A new report "Anti-corruption, Ethics and Compliance in Russia" from the Ethical Corporation Institute, this magazine's research arm, shows that some progress is being made in Russia when it comes to tackling dishonesty, bribery and graft.
A new report "Anti-corruption, Ethics and Compliance in Russia" from the Ethical Corporation Institute, this magazine's research arm, shows that some progress is being made in Russia when it comes to tackling dishonesty, bribery and graft.According to the World Bank Institute's Global Governance Director Daniel Kaufmann, estimates show that the cost of corruption equals more than 5% of global GDP (US $2.6 trillion), with over US $1 trillion paid in bribes each year.
The group also says that corruption adds up to 10% to the total cost of doing business globally, and up to 25% to the cost of procurement contracts in developing countries.
In October, for example, the United Nations Economic Commission for Africa noted that, in its view, corruption costs many African countries more than 20 per cent of their annual gross domestic product. Some estimates have been as high as 25 percent.
Business is now increasingly concerned about the global problem of bribery and corruption.
Aside from the costs, which can be from a few dollars to 20% or more of a deal, companies face much greater legal risk around corruption than in the past.
Foreign Corrupt Practices Act
The American Government, through the Department of Justice and Securities and Exchange Commission, has been cracking down in recent yeas on breaches to its 1977 anti-corruption law, the Foreign Corrupt Practices Act.
Non-US domiciled companies can also be persued under this law if they have a connection to US markets, as Siemens has discovered.
Under the FCPA, US authorities can prosecute a foreign person or company for bribery if it causes "an act in furtherance of the corrupt payment to take place within the territory of the United States."
Siemens, the engineering giant caught making many corrupt payments in the past, says fines and costs incurred solely around its recent huge bribery scandal have totaled a cool 2.5 billion Euros.
Other companies in the EU are taking note. Getting caught clearly now costs more.
European governments are also beginning to wake up to the costs of graft (see table at end).
More co-operation between regulators and enforcement agencies is on the way, according to professionals working in the anti-corruption field.
So it's clear business is being squeezed between ever more active government agencies on the one hand, and the financial and moral costs of bribery on the other.
Which brings us to the subject of anti-corruption efforts in Russia.
A big growth market, Russia has seen much foreign investment in recent years, despite concerns about its governance.
But the rule of law is known to be often unclear, and dishonesty is a major challenge for foreign investors.
A new business intelligence report from this publication's sister arm, the Ethical Corporation Institute, shows however that some small progress may be being made in Russia's slowing growing efforts to wean government officials and companies off bribery.
ECI's researchers, based in both Russia and London, found that while the cost of bribes is often seen as rising, the incidence of them may well be decreasing.
Exact measurements are of course impossible, but anti-corruption experts and businesses interviewed for ECI's new report "Anti-corruption, Ethics and Compliance in Russia" believe this to be the case.
The recent push by Russia's new President Medvedev to crack down on anti-corruption, while delayed by the Georgian conflict, appears to be making some waves in the county, according to ECI's research.
The idea behind the report was to dig a little deeper than Transparency International's annual Corruption Perception Indexes (CPI) and Global Corruption Barometer (GCB). ECI's aim with the report is to provide a more detailed overview of local risks to doing business.
The report also goes beyond the World Bank's annual Doing Business data to try and understand just what is happening on the ground in Russia.
International conventions may make a difference
With Russia ratifying the Council of Europe's Criminal Law Convention on Corruption in 2006 and making a public commitment to implementing the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions there is clearly some momentum building in Russia in the area.
ECI's report found business generally supports this shift and are increasingly optimistic about improvements to probity in the country.
Research found that existing legislation is both complex and unclear on how it relates specifically to business anti-corruption.
Russian law has some major omissions with regard to corruption both at higher levels in the country and customs officials in particular.
The new report found that selective and variable enforcement by officials is a common method of anticipating solicited bribes.
Lavish entertainment in business and employing friends and family in companies is also a major obstacle for foreign investors to consider.
Among other findings, the report considers how kickbacks in contracts are often structured, how local financial 'donations' to politicians are encouraged, and just how time consuming and costly fighting bribery attempts in local courts can be.
The role of agents, red tape challenges and attempted forced sales of companies are also well covered in the new report.
While many companies are reluctant to discuss anti-corruption for fear of either closer scrutiny or being tainted by association with the subject, some firms interviewed for the report offered valuable insights for foreign companies operating in Russia.
The views and activities of UPM, a big Finnish forestry sector firm, Dow Corning, Philips, TNK-BP, Hermitage Fund and KPMG, the global business services company, are all covered in the report. ECI interviewed senior directors in these companies.
The companies speaking out on coercion and graft have had different experiences, but found a common theme in standing up to corruption.
Case studies of their work in the report demonstrate that individual companies can take a successful stand against corruption if they are prepared to take the trouble to do so.
Some of the issues companies studied in the report by ECI are dealing with include:
• implementing global codes of conduct in Russia
• facilitation payment policies
• gift procedures
• anti-bribery employee training
• due diligence processes
• dealing with agents consistently
• standing up to corrupt officials in local and national courts
• responding to extortion.
Encouragingly, the report found that, despite difficulties, the situation in Russia is slowly improving. As Western-looking Russian firms increasingly value their reputations abroad, they are making more and more efforts to tackle corruption problems in the country and this is adding some momentum to government efforts.
Western and Russian companies are beginning to join up some efforts via co-operation and collaboration in industry groups and by speaking out publicly on the topic, the report found.
Clearly Russia has a long way to go in tackling cultural and institutional challenges around anti-corruption. In these much tougher economic times, anti-corruption is likely to become even more important for companies looking to growth markets such as Russia in 2009 and beyond.
For more information on the ECI report on anti-corruption in Russia, "Anti-corruption, ethics and compliance in Russia" go here.
Enforcement attempts on the rise: the evidence
Cases brought by national governments against companies in the last two years:
*As of June 30, 2008
Source: Transparency International and: http://www.law.com/jsp/ihc/PubArticleIHC.jsp?id=1202426158402&pos=ataglance
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: www.ethicalcorp.com/globalethics
If you'd like some more information just call: +44 (0) 207 375 7575