Facing up to corruption 2007: A practical business guide Facing up to corruption A practical business guide Written by John Bray, Director (Analysis), Control Risks Published by Control Risks, Cottons Centre, Cottons Lane, London SE1 2QG Control Risks Group Limited (‘the Company’) endeavours to ensure the accuracy of all information supplied. Advice and opinions given represent the best judgement of the Company, but subject to Section 2 (1) Unfair Contract Terms Act 1977, the Company shall in no case be liable for any claims, or special, incidental or consequential damages, whether caused by the Company’s negligence (or that of any member of its staff) or in any other way. Copyright: Control Risks Group Limited and Simmons & Simmons 2007. All rights reserved. Reproduction in whole or in part prohibited without the prior consent of Control Risks Group Limited and SImmons & Simmons. This report does not contain definitive advice from Simmons & Simmons and is for general information only. Control Risks takes care of the environment by using a CarbonNeutral® printing company. All of the CO2 generated by the production of this report will be offset by planting trees. Contents Introduction .................................................................................................................................. 1 Chapter one: What is corruption and why does it matter? .................................................... 5 Definitions ................................................................................................................................. 5 Where and why do companies pay? ........................................................................................ 6 Eternal risks: high costs, blackmail and violence ..................................................................... 9 Chapter two: International legal initiatives – towards a global norm? ............................... 14 Legal risks and political change ............................................................................................. 14 The US Foreign Corrupt Practices Act ................................................................................... 15 OECD Anti-Bribery Convention .............................................................................................. 20 Business awareness of the new laws ..................................................................................... 23 The UN Convention against Corruption (UNCAC) ................................................................. 25 Other multilateral initiatives against corruption ...................................................................... 25 International opinion-formers .................................................................................................. 27 Host government enforcement of anti-corruption laws .......................................................... 29 Prospects for the future: clearer standards, uneven compliance .......................................... 30 Resources ............................................................................................................................... 32 Chapter three: Company policy – drawing a line against corruption ................................. 33 Codes and policy statements ................................................................................................. 33 Agents, representatives and consultants ............................................................................... 34 Facilitation payments .............................................................................................................. 39 Gifts, business entertainment and expenses ......................................................................... 42 Political donations ................................................................................................................... 44 Conflict of interest ................................................................................................................... 45 Resources ............................................................................................................................... 47 Chapter four: Implementing an anti-corruption policy ......................................................... 48 Leadership .............................................................................................................................. 48 Recruitment, awareness-raising and training ......................................................................... 51 Management strategies .......................................................................................................... 53 Responding to problems ......................................................................................................... 56 Reporting................................................................................................................................. 57 Broadening the agenda: collective anti-corruption initiatives................................................. 58 Resources ............................................................................................................................... 60 Chapter five: Honest competition in difficult environments ................................................ 61 Anticipating risks ..................................................................................................................... 61 Assessing power and influence .............................................................................................. 63 Influencing with integrity ......................................................................................................... 66 Business partners and intermediaries .................................................................................... 67 Diplomatic support .................................................................................................................. 74 Procurement ........................................................................................................................... 75 Facing up to a corrupt competitor ........................................................................................... 76 Responding to pressure ......................................................................................................... 76 Bureaucratic extortion ............................................................................................................. 78 Last-minute demand ............................................................................................................... 79 Walking away… ...................................................................................................................... 79 Resources ............................................................................................................................... 80 Chapter six: Challenges for the future ................................................................................... 82 Business expectations ............................................................................................................ 82 The outlook for international reform ....................................................................................... 83 Appendix: Methodology of the 2006 and 2002 surveys ........................................................ 86 Control Risks ............................................................................................................................. 87 Introduction This report is the second, completely revised edition of Facing up to corruption: A practical business guide, which Control Risks published in 2002. It draws on three main sources: • The specially commissioned International business attitudes to corruption survey, which involved telephone interviews with 350 companies based in the UK, the US, Germany, France, the Netherlands, Brazil and Hong Kong. The survey was jointly commissioned by Control Risks and Simmons & Simmons, and was carried out between May and July 2006 (see appendix for further details). • A growing international literature on corruption and the means to address it. • Control Risks’ own consultancy experience with business, government institutions and not- for-profit organisations across the world. The premise of this report is the same as with the earlier edition. Corruption is a problem that to a greater or lesser extent affects all countries and all commercial sectors. It raises costs, distorts competition and results in poor-quality goods and services. Countries and governments lose out because high levels of corruption deter honest investors. Well- managed companies lose business to unscrupulous competitors. Ordinary citizens suffer from weak governance, higher costs and poor products. Corruption remains a complex problem that defies simplistic solutions. Nevertheless, the report argues that it is possible to cut down corrupt practices to the extent that they are seen as the exception rather than the norm. Success demands sustained, collaborative effort by governments, companies and civil society. Governments must take the lead, but companies – particularly large international companies – are far from powerless. In their own interests, and in the interests of the people among whom they work, businesses can play their part in resisting corruption and promoting reform. Like its predecessor, this report explains what they can do, and how they can do it. Achievements and challenges