Cobus de Swardt, Transparency International’s new managing director, thinks companies have had it far too easy on corruption. But things may be changing

Transparency International, the global corruption watchdog, believes Nigeria is one of the world’s most corrupt nations.

The country, which has tried to make a start in cleaning up its act, has been back in the headlines for the wrong reasons recently. In December Nuhu Ribadu, who had chaired Nigeria’s powerful Economic and Financial Crimes Commission for the past three years, lost his job for seemingly spurious reasons. Claiming to have recovered about $1 billion in embezzled funds, Ribadu stepped down unwillingly.

The move comes despite Nigerian president Umaru Yar’Adua saying anti-corruption is a priority for his recently elected administration. It may be that for anti-corruption workers in Africa, if you do your job too well, it can get you fired. Ribadu had been investigating a former governor of Delta state considered close to the new Nigerian president.

Africa, understandably, is a major area of focus for Transparency International. Corruption in Africa is costing the continent nearly $150 billion a year, according to the African Union. A World Bank report has suggested that the sums purloined by the continent’s politicians since the end of colonialism are greater than those provided in aid. And South Africa’s possible next president, Jacob Zuma, has been indicted on corruption charges, accused of taking bribes from the French defence firm Thales.

Appropriate, then, that the latest boss of TI, Cobus de Swardt, is a South African. De Swardt is a sociologist by training. A former chairman of the African National Congress in Cape Town, he has worked in business, as a researcher and for a trade union.

De Swardt describes himself as “essentially an academic” with a strong sense of social justice, which has led to him working for TI, first as global programmes director and latterly as managing director, a post he assumed in the summer of 2007.

So, given all the high-profile cases last year involving the likes of Siemens, Thales, Volkswagen et al, is business corruption getting worse?

“We’re getting a little bit better at finding it,” de Swardt says, noting that it is difficult to tell if things are getting better or worse, since many practices illegal today were legal just five years ago. He is pleased business interest in corporate citizenship is increasing, but does not believe this has been translated much into serious anti-corruption efforts thus far in the private sector. De Swardt says there is still a “strong need for external pressure” from regulators and civil society groups.

TI’s founder and now advisory board chairman Peter Eigen spoke about a “culture of corruption” in some European countries as a major problem, when interviewed in 2007 by Ethical Corporation. Does de Swardt agree? Many European firms display double standards when operating in developing nations, he says. This is particularly the case with regard to bribing foreign public officials.

First, get the basics right

So what could aid ethics-minded foreign investors in fast-growing nations with prevalent corruption? “Two very concrete things,” de Swardt says. TI would like to see the Organisation for Economic Co-operation and Development’s convention against the bribery of foreign officials being implemented in all OECD countries “both to the spirit and the letter of the agreement”.

TI publishes a report card once a year, which recently showed there are very few investigations and prosecutions on business bribery in at least half of OECD countries. The UK is one of the worst offenders for starting investigations but failing to prosecute. Of the 15 foreign bribery investigations in 2007 and the four in 2006, the UK has brought one prosecution.

Until recent times, the UK government had been improving its reputation on tackling corruption, de Swardt says. He points out that the UK’s Department for International Development has been extremely active on the topic. However, the OECD has been very critical of Britain’s implementation of its Convention on Combating Bribery of Foreign Public Officials. And the al-Yamamah case, in which the UK in late 2006 canned an investigation into a huge arms deal with Saudi Arabia involving BAE Systems, on national security grounds, is seen by many as a national scandal setting back the UK’s reputation in the international arena. The case is still in the UK’s High Court, which ruled late last year that the case should be reopened.

Fellow OECD members Canada and Japan have likewise failed to bring any anti-graft prosecutions since signing the convention. Meanwhile France, Germany, Italy, the Netherlands and the US have made progress, according to TI. “We would like to see the leading export countries taking a much stronger role,” de Swardt says. He points out that new players in the global export market, such as Brazil, also have a significant role to play in setting standards.

The second basic area for improvement, TI believes, is for countries to outlaw facilitation payments – small payments by companies permitted under US law ostensibly to speed up minor bureaucracy. At a members’ meeting in Indonesia in late 2007, TI passed a resolution describing facilitation payments as “a major problem”. De Swardt puts it simply: these payments are “corruption by a slightly different name”.

Do coalitions work?

Academics and government agencies, such as the US Department of Commerce, which views corruption as a trade barrier for US firms, believe business coalitions are the best way to fight corrupt practices in emerging economies. Does TI agree? “Coalitions are an important part of the way forward,” de Swardt says. The vast majority of businesses do not enter into business with the intention to bribe, he says. They engage in corruption as a strategy because that is the only way they can get a competitive advantage.

Coalitions against corruption can ensure that competitors “stand together”. TI pushes “integrity pacts” in business procurement, where competitors agree not to bribe around a particular contact, what TI calls an “island of integrity”.

In successful coalitions against bribery, both general auditing and forensic corporate member auditing can deal with only part of the problem, de Swardt says. Focusing on embedding simple anti-corruption principles can have a big effect, he says. He quotes the Extractive Industries Transparency Initiative as an example: companies make public the payments that they make to governments. Governments in the scheme then make public what they receive.

Critics of EITI say the group, driven by NGOs and governments such as the UK and Canada, has accidentally created a club that no-one wants to be seen to be joining. One person familiar with the matter points out that selling membership of the group to, say, Trinidad and Tobago, is tough because the country does not want to be bracketed with existing members such as Azerbaijan and Nigeria. What does TI think of this critique? “It is early days … we have seen other countries are keen to join, so it’s not discouraging … those that are already in there,” de Swardt says.

At a recent conference in Amsterdam hosted by Ethical Corporation, delegates talked of increased co-operation between US anti-corruption authorities, leading to many more business corruption cases being exposed and companies reprimanded. Some also talked of increased international collaboration between authorities. De Swardt believes this is a significant trend: “One of the recommendations TI has made consistently is that enforcement agencies and prosecutors should have much more contact with each other. We do see those moves, and would like to see this accelerated.”

But de Swardt warns that while the bar is being raised, “the progress is far too slow”. De Swardt concludes that when it comes to anti-corruption, companies have been left by governments to become “far too comfortable”.

Where is corruption prevalent?

Corruption is most prevalent in the building of power stations, roads and airports, hydroelectric dams and waste management systems; also in basic services such as justice, health, education and energy supplies.

Oil, and oil services companies, have been under particular scrutiny in recent years, with firms such as Vetco and Baker Hughes heavily fined in the US. Christophe de Margerie, chief executive of French oil group Total is currently being investigated by French judges over corruption allegations. In Germany both Siemens and Volkswagen are embroiled in ongoing bribery cases.

Corruption in public procurement in many countries is also widespread, Transparency International says. TI believes that about 10-20 per cent of contract values are often siphoned off, adding up to hundreds of billions of dollars embezzled worldwide each year.

Business risk awareness still lags

KPMG reports: “Many companies have not yet communicated the significance of the UK act to their employees and have not put in place effective compliance programmes to help reduce the risk of a breach of the US FCPA occurring.” And the risks are big.

Penalties for non-compliance with the US FCPA are increasingly severe.
Criminal liability:

• $2 million per violation for a company

• $100,000 per violation for an individual, including officers, directors, stockholders, employees or agents

• Up to five years’ imprisonment for an individual, including officers, directors, stockholders, employees or agents

• US federal sentencing guideline factors will be considered when imposing criminal fines and penalties

Civil liability for a Securities and Exchange Commission enforcement action:

• Fines of $50,000 to $500,000 for a company

• Fines of $5,000 to $100,000 for an individual, including officers, directors, stockholders, employees and agents

• Disgorgement of profits

Source: KPMG Overseas Bribery and Corruption Survey, December 2007

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