5 key bribery and corruption challenges
Some companies are taking extraordinary steps to counter increasing concerns about bribery and corruption risks.
Anixter is one such company. The US-based multinational, which provides communications and security products and electrical and electronic wire and cable in 50 countries, is upfront about its intentions. The company website says, “Anixter takes a ZERO tolerance approach to bribery and any other form of corruption. We are committed to acting professionally, fairly and with integrity in all our business dealings and relationships, and we uphold all laws countering bribery and corruption wherever we operate.”
In 2013, the company settled allegations that a few years earlier it had been involved in offering kickbacks to win a contract with a US government agency. A former Anixter sales representative who turned whistle-blower triggered the investigation.
Bribery and corruption risks can significantly harm a company’s reputation, according to a survey conducted by Kroll, a company that helps clients prevent, mitigate, and respond to risk, and the Ethisphere Institute, a research organisation that spun out of a corporate compliance and ethics training and consulting firm in 2007.
The 2018 Anti-Bribery and Corruption Benchmarking Report found that bribery and corruption concerns continue to grow as companies face new or more stringently enforced regulations and greater risk from such factors as murky ownership structures of companies with which they do business, an increasingly global economy, and challenges to data privacy.
As challenges grow, so does the realisation of the importance of addressing them.
“We are witnessing a sea change, in that most leaders are no longer looking at anti-bribery and corruption programs solely through the lens of regulatory enforcement,” the report stated. “Instead, their vision of compliance has expanded to new horizons: safeguarding brands and organisational reputations.”
The board of directors and senior executives tend to spearhead reputational risk management; the report found that survey respondents who perceived that their leadership teams are “highly engaged or somewhat engaged” in anti-bribery and corruption efforts rose to 92%, edging up three percentage points from last year’s survey.
Leadership support is critical for effective anti-bribery and anti-corruption programmes, according to the report. Organisations that measure their programmes regularly are nearly twice as likely to report a high level of leadership engagement.
The Kroll report found that respondents are devoting increased resources to anti-bribery and anti-corruption programmes, but 93% of respondents believe their bribery and corruption risks will remain the same or worsen in 2018.
The increasingly global marketplace is a key factor in explaining the report’s findings, said Kelly Mattarocci, CPA, CGMA, founder and chief market creation and compliance officer for TICH, transforming companies to the new revolution. Mattarocci’s areas of expertise include risk management and financial reporting.
“Global business through technology is a market disruptor,” she said. “Based on my research, many companies are going to struggle with slow acceptance and transformation while enforcement entities are flexing their muscles.”
The survey collected 448 responses from senior-level executives working in ethics, compliance, or anti-corruption. The companies they represented were headquartered in the US, the UK, Europe, and Brazil.
Key bribery and corruption challenges
Compliance officers and those in charge of anti-bribery and anti-corruption programmes surveyed by Kroll were most concerned about the following five challenges:
1. Third-party risks were of greatest concern to respondents for the second year in a row. Thirty-five per cent of respondents perceived third-party violations as the top risk in 2018, down from 40% in 2017.
The majority (58%) said they have experienced occasions when legal, ethical, or compliance issues with a third party were identified after due diligence had been conducted. Ongoing monitoring was the most effective tool to bring the issues to light, followed by ad hoc due diligence, third-party disclosure, a third-party audit, and regulatory enforcement.
2. The complex global regulatory landscape worried 18% of respondents, up from 14% in 2017. Respondents pinpointed increased enforcement of existing regulations along with the prospect of new regulations as the top reasons why they expect their anti-bribery and corruption risks to increase in 2018.
European and UK regulators’ focus on identifying individuals responsible for corrupt actions was a particular concern of respondents.
3. Lack of resources or proper controls were of concern to 11% of respondents, up from 10% the previous year. Respondents were least confident in their organisation’s ability to catch violations of anti-corruption laws by suppliers and third parties of suppliers.
The change from last year that the 2018 report found “most notable” was the increased concern over opaque ownership structures, which rose this year to become the third most common reason why third parties are failing to meet an organisation’s standards.
4. Risks related to joint venture or mergers and acquisition activity worried 8% of respondents. Less than 30% were highly confident their organisations would be able to catch these violations.
Sixty-two per cent of respondents reported merger and acquisition activity in 2017. Regulatory guidance expects organisations to thoroughly understand whom they are acquiring, but respondents regularly collect less data on third parties of M&A targets than on their own third parties.
5. A lack of appropriate cybersecurity or data protection measures worried 8% of respondents. While data security and privacy protection aren’t new concerns, new rules, such as the EU’s General Data Protection Regulation, raise the stakes.
Growing collaboration between compliance and information security/technology teams is proving instrumental in making due diligence efforts compliant and comprehensive, the report stated.
— Dan Holly is a freelance writer based in the US. To comment on this article or to suggest an idea for another article, contact Sabine Vollmer, an FM magazine senior editor, at Sabine.Vollmer@aicpa-cima.com.