Stark Warning of Global Third-Party Bribery Risk on Anti-Corruption Day
Since the UN Convention Against Corruption was passed in 2003, 9 December has been recognized as Anti-Corruption Day by governments, NGOs, businesses and civil society. The day serves as a reminder to everyone about the problems resulting from corruption and why anti-bribery and corruption efforts are a global priority.
The Convention says corruption threatens the following key principles:
- The stability and security of societies.
- The institutions and values of democracy.
- Ethical values and justice.
- Sustainable development.
- The rule of law.
The Convention calls on governments to “promote and strengthen measures to prevent and combat corruption more efficiently and effectively” and to “promote, facilitate and support international cooperation and technical assistance in the prevention of and fight against corruption”. As a result, strengthened anti-bribery and corruption legislation has been introduced around the world. These laws require companies to take measures to tackle bribery and corruption in their supply chains , imposing stringent penalties for failure to comply.
Anti-bribery and corruption trends in 2020
Despite this strengthened legislation, there have been signs that the risk of bribery and corruption has increased in the last year. The reason? COVID-19. A recent report from the Hong Kong-based law firm King & Wood Mallesons found that the pandemic has enhanced the risk to companies for three main reasons:
- The financial stress and disruption caused by pandemic makes businesses more likely to act quickly to secure contracts which may mean usual due diligence processes are overlooked.
- The financial impact of COVID-19 has led to cost-cutting in businesses and compliance is often one of the first targets of this exercise.
- Travel restrictions have made it harder for companies to visit their suppliers, and this reduced visibility means they may not spot third-party corruption as easily.
The report notes that corporate anti-bribery and corruption compliance programmes are often cut because it is regarded as a “non-revenue generating” part of a business. But that is a grave error, because failure to comply with anti-bribery and corruption legislation can lead to much more severe financial, legal, strategic, and reputational costs to a business. We saw two significant examples of that in 2020:
- Airbus paid $3 billion in penalties over the use of bribes to land contracts in 20 countries, following a cooperative investigation by regulators in the UK, France and the US.
- Goldman Sachs and its Malaysian affiliate paid $5.1 billion to regulators in the UK, Hong Kong and Singapore following a bribery scheme focused on Malaysian and Abhu Dhabi public officials.
These enormous sums, and the associated damage to the businesses’ reputation and share price, reinforce the importance of maintaining or increasing the budget allocation needed for an effective compliance and third-party due diligence programme.
The importance of risk-based approach to anti-bribery and corruption
Anti-Corruption Day aims to raise awareness of corruption in every country in the world, and this year has presented further evidence that the risk of corruption varies between jurisdictions. In November, a survey of nearly 20,000 people in 17 countries found that 74% of people in Asia believe that government corruption is one of the biggest problems in their countries. The Transparency International report found that 19% of people paid a bribe when accessing public services in the last 12 months.
The region where a supplier is based should be one of the factors taken into account when doing third-party due diligence as part of an effective corporate compliance programme. If a company operates in a country or an industry with a higher risk of bribery and corruption, they should be subjected to enhanced due diligence checks before a decision is taken on whether or not the business relationship should proceed.