This articles was first published in the October 2011 edition of Accountancy Futures journal
Creating the proverbial level playing field in respect of bribery and corruption in business has often been seen as a nice thought but one that is unachievable in the real world.
For a number of reasons, though, it would appear that there is new momentum behind the ideal of creating this level playing field. This momentum promises to result in a new global plan of action to be announced later this year.
The first reason why this new initiative is happening is that longstanding moral pressure for governments to regulate corrupt behaviour on a standardised basis – led by the United Nations and the Organisation for Economic Co-operation and Development – now seems to be making progress.
After years of criticism from domestic NGOs and organisations, in summer 2011 the UK implemented new legislation which has not only updated archaic legal provisions but brought in potentially far-reaching new arrangements making firms themselves liable for unauthorised acts of bribery committed on their behalf.
Under the new corporate offence in the Bribery Act 2010, any UK company or partnership, and any foreign firm doing business in the UK, will commit the offence if any employee, agent or subsidiary pays or offers a bribe with a view to securing some form of business advantage.
This will apply even if the bribe was paid or offered without the knowledge or consent of the firm.
The effect of this new corporate offence is to galvanise all companies doing business in the UK into taking proactive steps to ensure that they have internal controls that will discourage and deter corrupt behaviour by staff and agents.
Such measures are not new; the US has had comparable legislation on its statute book since the 1970s. But many other countries – including India, Indonesia, Russia and China – have now also developed legislation to criminalise the bribery of foreign officials along the lines of the OECD’s anti-bribery convention.
And a growing number of countries – including Japan in 2006, Korea in 2007 and Poland in 2009 – are passing legislation to forbid the tax deductibility of bribes paid by companies to foreign public officials. While by no means all countries are following the same line, something approaching concerted action is now happening.
The second reason for the momentum is that large companies are increasingly aware of the possible adverse consequences of engaging in illegal, illicit or morally dubious activities. As a result of greater transparency and more active consumer engagement, all large companies are now very conscious of the importance of brand reputation and keen to ensure that their customers and stakeholders are satisfied with the way that they do business.
A desire to avoid getting involved in things like bribery may not, of course, be motivated solely by ethical principles; the $1.6bn of criminal fines imposed in recent years on the engineering company Siemens for bribery offences under US and German legislation amounts to a serious warning of what could happen to wrongdoers.
For reasons relating both to social responsibility and prudence, therefore, engaging in acts of bribery to win contracts is coming to be seen as a risk not worth taking.
A third reason for the move towards creating a level playing field is undoubtedly related to the realisation that the global financial crisis continues to pose great challenges to integrity in business transactions. It is common wisdom that the motivation to commit fraud generally increases during periods of economic difficulty.
The pressures created by the economic climate may also exacerbate the temptation to win and retain contracts by underhand means. A major effort in eliminating corruption in business is being taken this autumn. The OECD will be presenting a plan to the G20 leaders’ November meeting in France to create a strengthened partnership between the private and public sectors. Aligning the two sectors behind a joint strategy is certainly essential if real and sustainable progress is to be made.
The massive amounts of money spent in the area of public procurement have always represented a huge corruption risk and targeted efforts should indeed be made to ensure more transparency, accountability and ethical conduct.
CAPACITY AND COMMITMENT
This all sounds positive and deserving of support. But for the good intentions to make a real impact they will need to be backed up by the capacity and commitment to take effective regulatory action at the government level, and it is here that the limitations of the plan are likely to be tested, especially as regards controlling the conduct of public officials.
From what may be called the ‘supply side’, the private sector and accountants in particular are currently involved with law enforcement activity in a number of respects. Under the recommendations of the international Financial Action Task Force (FATF), accountants have responsibilities to act as the eyes and ears of the authorities in respect of suspicions of money laundering and the financing of terrorism.
Auditors, meanwhile, will often have additional responsibilities under domestic regulations to pass relevant information on their clients to market authorities.
In both those cases, it is apparent that while accountants, and others, can and surely do contribute valuable intelligence about suspected financial crime, the ultimate responsibility for using this information rests with the relevant enforcement authorities.
The inherent difficulty is that the more intelligence is provided to them, the more stretched their resources will inevitably become. The dramatic cutbacks in spending of most national governments are already imposing further strains on their capacity to take effective action.
Any new procedures endorsed by the G20 this autumn to combat corruption will need to envisage a workable basis whereby ambitions can be backed up by resources.
There must, of course, be a place for strong enforcement action to be taken by governments and their regulatory agencies. But ultimately the most practicable form of control in respect of business corruption – and other similar matters – may turn out to be self-discipline; this will inevitably become more so if governments’ capacity to intervene and prosecute declines, as in the circumstances seems quite possible.
The plans to be brought forward by the G20 must therefore be framed in the light of what level of enforcement can reasonably be anticipated, and also recognise the contribution that the private sector – including the accountancy profession – can make to create a climate in which the motivation to engage in corrupt activity can be tackled.
John Davies FCIS is head of technical at ACCA. He coordinates ACCA’s policy positions on technical matters and has a special interest in business law and financial crime issues.