On December 2, 2014, the Organization for Economic Co-operation and Development (“OECD”) released its ground-breaking Foreign Bribery Report. This report analyzed the 427 foreign bribery cases that have been concluded by the 41 countries that are signatories to the OECD’s 1999 Anti-Bribery Convention since its adoption. This is the largest survey of bribery enforcement to date and discredits some key myths and assumptions about corruption risks. More importantly, the OECD Report (the “Report”) has a number of notable lessons for how Canadian companies should approach and tailor their anti-corruption compliance programs. This bulletin reviews the five most significant findings in the Report and their implications.
1. The biggest risk is State-Owned Enterprises (SOEs), not Ministers and Heads of State
Despite the common perception that heads of state and government ministers are the key beneficiaries of bribery, the Report found that such individuals were only offered 7% of all bribes involved in the cases examined. Rather, the real beneficiaries and risks for corruption are officials in SOEs, who were the recipients of over 80% of all bribes offered in these cases. This is quite a remarkable figure and should serve as a sobering wake-up call for companies that interact with SOEs. As part of their risk assessments and compliance programs, companies should ensure they:
- determine whether the companies with which they are dealing are SOEs;
- identify which individuals are state officials; and
- have proper training programs in place for any employees, third parties, or suppliers who interact with SOEs. This is especially crucial in countries such as China where it can be difficult to identify what companies are state-owned.
Apart from officials in SOEs, the Report found that customs officials were the second leading recipients of bribes (still greater than heads of state and government ministers). There is risk for everyone involved in international travel or importing/trading goods across borders. Risk assessments using Transparency International’s recently released 2014 Corruption Perception Index can help identify countries that might have higher risks of corruption, including in their border services.
2. Corruption risks arise in procurement and operations
Another common corruption perception is that the risk mainly lies in trying to win public contracts. The Report shows that this risk is significant with 57% of cases linked to attempts to obtain public procurement contracts. However, the remaining 43% of cases arise from operational activities such as customs clearance, seeking favourable tax treatment, licensing, travel visas or other regular intersections between state officials and commercial enterprises. For companies with foreign operations, this finding means that compliance truly is an ongoing obligation. Care must be taken any time a public contract is sought but significant corruption risks remain, especially in higher-risk jurisdictions at all stages of business operations.
3. Senior management are often involved in bribery schemes
Corruption risks are often seen as a problem with lower-level employees who may not have been properly trained or believe that bribery is culturally acceptable in their jurisdiction. However, the Report found that senior management were involved in over half of the corruption cases reviewed, with a senior manager in 41% and the president/CEO involved in 12% of the bribery schemes subject to enforcement. This means that the importance of establishing a ‘”tone from the top”’ must be more than just setting the right corporate culture; companies should implement a risk reduction strategy that would hold senior management accountable to compliance obligations.
4. Third parties and intermediaries are still a big problem
The corruption risk of third parties and agents acting on a company’s behalf are well known but the Report underscored this risk even more by identifying that 75% of the bribes paid in these 427 enforcement actions were actually paid by intermediaries on behalf of the company (whether or not the company or its senior management was even aware the bribe was paid.) This highlights the continued need to conduct proper due diligence on third parties who may interact with public officials and ensure employees do not retain third parties or suppliers until they have been pre-cleared from a corruption risk perspective.
5. Enforcement is increasing
Of the 427 bribery cases over the last 15 years, 366 (85%) of these were in the last six years alone. Enforcement action in treaty countries is clearly on the rise. The Report notes that apart from the 427 cases that have been completed, a further 390 corruption investigations are currently underway in signatory countries to the 1999 Convention. This heightened enforcement in recent years further requires companies with foreign operations to ensure they have an appropriate compliance program in place.