Several firms recently released surveys that canvassed corporate executives for their views on anti-corruption compliance programs and the greatest risks facing their organizations. Not surprisingly, these surveys indicated that bribery and corruption risks remain present worldwide and throughout all sectors, though the perceived risks appear most acute in the natural resource industry and in rapidgrowth countries. The use of third parties continues to present a significant vulnerability in corporate efforts to comply with anti-corruption laws, especially given that most survey respondents indicated that they do not train these third parties on their anti-corruption policies. Questions also remain as to the overall effectiveness of most firms’ anti-corruption policies.

Kroll Advisory Solutions’ 2013-2014 Global Fraud Report, entitled Who’s Got Something to Hide? Searching for Insider Fraud, asked 901 senior executives worldwide for information on fraud their company has experienced over the past year.1 Ernst & Young’s 2013 EMEIA Fraud Survey: Navigating today’s complex business risks surveyed over 3,000 corporate executives in Europe, the Middle East, India, and Africa about unethical responses to the pressures they face in today’s challenging economic environment and the effectiveness of programs to combat these responses.2 E&Y also released Asia-Pacific Fraud Survey Report Series 2013: Building a more ethical business environment, a similar report compiled with responses from 681 corporate executives and employees from eight countries in the Asia-Pacific region.3 PricewaterhouseCoopers’ Deeper insight for greater strategic value discusses the structure and function of compliance departments globally, based on around 800 responses from U.S. and U.K. company executives across 19 industries.4 Finally, Control Risks released International Business Attitudes to Corruption, a survey of general counsel, senior corporate lawyers, and compliance heads from 316 international companies that examines the respondents’ attitudes towards bribery and corruption.5

Bribery and Corruption: A Continuing Significant Risk

Bribery and corruption continue to be identified as significant risks by the respondents of all five surveys. In the Control Risks report, although only about 4% of respondents thought there was a 90% to 100% chance that their company would be required to investigate allegations that an employee violated anti-bribery laws in the next two years,6 respondents in 60 organizations – or about 19% of respondents – thought that outcome was “somewhat likely,” and 21% stated that it was “possible.”7 The E&Y AP report found that 21% of the corporate employees surveyed believed that corrupt practices occurred frequently in their country.8  This statistic is unsurprising, given that the report included a large number of respondents from countries where corruption is considered common, such as China, Indonesia, and Malaysia.9

Perceived bribery and corruption risks are highest in certain industries. The Kroll survey found that 19% of natural resource firms reported fraud due to corruption and bribery – the highest percentage in any sector.10 The second highest level of fraud attributed to corruption and bribery was identified in construction, engineering, and infrastructure, with 18% of respondents in this sector reporting that they have experienced such fraud in the last year.11 Retail, wholesale, and distribution firms were third, with 15% of respondents from this sector reporting fraud due to corruption and bribery.12 

The current global economic climate continues to affect whether corporate employees view unethical practices as justifiable if these practices ultimately help a business to survive. Sixteen percent of respondents to the E&Y EMEIA survey felt that offering cash payments to win or retain business would be appropriate, and 17% thought that offering personal services or gifts was justified.13 In the E&Y AP survey, 4% of respondents said that cash payments were acceptable.14

According to Control Risks, the majority of respondents believe that operational bribes and facilitation payments represent the greatest opportunity for bribery and corruption. Fifty-eight percent felt that their companies were most vulnerable to the risks associated with ensuring that their business runs smoothly, such as bribe demands from customs officers, police officers, or tax inspectors.15 In addition, 35% of respondents felt that it was a “routine” risk in their industry that companies make facilitation payments to avoid unacceptable delays in processing goods through customs.16

Risks in Emerging Markets

Respondents to the E&Y and Kroll surveys continue to perceive high bribery and corruption risks in emerging markets such as Russia, India, and Mexico. The E&Y EMEIA survey found that 67% of respondents think that bribery and corrupt practices are common in rapidgrowth countries.17 Furthermore, 82% of respondents in Russia and 69% of respondents in India believed that corruption and bribery were widespread.18 The Kroll survey illustrates that respondents believe that these risks in emerging markets are higher than they were last year. Thirty-two percent of respondents from Russian firms reported losses due to corruption and bribery, which is double the percentage from last year and the single highest in any country.19 India saw a similar increase, with 24% of surveyed respondents reporting actual loss due to corruption and bribery this year (as opposed to 20% last year).20 Kroll also reported that 37% of survey respondents acknowledged that their firms were highly vulnerable to corruption in India, up from 32%.21 The percentage of surveyed respondents identifying losses due to corruption and bribery in Mexico also increased from 15% last year to 25% this year.22

Corruption in emerging markets likely disadvantages companies that abide by anticorruption laws, and may result in the loss of certain business opportunities. In the E&Y EMEIA survey, 21% of respondents conducting business in rapid-growth markets stated that it would harm their competitiveness if they chose to follow their Anti-Bribery and Corruption (“ABAC”) policies.23 In contrast, this number was only 11% in developed markets.24 Similarly, 22% of respondents in rapid-growth markets stated that foreign companies in those markets were disadvantaged because they were more heavily regulated.25 Only 11% of respondents in developed markets reported that belief.26

The Kroll survey reported that Sub- Saharan Africa was again the region with the highest overall incidence of fraud. Thirty percent of respondents reported fraud due to corruption and bribery in Africa, and 48% said that their firms are highly vulnerable to corruption risks.27 In cases in which a fraud has occurred and the perpetrator is known, 33% of respondents said that a government official played a leading role in the crime.28

Risks Associated With the Use of Third Parties

Respondents in several surveys cited the use of third parties as a major weakness in their efforts to counteract bribery and corruption. Control Risks reported that 52% of those surveyed felt that they were the most vulnerable with respect to the risks associated with their company’s relationship to third parties.29 In addition, 40% believed that the risks associated with using commercial agents who receive 10% of the contract value as commission were “routine.”30 No one in the United States took the view that the risk was “insignificant,” which is expected, considering the number of enforcement cases in the United States involving intermediaries.31

Despite an awareness of these risks associated with third parties, it does not appear that many companies have robust policies in place to ensure that third parties are complying with their ABAC policies. Only 64% of respondents to the Control Risks survey reported that their companies have a standard clause in agreements with sub-contractors and consultants stating that the sub-contractors and agents will not pay bribes on the company’s behalf.32 Similarly, 47% of respondents in the Kroll survey said that their firms do not conduct anticorruption training of their third parties.33 For those that do train their third parties, only 30% believe that these trainings are effective.34

Corporate Efforts to Reduce Bribery and Corruption

The surveys again demonstrated a general increase in corporate compliance efforts to reduce these risks. Compliance budgets are steadily rising, with 36% of those surveyed by PWC reporting an increase in their company’s budget over the last 12 months.35 PWC also found that larger companies are more likely to have Chief Compliance Officers (CCOs). Eighty-eight percent of companies with more than $25 billion in annual revenue have a CCO, while 73% of companies with revenues in the $1-$5 billion range have CCOs.36 Similarly, about half of those surveyed by Control Risks said that their company has board directors with specific anti-corruption responsibilities.37 Sixty-five percent of respondents said that their companies have policies that explicitly forbid bribes to secure business contracts, and 53% have policies that explicitly forbid facilitation payments.38 Fifty-seven percent of executives in the E&Y EMEIA survey stated that their company has an anti-corruption policy and code of conduct, and 49% agreed that there were clear penalties for breaking these policies.39 These policies’ overall success is questionable, however. Only 38% of those responding to the E&Y survey believe that these policies are effective in their market and only 38% stated that their company has actually undertaken action against employees who have violated these policies.40 According to a separate Kroll survey, 18% of respondents stated that their company either does not have an anti-corruption policy or has an anti-corruption policy but does not require its employees to read it.41

Due diligence on new business partners, employee training, and internal investigations are several ways survey respondents seek to ensure compliance with anti-corruption laws. Thirty-six percent of firms in the Control Risks survey said that their company has a procedure in place for anti-corruption risk assessments when undertaking business in a new country, and about half have a procedure for integrity due diligence on new business partners.42 In addition, 27% have an anti-corruption training program for all employees, and 40% have a confidential whistle-blowing line through which employees can raise concerns about suspected bribery and corruption.43 Thirty-three percent of respondents to the E&Y EMEIA survey stated that their company has anti-corruption training.44 If an employee reports suspected corruption and an internal investigation is required, 78% of respondents to the Control Risks survey reported that they were “very” or “somewhat” confident in their own ability to manage the requirements of the investigation.45 Furthermore, 68% stated that their company had an investigation response plan already in place that covered data identification and retrieval.46

The Control Risks survey also highlights shifting sentiments among executives towards self-reporting. Sixtyeight percent of those surveyed said that, compared to three years ago, they were more likely to self-report to regulators if they identified a suspected bribery case involving an employee.47 If the suspected violation appears to be serious, 53% said they would self-report first and then investigate. Thirty-one percent said they would investigate first and then self-report only if the violation is confirmed.48

These findings by Kroll, PWC, E&Y, and Control Risks illustrate that incidences of bribery and corruption are still present worldwide, and these risks may be increasing in certain areas. Although companies are escalating their anticorruption efforts, emerging markets and relationships with third parties still appear to be areas where they remain vulnerable.