Corruption, an Unnecessary Evil

Corruption may be as old as it widespread, but it can also be avoided.
Henry McCaw, corruption news, corruption regulation, anti-bribery efforts, global corruption figures, amount of bribes paid annually, UN anti-corruption initiatives, ISO 37001 anti-corruption mechanism, corruption self-regulation, OECD corruption news

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May 06, 2021 10:09 EDT

Since the United Nations Convention Against Corruption was adopted in October 2003, International Anti-Corruption Day is observed annually on December 9. In the context of the ongoing pandemic, António Guterres, the UN secretary general, had a clear message: “Corruption is criminal, immoral and the ultimate betrayal of public trust. It is even more damaging in times of crisis — as the world is experiencing now with the COVID-19 pandemic. The response to the virus is creating new opportunities to exploit weak oversight and inadequate transparency, diverting funds away from people in their hour of greatest need.”

Corruption impacts every aspect of society and involves all kinds of companies, large and small, in an array of industries. Certain sectors are seen as carrying a higher risk of corruption — oil and gas, armament, construction, among others — but no industry is spared. The World Bank estimates that more than $1 trillion in bribes is paid each year. In the health sector alone, an estimated $450 billion, or around 6% of total expenditure, is lost to fraud annually. Some argue that bribery is part of doing business, but such practices increase costs and put companies at risk of severe financial, legal and reputational damage.

Tackling Corruption: The Solution Is?


For society at large, the effects of corruption are far-reaching and have severe economic repercussions, create unfair competitive advantages and result in the loss or decreased quality of public services. The consequences of this can be devasting. Martin Manuhwa, head of the Federation of African Engineering Organisations, notes that when public contracts are not awarded based on honest and fair bidding, “Infrastructure collapses. Roads develop potholes, and people die. Basically, corruption kills.”

Looking for Accountability

Historically, citizens have expected governments to hold companies accountable for corrupt behavior, but their track record of doing so is spotty. Following the 2008 global financial crisis, the United States began enforcing the Foreign Corrupt Practices Act more vigorously. Since then, the US has been a world leader in prosecutions and investigations of foreign bribery, but countries such as the United Kingdom, Switzerland, Israel, France and Spain have recently increased efforts as well.

However, a recent report from the European Commission found that only 30% of Europeans believe their governments’ anti-fraud efforts are effective. Indeed, Transparency International’s Exporting Corruption 2020 project finds that although high-profile settlements make headlines, the enforcement of foreign bribery laws is very low amongst most Organisation for Economic Co-operation and Development countries; in 2020, only four out of the 47 OECD members actively pursued prosecutions.

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Over the past two decades, there has been a proliferation of company-wide anti-corruption compliance systems and industry-level regulations designed to discourage bribery. Governments are often “quite happy” to pass the cost and responsibility of enforcement off to someone else, but self-regulations are often inadequately administered and lack audits performed by independent, disinterested parties. Tools such as the OECD’s Guidelines for Multinational Enterprises provide companies with recommendations for implementing compliance programs. It is then up to the companies to conduct internal audits and ensure employees and contractors are following their anti-corruption policies. Companies are motivated by a variety of factors: legal requirements, the risk of fines and prosecution, reputational damage and, for some, a genuine desire to act more ethically. But while there are self-reported cases of foreign bribery, the temptation to cover up infractions is compelling. 

Various efforts by industries to self-regulate have also emerged. Non-binding, industry-led initiatives or “soft laws” attempt to set anti-corruption norms by asking companies to adhere to a set of principles. For example, the Extractive Industries Transparency Initiative “invites” multinational companies to disclose money they pay states to extract natural resources.

In industry-level self-regulating organizations (SROs), member companies develop policies for a particular industry and they, as opposed to an independent agency or government regulator, monitor and enforce member compliance. One example is the Banknote Ethics Initiative (BnEI). The organization was created by some banknote producers to “provide ethical business practice.” Members agree to abide by BnEI’s Code of Ethical Business Practice and to undergo an audit “carried out by a third-party auditor” in order to become accredited. According to their website, audits are conducted by two entities: GoodCorporation and KPMG. But if there are only two options for auditing members of an SRO, are auditors actually independent?

While SROs can help set standards for industries in the absence of effective government regulation, there is also an inherent conflict of interest. As the NGO Truth in Advertising argues, “Self-regulators are, by definition, funded by the companies they claim to regulate. Don’t for a second believe that any self-regulator wants — or even would be permitted by its constituent members — to do all that it can to prevent harmful or deceptive business practices that are proving lucrative for the industry.” The OECD and the UN Environment Programme add that self-regulatory processes are often burdened by a lack of enforcement and inadequate sanctions of member companies, lower incentives to voluntarily report bad practices and are dominated by a small number of companies that prioritize what is in their best interests.

An International Anti-Bribery Standard

A new development offers hope for addressing the global corruption problem. In 2016, the International Organization for Standardization (ISO) introduced the ISO 37001 Anti-Bribery Management Systems. Created using input from existing recommendations and from countries, non-profits and esteemed multilateral institutions, the standard provides an auditable, independent benchmark of international compliance principles and enables organizations of all sizes, public or private, to prevent, detect and address bribery.

To become certified, an anti-bribery management system meeting the standard’s requirements must be implemented, an individual overseeing compliance needs to be appointed, and financial controls, monitoring and reporting processes need to be in place. Audits are done over a three-year period (to ensure policies are not simply on paper) and are performed by independent certifying bodies.

Numerous companies and governments have since pursued certification as ISO 37001 has increasingly become recognized as the reference for anti-bribery. Anti-corruption lawyer Jean-Pierre Mean says the advantage of certification is benchmarking and reassuring organizations that they have implemented effective measures. Moreover, “It also demonstrates that you have a system that works to stakeholders, personnel, shareholders, and the community at large.”

As a sign of confidence in the standard, prosecutors in Brazil, the US, Denmark, Switzerland and Singapore have required companies to pursue ISO 37001 certification as conditions of settlements in many lawsuits. While certification cannot guarantee bribery will not take place, it is universally recognized proof of a company’s willingness to prevent it. Companies and governments should require ISO 37001 certification from potential partners as a prerequisite to doing business, discarding superfluous and therefore suspicious self-regulation.

Increased efforts to curb bribery have had varying levels of success. Government enforcement of existing laws needs to be strengthened as evidence has shown that self-regulation is flawed. The introduction of ISO 37001 as an independent standard for anti-bribery holds the most promise, but more companies and governments need to pursue certification for change to happen. Corruption may be as old as it widespread, but it can also be avoided.

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.

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