This article was first published in the June 2015 international edition of Accounting and Business magazine.

Concern about graft in corporates worldwide has intensified following recent allegations and court cases involving large international businesses, such as that which saw UK pharmaceutical company GlaxoSmithKline (GSK) fined for bribing doctors and hospitals in China to promote its products.

Small bribes paid as cash and vouchers, benefits in kind such as tickets to sporting events, prepaid phone cards, alcohol, tobacco and perfume may be particularly hard to detect. But even if an individual bribe is a modest one, if discovered, it can seriously damage a company’s reputation and bring it to the notice of law enforcers in jurisdictions such as the US and UK, who can and do use the extra-territorial reach of their own anti-corruption laws.

The appetite among regulators and law enforcers to pursue small bribery cases varies from region to region, according to Toby Duthie, partner at Forensic Risk Alliance (FRA), an international forensic investigator. The FRA frequently deals with US and European Union prosecutors, and undertakes validation audits for the Extractive Industries Transparency Initiative, assessing governments’ openness about payments from energy and mining companies.

‘In general, small bribes will not be their main focus,’ Duthie says. ‘But it can be a means to catch companies short on books and records. A number of US Department of Justice deferred prosecution agreements [DPAs] reference instances of frequent but low-value bribes. For example, according to a 2009 DPA, one US global manufacturer and distributor gave four pairs of US$125 shoes to Chinese officials as part of a series of gifts totalling around US$30,000.’

Some anti-corruption campaigners acknowledge that small bribes are often regarded as an accepted and time-honoured feature of business and public sector dealings in many locations. Peter van Veen, director of the business integrity programme at non-governmental organisation Transparency International, says: ‘We understand from some industries, such as shipping, that moving in and out of ports in many jurisdictions is almost impossible without being confronted with demands for bribes, be it to pilot the ship safely into port, to the loading or unloading of cargo. Small bribes in this context are not really small, either because of the number of them that need to be paid, or their actual size, with several thousand dollars sometimes having to be paid to get goods off a ship and into the country.’

Just say no

The best advice to companies and CFOs is just to say no, says Duthie. ‘From a practical perspective, it is easier to ban bribes, however small,’ he explains. ‘This removes ambiguity and lack of clarity as to what constitutes small, especially if bribes are frequent and, say, to a small group of vendors or employees. They soon add up. Zero tolerance sets the right tone and is readily understood by all levels of operations.’

Devising and implementing programmes and controls to prevent, detect and punish bribery is complex.

‘The key is to get practical, hands-on advice that can be implemented at an operational level,’ Duthie suggests. ‘For example, if your logistics team is properly trained as to where bribery risks exist within their area, especially through customs agents, they will be able to pre-empt » these risks before they materialise. There is a lot of theory out there; the trick is to see how that can be applied on the ground. Make sure advisers work closely with operations to ensure recommendations are workable.’

In Countering small bribes, Transparency International assembled a set of principles and guidance after consulting with law and advisory firms and leading global companies in the oil and gas, banking and travel sectors.

The document describes an anti-bribery approach based on 10 key principles. They include committing to eliminate small bribes, supporting a culture of integrity from the top down, conducting risk assessments to design a strategy and programme to eliminate small bribes, and actually implementing a programme of internal controls and collaborative action.

Examples of business units that may be at risk include supply chain management, shipping fleets, corporate affairs, marketing and clearing agents. External risks include inadequate public sector processes, and interactions by the company and its employees, which may take place when either is most vulnerable – for example, when critical items are in transit. Third parties may not live up to the company’s standards.

As for internal risk factors, reporting structures may militate against effective control of bribery, or the company may be too globalised or highly centralised, with top management too remote from what is happening in local operations. Employees may be vulnerable if they operate alone, are allowed to use petty or other cash, or pay small bribes out of their own pockets.

Wave the red flag

Among red flags identified by Transparency International are: small payments made in a repeated situation, expenses claims with no documentation or explanation, expenses paid in round sums, advances made to employees with no valid reason given, excessive use of petty cash, undue favourable treatment by government officials, and no report of bribery ever being made.

Internal controls required include appropriate corporate procedures for third parties, including due diligence, contract terms, communication, training and monitoring, according to van Veen.

As part of a company’s anti-bribery programme, internal accounting controls should be modified and extended to counter small bribes, Transparency International urges. There should be tighter controls on who gets to spend cash, how and on what, and duties should be segregated to counter the risk of collusion or error in authoring, approving and recording of expenses or other payments. Regular checks and audits, and supporting documentation for expenses, are also recommended.

Communication and training should be provided to employees to leave no doubt that the company has prohibited small bribes, and information given on how to anticipate and resist demands, seek advice, and report concerns or instances of small bribes. One model provided by Transparency International explains the negotiation steps in resisting demands for a bribe. It offers a case study of a global energy company that risk-assessed 90,000 staff before giving face-to-face training to 12,000 deemed to be at high risk from demands for small bribes. 

Corporate consideration also needs to be given as to what action is appropriate if small bribes are detected. A company needs a procedure to deal with any incidents, including investigation and review, disciplinary action, and reporting incidents to relevant authorities.

And as safety measures degrade over time, the ‘zero-bribery’ company needs to regularly monitor and review the effectiveness of its programme.

Act strategically

The company should also act strategically to influence the corruption environment in which it operates, says Transparency International. This involves accepting responsibility for addressing the factors that lead to demands for a small bribe – collaborative working and investing in communities can be effective responses.

Awareness of the problem is spreading. ‘There is huge and growing demand for advice and training in this area,’ Duthie says. ‘This demand is driven by the regulators’ sector focus, as well as geographic exposure to higher risk countries. For example, post-GSK, lots of pharma companies, and others, are seeking such advice, especially as regards China.’ He adds that another key driver is personal liability as enforcement agencies increasingly prosecute individuals.

The growing cost of settlements and investigations themselves also make preventative compliance spending seem worthwhile.

Robert Stokes, journalist