Opinion: Bribery and corruption – what you need to know

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Bribery and corruption risk is increasingly making its way to the top of the C-Suite agenda. The issue has received considerable media attention for some time due to the introduction of tougher bribery and corruption laws, such as the UK Bribery Act and in countries like Brazil[1], and the high level of regulatory enforcement by the US Department of Justice and Securities and Exchange Commission. More recently, the results of the Transparency International’s 2013 corruption perception index reflected a perception that the risks of bribery and corruption in Australia had increased[2]

What are the risks?

To understand the risks an organisation needs to consider the likelihood and consequences of a bribery and corruption issue. 

The likelihood

The likelihood that an organisation will experience a ‘bribery and corruption issue’ will depend on:
+             The probability that the company will be asked to pay a bribe. This could be influenced by:
–              Their location (e.g. a high risk territory according to Transparency International’s Corruption Perception Index)
–              What industry they are in (e.g. high risk industries include mining, energy, manufacturing and engineering and the financial services)
–              Do they use third parties? What are the third party’s policies on bribery and corruption?
–              What is the size and complexity of the organisation?
–              What laws are they bound by? What do those laws say about bribery and corruption?
+             How would employees/third parties representing the organisation respond to requests for a bribe? This depends on:
–              Do the employees/third parties know how the organisation expects them to respond to such a request?
–              Do they understand the organisation’s tolerance to bribes and potential consequences?
–              Does the organisation have an effective anti-bribery and corruption framework?

Consequences

The consequences for an organisation experiencing a bribery and corruption issue can be dramatic.  Obviously it will depend on the type of event, but consequences may include: 
+             a long running and expensive investigation that soaks up management time and impact staff morale;
+             regulatory action resulting in severe penalties such as fines, disgorgement of profits and even prison;
+             adverse impacts to reputation;
+             ongoing compliance issues;
+             limiting future ability to deal with third parties (e.g. being a contractor, service provider, supplier or entering a joint venture); and
+             creating perceived risk issues for any future purchaser of the company or asset.

How does an organisation manage the risk of bribery and corruption?

In the business community there is an expectation that organisations have an effective anti-bribery and corruption compliance program.   However, how do companies meet the standard required?  There is no “one size fits all” - organisations face different bribery and corruption risks and each company will require a different approach to risk management. 
As a guide, the UK Bribery Act talks about implementing ‘Proportionate Procedures’.  To understand what is ‘proportionate’ an organisation needs to understand the risks and this can be achieved by performing a risk assessment. 

Final comments

As more and more Australian companies venture overseas into high risk areas, it is important they be proactive in dealing with the risk of bribery and corruption - implement a bribery and corruption framework, train employees and conduct due diligence on third parties.
 
Written by Michael Shanahan, Partner in charge of Forensic at McGrathNicol’s Perth Office.
 

[1] See Juan Carlos Varela, Geida D. Sanlate and Daniela Sedes, ‘Brazil's New Anti-Corruption Law: What Every Multinational Employer Should Know’, Littler Mendelson.
[2] See Athena Yenko, International Business Times, Australia, ‘Australia ‘Big Decliners’ in International’s Corruption Perception Index of 2013’ 3 December 2013.

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