Senior executives see jump in anti-corruption enforcement

Global businesses must recognise both their risks and compliance obligations

Anti-corruption enforcement has become stronger around the globe over the past five years, according to nearly 70% of respondents to a new survey of business leaders worldwide. Their perceptions are supported by the fact that regulatory authorities and law enforcement are cooperating more frequently. At the same time corruption itself remains a significant problem for business, with more than one-third of survey respondents saying that corrupt business practices are becoming worse. In this environment executives and board members face daunting challenges around their compliance obligations.

Corruption or compliance – weighing the costs: the 10th global fraud survey, released today by leading professional services provider Ernst & Young, shows that although companies are recognising the risks of corruption and are doing more to combat it, knowledge of relevant anti-corruption legislation remains patchy, undermining compliance efforts. With 37 countries implementing the OECD Anti-Bribery Convention, understanding the different legal obligations is a challenge.

“Risks faced as a result of bribery and corruption can be severe and include criminal prosecution, large fines, reputational damage and competitor litigation leading to loss of share value and investor confidence. According to the survey results, 40% of the respondents in South Africa believe that local companies have experienced an incident of bribery or corruption in the last two years,” says Sharon Van Rooyen, director of Fraud Investigation & Dispute Services for Ernst & Young South Africa.

The survey also shows that South African companies view the increased cost of compliance and shareholder litigation as the key negative impacts of an allegation of bribery or corrupt business practices. “Compared to the global results, local companies see investors as the most negatively impacted by failure to investigate allegations of bribery and corruption. They have shown that they have confidence that a range of measures (internal audit, training, whistleblower hotlines, internal controls, legal due diligence) are successful in minimising bribery and corruption.”

Van Rooyen believes that there is a need for transparency around the consequences of non-compliant behaviour and preparedness to put disciplinary processes into effect in a timely and speedy manner.

“There are many aspects to this, such as having an independent and suitably qualified investigation function in place. Furthermore, a business may choose to circulate internally news of bribery and corruption incidents and any resulting sanctions to reinforce the message to staff that bribery and corruption is not acceptable and that the reporting if incidents is fully supported and investigated thoroughly,” adds Van Rooyen.

Elsewhere, given US authorities’ more aggressive and extra-territorial enforcement of the Foreign Corrupt Practices Act (FCPA), all companies need to enhance their understanding of it. The FCPA has become the de facto international standard regarding bribery and corruption, yet only one-third of respondents claimed a good knowledge of it.

“Companies cannot afford to ignore the obligations associated with the FCPA and other anti-bribery laws. Compliance is certainly not just a matter for SEC registrants or US nationals,” explains David Stulb, Global Leader of Fraud Investigation & Dispute Services for Ernst & Young. “Companies and their boards that do not consider their corporate and individual vulnerability to FCPA enforcement are taking unnecessary risks.”

The survey shows that companies are increasingly waking up to the risks that corruption presents. More than half of respondents are increasing training on the subject and 45% conduct some form of anti-corruption due diligence before making corporate acquisitions.

“Many enforcement actions arise in the context of mergers and acquisitions. Companies need to consider more robust due diligence measures, particularly when target companies are active in higher-risk countries,” says Stulb. “Companies should consider the potential regulatory liabilities they are acquiring relative to bribery and corruption. It’s not just about avoiding penalties – it’s about improving the business.”