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Bribery & Corruption - “societal action v. unenforced regulation”

At the moment, the international approach to enforcement around bribery and corruption can seem uneven, at best and perhaps lax, at worst.

In the US, there’s been various debate about the FCPA and perception of a smaller number of enforcements, more declinations, and smaller penalties.

There is still uncertainty, but change seems to be in the air. The Trump administration has suggested that a policy change is coming regarding corporate prosecutions in a mid-September speech by a senior US Department of Justice official. Here, Deputy Attorney General Rod Rosenstein is also quoted as saying: “Corporations, of course, don’t go to prison. They do pay a fine. The issue is can you effectively deter corporate crime by prosecuting corporations or do you in some circumstances need to prosecute individuals. I think you do.” Only time will tell on the outcome here.

Other jurisdictions are being flagged for a lack of activity. For example, the UK was hauled over the coals by the OCED in March, for low levels of detections and prosecutions, relative to the size of its economy. In other jurisdictions, with nascent bribery and corruption efforts, apart from a few showcase prosecutions, the risk of being taken to court can seem very small indeed.

And yet… the public mood music around bribery and corruption - its tolerance of these kinds of activities - seems to be declining rapidly. For example, when Transparency International released its corruptions perceptions index 2016 at the end of January this year, it specifically cited the increase in the perception of corruption among regular citizens as contributing to the rise of populist politicians who said they were willing to challenge the system. 

There have been other political expressions of this feeling too - from the impeachment of South Korean Park Geun-hye to Romanian protests that led to the scrapping of that government’s efforts to water down anti-corruption legislation - fueled by social media. PWC, in its May report, Five forces that will reshape the global landscape of anti-bribery and anti-corruption, named “societal action v. unenforced regulation” as one of its key trends.

This is a message that has not been lost on some who are actively involved in the fight against bribery and corruption. “Something big is happening in the world today, you can feel it, it is everywhere; and so are we,” said US Department of Justice acting assistant attorney General Kenneth Blanco, in a July speech. He continued, “The public, everyday people, are tired of having their money stolen by corrupt individuals in the public and private sector…. Money that is/was meant to improve society, the lives of everyday people, and the most vulnerable. Because of all this, people feel like they can’t advance. They have had enough…. People are demanding action, they are no longer silent.”

These are lofty words indeed from regulators who perhaps sense just how things are evolving. Recent potential incidents of bribery and corruption have shown just how swift the retribution on companies from the court of public opinion can be. At the end of August, the Wall Street Journal reported that US-based tech start-up Uber was being investigated by the Department of Justice for potential Foreign Corrupt Practices Act (FCPA) violations in its overseas taxi-hailing operations. Its valuation, already suffering from a summer of scandal, fell further amid the flurry of coverage in formal news channels and on social media. 

This change in public mood has filtered through to how boards of directors and senior managers at organizations perceive the potential reputational risk associated with bribery and corruption. For example, a survey of companies released in April by Kroll and Ethisphere found that respondents believed third parties were the biggest risk to their company’s anti-bribery and corruption program.

Looking at the data more closely, participants say their most significant third party concerns were reputation and bribery and corruption risks. Respondents who are very or somewhat concerned about these risks indicated that reputation and corruption were equally problematic (93% and 92%).

These concerns are translating into action - for participants who had rejected one or more third parties at the outset of screening, general reputation concerns were the most likely reason. This is in marked contrast to the 2016 report from Kroll and Ethisphere on the topic - at that time, general reputation and integrity concerns were the least likely reason third parties failed to meet company standards. Moving from the bottom to the top of the list in 12 months certainly means that the mood music around bribery and corruption is changing within organizations.

Regulators and law enforcement around the world insist that they are continuing to crack down. For example, regardless of the political mood set by the Trump administration in the US, the Department of Justice and the Securities and Exchange Commission say that it’s broadly business as usual. In a July speech, Sandra Moser, principal deputy chief of the fraud section at the US Department of Justice said:

The Fraud Section is doing our part to try to be better and do better.

  • We are working harder than ever to coordinate with global partners and avoid what some have termed “piling on” in attendant global resolutions.
  • We are taking additional steps to enhance our enforcement of the FCPA against both corporate and individual actors, and to promote transparency in doing so.
  • And we are endeavoring to work smarter and more efficiently through increased internal coordination to combat bribery and fraud regardless of the market or industry.”

Commentators are divided as to how much action will be seen around these points. They are equally divided about the meaning of the fall in prosecutions in 2017 and the rise of disgorgements, where court action is not pursued against a company that pays back a sum of money instead. The potential shift in policy around corporate prosecutions could potentially be a more formal move towards disgorgements.  

The reality is, however, that no matter what public enforcement bodies are doing, the public zeitgeist around bribery and corruption has probably changed for good. Enabled by social media and online publishing in general, the public is more likely than ever to make its concerns about a specific company known generally, rather than just taking them to law enforcement or to corporate executives via whistleblowing. The global trend among governments and international law enforcement around bribery and corruption may wax and wane - depending on budgets, resources, and the priorities of the political class. Yet the momentum among regular folk continues to gather strength.

What does this mean for organizations? It’s clear that it’s more important than ever to ensure that their third party risk programs contain a very robust bribery and corruption component. In this newly-empowered court of public opinion, it does not matter if a third party committed the offense - it is the buyer organization which will most often pay the reputational price. It’s also important to ensure that third parties are not just assessed for bribery and corruption risk upon onboarding - that they are reviewed at least every year for this risk, too. Bribery and corruption risk, as well as reputational risk, also needs to be actively reviewed by senior management and the board on a regular basis.

Reading the regulatory tea-leaves around bribery and corruption risk has become something of an industry. However, the empowerment of society via technology to disclose wrong-doing and take action against firms perceived to be in the wrong is very powerful and potentially damaging - companies need to be organized and proactive in the ways in which they ensure their compliance with anti-bribery and corruption legislation, both in the letter of the law and in the spirit of it.

 

To receive more information about the Aravo solutions for Anti-Bribery & Anti-Corruption, please contact us.

 

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Topics: FCPA, Anti-Bribery and Anti-Corruption, third party risk management, Corruption Enforcement, Corruption, Fraud, Bribery, compliance programs, reputational risk, uk bribery, uk sfo