Most of the world’s largest exporting countries are doing a poor job at enforcing foreign bribery, leaving exporters vulnerable to bribery and corruption risk.
That’s according to the “Exporting Corruption Progress Report 2018,” conducted by corruption watchdog Transparency International (TI), which rated countries based on their enforcement against foreign bribery under the OECD Anti-Bribery Convention. The Convention requires signatory countries to criminalize bribery of foreign public officials and introduce related measures.
TI scored each country based on number of investigations commenced, cases opened, and cases resulting in sanctions from the past four years. Based on this data, relative to its share of global exports, each country was ranked as having either “active,” “moderate,” “limited,” or “little or no” enforcement. The countries TI reviewed are responsible for more than 80 percent of world exports.
Overall, the report found that only 11 of the 44 jurisdictions rated conduct active or moderate enforcement against companies that bribe abroad. Just seven OECD signatory countries show active enforcement: Germany, Israel, Italy, Norway, Switzerland, the United Kingdom, and the United States. Together, they make up 27 percent of global exports.
Another four countries show moderate enforcement: Australia, Brazil, Portugal, and Sweden. These countries are responsible for 30.8 percent of world exports. Eleven countries show limited enforcement, while 22 countries showed little to no enforcement. Together, the 33 countries in the “limited” and “little or no enforcement” categories account for approximately 52 percent of world exports.
In this year’s report, TI for the first time evaluated China (the world’s largest exporter), Hong Kong, India, and Singapore—which are each responsible for more than two percent of global exports but are not signatories to the OECD Convention. These four exporters are in the “little or no enforcement” category. China alone contributes 10.8 percent of the total exports.
“Governments have promised to implement and enforce laws against bribing foreign officials under the OECD and UN conventions, [and] yet many are not even investigating major cases of grand corruption, which involve state-owned enterprises and senior politicians,” TI Chair Delia Ferreira Rubio said in a statement.
Reducing export corruption risk
Reducing bribery and corruption risks associated with exports begins with a sound anti-corruption compliance program and risk mitigation efforts. “If you have not invested in risk management, you are putting yourself seriously at risk in export markets,” says Brook Horowitz, CEO of IBLF Global, a non-profit group that promotes responsible business through collective action.
When importing from, or exporting to, a high-risk market—like the ones ranked by TI’s Exporting Corruption progress report—common warnings or red flags to watch for generally include:
Third-party agents and distributors;
Unusual buyer requests/requirements or transactions;
Marketing and samples;
Gifts and entertainment;
Donations (political or charitable), related somehow to the timing of winning a project;
Close relations between employees and suppliers; and
Businesses owned or operated by Politically Exposed Persons.
“Companies should pay specific attention to the donations,” says Cüneyt Eti, managing director of Sius Consulting. When it may appear to be a harmless charitable donation on its face, “you may find the charity is owned by a public official or PEP,” he says. “I highly advise companies to dig a little bit deeper and do their homework before making charitable donations.”
It’s important for export compliance professionals to train employees on how to remove the personal element from the relationship when discussing transactions. That can be difficult because, in many of these high-risk markets, the personal relationships are what’s important, Horowitz says.
“Governments have promised to implement and enforce laws against bribing foreign officials under the OECD and UN conventions, [and] yet many are not even investigating major cases of grand corruption, which involve state-owned enterprises and senior politicians.”
Delia Ferreira Rubio, Chair, Transparency International
When discussions concern business transactions, that’s when employees need to use “bureaucratic language,” Horowitz says. “‘It’s not within the policies of my company. I need a receipt. I need to discuss this with my manager. I’d like to discuss that with your manager at the next level up—a supervisor.’”
A workplace culture where senior management turns a blind eye to misconduct also increases bribery and corruption risk when importing from, or exporting to, high-risk markets. Often in these situations, by the time the company catches wind of the wrongdoing, “the public authorities have found out about it as well,” Horowitz says. Establishing an open-door culture and encouraging employees to raise concerns reduces bribery and corruption threats.
Proactive measures to consider include:
Devoting adequate resources to export control compliance;
Screening all transactions against government lists to ensure you’re not doing business with designated entities or individuals, like PEPs;
Ask agents for certification;
Include audit clauses in contracts;
Conduct training regularly, ensuring that employees understand export control laws and can apply that knowledge to their day-to-day job responsibilities;
Put unusual, suspicious requests in writing; and
Have an escalation process in the event of suspicious transactions.
If an employee already gave or received a bribe, or the company has discovered or become aware of such misconduct, export compliance professionals should undertake a self-evaluation:
Request supporting documentation;
Perform an internal audit;
Make employees aware of the potential consequences;
Check payment-related documentation; and
Review invoices (especially suspicious expenses)
The follow-up question is whether or when to self-report. Self-reporting misconduct uncovered during an import or export assessment is not always cut-and-dry, since anti-corruption reporting is not consistent country-to-country. The question of where to report can be confusing, Horowitz says. “At that point,” he says, “you need legal advice.”
Although the TI report addresses governments rather than companies, as it advocates for active enforcement of foreign bribery laws by governments, “compliance professionals could use the report as one resource for their corruption risk assessment of countries and should ensure that their compliance programs address those risks adequately,” says Christine Hosack, TI’s Business Integrity Programme coordinator.
“Beyond the report, we encourage companies to adopt, actively implement, report on, and promote comprehensive compliance programs to prevent corruption, domestically and abroad,” Hosack says. Promoting a company’s compliance program throughout the supply chain and with other third parties—such as contractors and agents—is essential to mitigate third-party bribery risk, she says. Such efforts should be matched with an appropriate level of third-party due diligence, especially in countries with high corruption risks.
When reporting, TI recommends that companies publicly disclose information in the following areas:
Anti-corruption compliance programs;
Financial information on a country basis; and
“Disclosure of this information not only enables others to hold companies to account, but also discourages corrupt behavior, reducing companies’ reputational and financial risks from bribes or fines,” Hosack says.
Moreover, companies have a role to play in tackling corruption in the public sector, as corruption increases their costs, creates uncertainty, and poses risks of fines and reputational damage. “For this, we see a collective approach as most efficient, and we encourage companies to work in coalitions with government and civil society actors to enforce anti-corruption commitments and improve national anti-corruption mechanisms,” Hosack says.
Although exporting in an ethical manner can be challenging in many markets, evidence shows that operating with integrity “helps companies to mitigate risks, increase access to capital, and protect and enhance a company’s reputation,” Hosack says, “which can unlock new commercial opportunities and create a competitive edge.”