CUTTING CORRUPTION CHAIN
THROUGH CORPORATE GOVERNANCE Elliott Dear Lawyer
TABLE OF CONTENTS Abstract
Corrupt Practices in International Business Transactions
State Practices on Preventing Bribery through Corporate Rules
Corporate Governance as Tool to Prevent Bribery
International Anti-Corruption Norms Requiring Corporate Rules to Prevent Bribery
Conclusion
ABSTRACT
• Focus on supply side • Examine international and state domestic regulation; as well as multinational company’s approach • It is important to improve international and state level legal instruments and incentives regarding the supply side. • Should also be accompanied by the implementation of self-regulation. • “Corporate principles approach” in international business transactions could be an attempt to control the supply side of bribery.
Research Question: how to cut corruption chain through corporate governance?
Keywords: corruption, international business transactions, corporate governance
CORRUPT PRACTICES IN INTERNATIONAL BUSINESS TRANSACTIONS Corruption can occur in many forms, including bribery (Wesberry, 1997, p. 498-504). This paper is primarily focused on corruption in the form of bribery. However, most literature on corruption blend these two terms of ‘corruption’ and ‘bribery’ (Johnston, 2005).
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Bribery could be a fixed sum, a certain percentage of a contract, or any other monetary benefit of a kind, usually paid to public officials to make things pass swifter, smoother, or more favorable. Kickbacks to win government procurement contracts (Baughn, C., Bodie, L. N., Bunchanan, M. A., & Bixby, B. M., 2010). Facilitating payments to obtain licenses and permits, expedite routine services, and avoid official harassments (Hamra, W., 2000). Multinational corporations have the choice to whether or not pay a bribe. However, the cost of not paying a bribe can be high.
INTERNATIONAL ANTI-CORRUPTION NORMS REQUIRING CORPORATE RULES TO PREVENT BRIBERY United Nations Convention against Corruption Convention on Combating Bribery of Foreign Public Officials in International Business Transactions of the Organization for Economic Cooperation and Development European Criminal Law Convention on Corruption African Union Assembly of Heads of State and Government of the Convention on Preventing and Combating Corruption
INTERNATIONAL ANTI-CORRUPTION NORMS REQUIRING CORPORATE RULES TO PREVENT BRIBERY UNCAC include preventive measures, which the first international convention that requires the State Parties to establish accounting and auditing standards for the private sector and crucially eliminate the tax deductibility of bribes (Hechler, 2010).
Example: in Germany, only 27 countries among the State 2005 Parties of UNCAC that have Financial Reporting Enforcement Panel established preventive and started to control accounting system of monitoring measures listed companies and 50% were erroneous.
in the countries that provide accounting and auditing legislations, then companies would feel urged to be concerned about their reputation in doing business in the long run.
According to the Commercial Code and the Securities Trading Act, the Federal Financial Supervisory Authority takes administrative measures for such infringement. 2016 The error financial statement was found decreasing into less than 20%.
INTERNATIONAL ANTI-CORRUPTION NORMS REQUIRING CORPORATE RULES TO PREVENT BRIBERY OECD Anti-Bribery Convention Obliges signatories to ‘implement a comprehensive set of legal, regulatory and policy measures to prevent, detect, investigate, prosecute, and sanction bribery of foreign public officials’.
Levies noteworthy penalties on the supply side of bribery and tightens up accounting measures in order to minimize the possibility to hide illegal payments.
Indirectly raised transaction cost between those countries with high corruption and the State Parties of the Convention. Such cost is then inducing many companies in State Parties to reduce exports to high corruption importers and relatively turn away to the low corruption importers.
INTERNATIONAL ANTI-CORRUPTION NORMS REQUIRING CORPORATE RULES TO PREVENT BRIBERY European Criminal Law Convention on Corruption Contains measures regarding the prevention of private sector involvement in bribery offense
In some countries, implementation of the accounting and audit system is not only applied to listed companies but also for the small-medium size enterprises (Anagnostou & Psychogiopoulou, 2014).
Top 100 leading Germany companies listed in the market put corruption prevention in their corporation principles in place (Ernst&Young, 2017).
INTERNATIONAL ANTI-CORRUPTION NORMS REQUIRING CORPORATE RULES TO PREVENT BRIBERY AUPCC Obliges the State Parties to establish mechanisms to encourage private sector participation in the fight against unfair competition
In countries that have adopted the Convention, like South Africa, most of the companies reduce their corrupt practice (ENSafrica, 2015).
In those countries that have not implemented yet the Convention, then it is not surprising if there is no significant trend regarding the corrupt behaviour of multinational companies. The number of illegal payments supplied by the multinational companies to public officials on the African continent is likely to continue to increase (United Nations Economic Commission for Africa, 2016).
STATE PRACTICES ON PREVENTING BRIBERY THROUGH CORPORATE RULES
United States of America
Australia
United KIngdom
South Africa
Indonesia
United States of America • • • •
USA becomes a global leader in the fight against corruption in international business for a long time through its Foreign Corrupt Practices Act (FCPA). FCPA prohibits companies to pay or to offer paying bribes to foreign public officials with the intention of obtaining or retaining business. Corporations are also required to keep an accurate book and record as well as to meet a particular standard of internal control. Heavy sanctions along with the increasing prosecution against the legal persons significantly raised number of corporations have taken steps to improve their compliance system and anti-bribery measures (Romeneski, 1982).
United Kingdom • • • •
Increasing prosecutions of corporations led many companies to comply with the provisions for prevention of bribery according to UKBA (DiBianco & Cowie, 2012). Companies also concern about their reputation to the market if they breach the offenses (The Organization for Economic Cooperation and Development, 2017). Corporation which have allegedly committed a violation in the past, then they do self-referral to Serious Fraud Office (SFO). Companies pledge not to repeat it in the future, then the SFO will prosecute such offense. However, since the prosecution started from the company voluntary cooperation, then the company can get a DPA as an incentive (Serious Fraud Office, 2017).
Australia •
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Since 2010, Australia imposes an innovative sanction by increasing the amount of fines for corporations supplying the bribes as addressing the recommendation by the OECD Working Group on Bribery (The Organization for Economic Cooperation and Development, 2012). Up until present, there are only two enterprises punished for supplying bribery. Insufficient anti-bribery enforcement mechanisms against business entities in Australia have led to companies to take risks which are unlikely to be compliance to the requirements of the law (The Organization for Economic Cooperation and Development, 2012).
Indonesia •
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Although Indonesia shows considerable law enforcement efforts against bribing companies, the fact is that the bribing companies still exists (Corruption Eradication Commission of Indonesia/ Komisi Pemberantasan Korupsi, 2016, p. 29). The number of legal person or corporate citizen convicted for bribery have been going up (Economic Laboratory Universitas Gadjah Mada). KPK believes that the lack of effort by businesses to prevent bribery is because there is no specific provisions that require them to do so.
South Africa • • • • • •
Dealing with bribery and corrupt conducts in procurement procedures. Ensure omissions, contract management, and planning of asset control. Provide blacklisting mechanisms and tender defaulters registration for the companies. Sets out complaint mechanism for bidders to reveal unlawful practices, including bribery. The cases available on the websites illustrate that the business is using such tools (The Organization for Economic Cooperation and Development, 2012). The enterprises avoid being blacklisted because they do not want to lose the business opportunity (Transparency International, 2005).
CORPORATE GOVERNANCE AS TOOL TO PREVENT BRIBERY
• Multinational companies supply bribe to maximize their gains since they hope such bribery could accrue greater efficiencies or lower costs, which becomes a business advantage (RoseAckerman, 1999, p. 92-93). However, some studies actually show the opposite. • It is a challenge to encourage companies to take effective measures preventing bribery in their business transactions as well as push them to reveal any past corrupt conduct involvement. • important to ascertain initiatives that may voluntarily undertake by companies even if it is not required by laws. • Persuasive strategies: • Strives to persuade multinational companies to implement both national and international standard of corporate integrity and good governance.
• To establish measures
• Guarantee the commitment to being a good corporate entity by the observance of the relevant regulations.
• Symbolize their commitment to the antibribery effort.
required by laws.
Suggest a forceful persuasion
Taking special preventive measures
BASIC ELEMENTS FOR MANAGING CORRUPT PRACTICES Assessment
Prevention
Detection
Response
CONCLUSION •
Prevention provisions in international conventions merely emerge with the option of adopting certain measures, without even significantly encouraging State Parties to do so. Also, the capacity conventions to influence the domestic legal system of State Parties is limited since they do not require domestic implementation of laws to prevent multinational companies from supplying bribes.
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At domestic level, in several countries like the USA, the UK, Australia, and South Africa, the provisions addressing companies to prevent the bribery offence, supported by heavy sanctions.
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Strong enforcement of domestic regulation that adopted to implement the international conventions, raise the multinational company’s sensitivity to risk areas.
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On the other hand, multinational companies increasingly be concerned about their litigation risks for a failure to prevent corrupt conduct within their operations. This will lead the companies to realize that supplying bribe will bring harm rather than make them maximize their gains. Thus, it is clear that businesses should avoid paying bribes.
CONCLUSION •
The strong effort to fight against bribery from multinational companies should start with the compliance with the national anti-bribery laws as well as international standards by taking special preventive measures. Such preventive measure should be reflected in the clear corporate rules.
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In fact, in responding the anti-bribery laws, initiatives undertaken by companies may be beyond the standards required by the law. Companies possibly do some voluntary actions to prevent bribery even if those are not required by laws.
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Moreover, multinational companies can also extend their compliance program comprehensively to all the company’s subsidiaries since the parent companies may be held responsible for the corrupt conduct of their affiliates.
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Finally, to ensure their competitors are complying the same noble path, the multinational companies also need to take a collective action. This is because through collective action, competitors can build a common standard and set out the anti-bribery pledge.
THANK YOU does anyone have any questions?