deals between governments and companies bidding for public contracts. Just as social and environmental agreements are drawn up under the Equator Principles, banks could demand that sponsors of large projects show they have robust anti-corruption controls in place.

The downside for companies putting anti-corruption clauses in contracts – or banks that do so with lending – is that they will lose business to less scrupulous competitors. That risk will always be present until governments get their enforcement act together. But it can be mitigated by companies joining forces and together refusing to grease palms.

Corruption is a collective action problem. To fight it, companies should work with their competitors – as, for example, the aerospace and defence industry has started to do – to say a collective no to demands for bribes from foreign officials.

Building trust between rivals that have spent years trying to outwit each other abroad will take time. It will require firm, ethical leadership from chief executives in corruption-prone industries such as defence, construction and oil and gas. But as they see more of their number – like Stanley – end up behind bars, more company leaders should start to understand the costs of paying bribes, and join the fight.

If you're interested in learning more about ways to tackle anti-corruption in your business, you might want to take a look at this conference we're holding in Washington DC on 14-15 May 2009. It's all about how you can manage anti corruption risk in your business, today. It's called The 2nd Annual Global Anti-corruption Summit USA.

Take a look at the conference by clicking on this link:

If you'd like some more information just call: +44 (0) 207 375 7575.

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