Companies are dropping foreign partners in fear of corruption liability, says a new Dow Jones survey
More than half of companies are so concerned about their liability under anti-corruption rules that they are ditching their relationship with agents, distributors and consultants in global business transactions.
International companies are mindful of the territorial reach of the US Foreign Corrupt Practices Act. Third parties have often been the conduit to disguise payments and it is this practice that has figured most in FCPA fines.
The findings, from the latest Dow Jones State of Anti-corruption Compliance Survey, show a sharp rise in concern about corruption. More than 300 company executives from more than 40 countries completed the biannual survey.
The findings mirror that of the recent Transparency International anti-corruption survey, which showed that three-quarters of companies have anti-corruption policies in place.
There has been a fourfold rise in the proportion of companies that claim to have lost business from the unethical behaviour of competitors since 2009, from 10% to 40%.
“This is a perception-based view, though,” says Lucy Norton, associate director in Control Risks’ corporate investigations department. “When companies go through a recession, they feel the pinch of competition.”
Dow Jones spokesman Michael Burns says: “The energy sector suffered most in this regard. Nearly two-thirds of respondents reported business loss.”
“At face value, these findings support the view that anti-bribery and corruption regulation damages business and is ineffective in stopping corporate bribery,” says Rupert de Ruig, managing director of risk and compliance at Dow Jones. “However, there may be a stronger argument that the findings are an indication of higher standards and controls in companies and an increasing awareness of bribery and unethical business practices in place.”
Paradoxically, while strict liability provisions in legislation such as the UK Bribery Act and the US FCPA make businesses responsible for the activities of their overseas partners, only 30% of companies say they monitor the integrity of business partners.
Nearly half of the companies in the survey said they were unsatisfied with the rigour of their own due diligence processes in verifying the credibility of financial information in foreign markets. The same proportion blamed underfunding for this shortcoming.
There appears to be a discrepancy between what companies know to be good practice and what they actually do, despite the advent of tougher legislation.
“While most multinational businesses have well-developed compliance programmes, thanks to the reach of the FCPA, others have been waiting for more clarity from the UK government around adequate procedures, especially in the risk areas of associated parties and facilitations payments, before comprehensively tackling the challenges,” Norton says.