Cover image of the report featuring a man in a suit giving an unlabelled document to someone sitting across the table

 

'Bribery is not restricted to 'Grand Corruption', which frequently hits the headlines. It affects citizens all over the world and companies of all sizes. These “daily corruption challenges” can be as detrimental as the publicly known cases of multi million bribery schemes as they destroy the trust of society in governments, administration and business, like a slow but steady poison.

Still, as “daily bribery” often stays in silence or is sometimes perceived as the ‘cost of doing business’ especially for smaller companies or “the cost of surviving” for affected citizens, it is less in the spotlight.' Klaus Moosmayer, Ph.D, Chief Ethics, Risk & Compliance Officer of Novartis, Chair of the Business at OECD Anti-Corruption Committee.

Small and medium-sized enterprises (SMEs) make up the great majority of businesses in all countries and employ the majority of the global workforce, with 99% of all formally registered businesses around the world in countries where accurate data is available. Historically, surprisingly little research has focused on the risks posed to the sector as efforts at understanding how bribery and corruption affect business, and the development of tools and guidance to combat the threat of bribery and corruption have mostly focused on larger businesses.

This report continues our previous work investigating how bribery and corruption damage the SME sector and argues that smaller businesses need to be encouraged and supported in their efforts to combat the threats posed. 

What is already being done?

To reinforce the globally held stance that bribery and corruption is unethical and unacceptable in the public sphere, initiatives to enhance transparency and accountability have been adopted by national and supranational bodies, NGOs and activists. Some noteworthy examples from national and supranational bodies include:

  • The OECD’s Convention on Combating the Bribery of Public Officials in International Business transactions 
  • The UN Convention against Corruption, which lies within the UN Sustainable Development Goals (SDGs)

None of these are impregnable, but they can prove effective. Questions about the usefulness or desirability of differential regulation need to be addressed, as do SMEs’ own awareness of the challenges they face, and the options open to help deal with them. A combination of ‘tone from the top’ and ground-up compliance and control mechanisms could produce maximum effect. The aim is to make corrupt behaviour something that the majority of employees would not even contemplate, while providing the tools for detecting the dishonest minority at the earliest opportunity. 

ACCA’s research and results

Our 2013 and 2019 global surveys on this subject matter help increase understanding of the impact of bribery and corruption on SMEs. Consistencies between the two surveys include the beliefs that bribery and corruption: is anti-competitive; increases business costs; leads to suboptimal resource allocation; jeopardises SME’s future viability; threatens to damage business reputation; makes it harder to attract investment; affects employee morale; slows down decision making; and can damage a nation’s economic growth. 

We found overwhelming evidence that the risk of bribery and corruption is present at the SME level and that this should be addressed and managed by smaller firms. Nearly three quarters of respondents believe that the adoption of ant-bribery and corruption policies would enhance a firm’s reputation for a high standard of business conduct, 79% thought it would help prevent firms from breaking the law and 73% believed this would enhance consumer confidence. 

However, many SMEs were concerned about the cost and administrative burden of adopting formal anti-bribery and corruption (ABC) policies and practices. Spreading effective ABC preventative measures must recognise that the appropriate steps for SMEs will vary in scale from those suited to large corporates or public bodies. 

The 67% of global survey respondents who think SMEs will come across bribery and corruption also tie up also with the 64% who think it is bad for the SME business environment. Only in Central America did respondents who claimed that SMEs would not encounter bribery and corruption outnumber those who thought it likely, at 37% to 27%, whereas in sub-Saharan Africa the results were 10% to 86%.

The majority (67%) of global survey respondents think that SMEs are not generally likely to come across any risk of bribery and corruption in the course of their business dealings, although this figure masks significant regional variations. Only in Central America did respondents who claimed that SMEs would not encounter bribery and corruption outnumber those who thought it likely, at 37% to 27%, whereas in sub-Saharan Africa the results were 10% to 86%.

Despite the expectation that SMEs might encounter fraud, and that deception to cover it up is increasing, a concern arising from the previous survey findings was that many SMEs appeared not to be taking appropriate steps to mitigate their exposure to bribery and corruption risks. 2019 results showed a greater awareness of risk and were broadly consistent around the globe, although European businesses were less concerned about sector risk, with only 55% considering it to be a relevant factor, and 22% not considering it an issue.

SMEs overwhelmingly (64%) view bribery and corruption as having a negative affect on the business environment, with North America (77%) and Oceania (76%) displaying the greatest concern, but respondents in Asia, South America and sub-Saharan Africa dispute the impact. One in four survey participants do not think SMEs understand the legal definition of bribery and corruption in their jurisdiction. 

41% of respondents globally believe the risk of sanctions deters SMEs from doing business with some sectors or markets. Despite this, over half of all respondents globally don’t think anti-bribery laws should incorporate a modified regime for SMEs. Ths strongest support for modified regimes comes from Central America and the largest opposition comes from sub-Saharran Africa.

The figures were much tighter though with regard to payment of facilitation fees as nearly half of all respondents globally (47%) think the rules preventing the suggestion or payment of facilitation fees should be relaxed for SMEs. Europe is the only region firmly opposed to this. 

South America was found to be the region where businesses are most likely to be deterred from doing business because of concerns about legal implications, but it is also the region with the lowest perceived understanding of the law on anti-bribery and corruption, at just 52%.

If they were to encounter bribery and corruption, SMEs would seek advice from several fields, with more preferring to go to their lawyers/solicitors for guidance than accountants.  This suggests that there is an opportunity for accountancy firms to strengthen their positions as trusted business advisors to SMEs by offering business focused, practical advice that can be used when trading domestically or internationally.

Select image to download and view a larger version

Conclusions

The results of our latest survey provide encouraging evidence that SMEs are recognising not only the ethical case for, but also the business benefits of, a principled commitment to ABC policies and practices. As well as the strong support shown for the role of ABC programmes in enhancing a firm’s market reputation, 53% of respondents argue against relaxation of ABC laws for the SME.

It is essential, though, that sufficient support and guidance is in place to help SMEs build on that commitment. More than half of respondents globally still argue that there is insufficient guidance for the sector, and the importance of education was another recurring theme in respondents’ comments.

Implementing electronic payment mechanisms for taxes and permit applications can significantly reduce the scope for corruption. The automatic exchange of tax information, facilitated by digital transfer of data, is reducing the scope for businesses to disguise their operations, although the extent to which regulators and law enforcement have access to the information shared between tax authorities is itself subject to further regulation.

The alignment of anti money laundering regulations, tax transparency requirements and company registration practices with a common aim of stamping out economic crime should become a specific feature of policy development.

The development of whistleblowing laws, whereby employees and businesses themselves are able to channel their knowledge or suspicions about internal acts of bribery to designated authorities, is judged the most effective mechanism for influencing behaviour and deterring wrongdoers. These measures pose particular challenges for SMEs, and will involve a greater degree of publicly funded infrastructure and response to ensure that they are fully effective.

The long-term harm done to the whole economy is recognised by many in the business world, and the official government messages that bribery and corruption must not be tolerated should be repeated loud and often. But in order to restore trust in business, the commitment of all involved to fair and ethical dealing must be transparent and evident.

Express commitment to ABC practices, and adoption of appropriate policies and processes in SMEs’ daily dealings, will not only reduce the incidence of bribery and corruption, but also reduce their attractiveness and by extension increase the trust in business.

Eradicating bribery and corruption must remain high on the policy agendas of national governments and international institutions alike. The position of SMEs needs to become central to these efforts.