More training of top managers needed to combat bribery

The findings of the OECD’s first report analyzing successful foreign corruption prosecutions should spur chief compliance officers to take action to reduce risk, says James G Tillen, vice chair of Miller Chevalier’s international department. Tillen participated in a December panel discussing the report, and recently elaborated on his recommendations while speaking with Corporate Secretary.

A key reason that compliance officers should take action, says Tillen, is that they may not understand where the big areas of risk are; corruption stereotypes were exposed as false by the OECD report’s findings. For example, corruption is not mainly a developing nation problem; nearly half of successful prosecutions involved public officials in developed (23 percent) or highly developed (21 percent) nations (21 percent).  Similarly, corruption is not a ‘rogue employee’ problem; in a little more than half the cases corporate management authorized or paid the bribe, including 12 percent that involved the CEO.

Another common belief is that bribes are paid only for government procurement contracts of one sort or another. While a desire to win those contracts did motivate a majority of bribes, it was a narrow majority—57 percent of cases. Another major motivation is clearing customs, which drove 12 percent of bribes. That the remaining 23 percent of bribes were attributed to six other reasons demonstrates how widespread the problem is. Finally, though bribes are typically paid through intermediaries (71 percent of cases), the stereotypical image of a shadowy ‘bagman’ is wrong. Agents of various sorts accounted for 41 percent of the intermediaries, while 35 percent were corporate joint ventures. Lawyers were the next largest vehicle for a bribe payment (6 percent).

An additional fallacy is that extractive and construction industries are epicenters of corruption, where in reality they accounted for 34 percent of the cases in the OECD’s findings. Companies in the transportation and storage, and information and communication sectors paid 25 percent of the bribes, with the remaining 41 percent spread across a very broad range of industries. That highlights how much broader the risk is than typically realized.

Companies that paid a bribe reported themselves in one out of every three cases and the three leading ways by which bribery gets discovered are an internal audit (31 percent), M&A due diligence (28 percent) and internal whistleblower reports (17 percent).

The OECD’s findings confirm the need to train senior management in anti-corruption policies and practices, Tillen says. The fact that 80 individuals have been imprisoned for corruption can serve as the basis of a strong message sent to senior executives during trainings, he adds.

Training is all the more critical because of how much nuance there is in anti-corruption laws. ‘One example is the threshold of prohibited gifts and entertainment,’ says Tillen. ‘When is dinner too much?’  The fine legal distinctions indicate how complicated it can be for multinationals to get compliance right.

The role that third parties often play in bribes calls for more effective screening and monitoring of a company’s external agents and service providers. The wide range of variations among businesses means no one approach will work. ‘It’s both a science and an art [to craft] policies and procedures to select and monitor third parties that match your organization,’ says Tillen.

Lastly, it took 7.3 years on average to conclude a foreign bribery case in 2013, more than triple the two-year time frame in 1999. Major reasons for the spike were the ‘time required to hear appeals and increased sophistication of bribery techniques,’ says Tillen. Because of how costly and disruptive to normal operations these investigations can be, compliance officers should push for greater upfront investment in their companies’ compliance programs, he adds.  

Anti-bribery enforcement has become increasingly vigorous over the last 15 years. The OECD based its report on an analysis of 427 completed bribery prosecutions brought between February of 1999 and June of 2014, including both convictions and settlements. Yet the most recently available data showed that as of December 2013 there were 390 bribery investigations underway in 24 countries, with ongoing prosecutions against 130 individuals and 12 entities in 11 countries.

‘There’s still a long way to go [to end corruption], but we’re still a lot better off’ than before, says Tillen. These prosecutions and anti-corruption efforts ‘have changed the way business is done.’