Bribery and corruption: fastest growing economic crimes

By Brendon Wilson Board Member Transparency International New Zealand for EMA ‘BusinessPlus’

Bribery and corruption are particularly insidious to prevent and to address, and there is serious concern that they are among the fastest-growing economic crimes reported by New Zealand companies. Compared to other economic crimes (for example asset misappropriation, procurement fraud, cybercrime, accounting fraud, money laundering), in a recent report quoting New Zealand experience, PWC show that in New Zealand companies reporting fraudulent activity, the proportion experiencing bribery and corruption more than doubled between 2011 and 2014, the fastest growth category.

Bribery and corruption – what are they?

Bribery and corruption can broadly be thought of as “unlawful inducement, either offer or acceptance, in cash or kind or other value, for personal or business benefit”. Of course, inducement may involve gentle suggestion right through to aggressive intimidation. Whether only suggestive or downright nasty, if it is a benefit and could alter business possibilities, it is probably illegal – and once started will be very hard to stop. This culture spreads, and there is no easy going back for an individual or organisation.

With a definition this broad, it is obvious that it can occur in virtually any part of an organisation’s operations or administration, however some high-risk areas are in procurement processes, and in the sales and distribution chains. Individuals under pressure to perform, or with high incentive to increase business, are at risk of being approached or may even think it up for themselves, but these are not the only risk areas. We strongly suggest that in addition to a strong ethics and anti-corruption policy, you look for the points in your business operation which offer vulnerable opportunity or temptation to take a “short cut to success”.

When business is good and running profitably, the general view has been that this is when the guard may be down and the culture relaxed and vulnerable, but in fact there is plenty of evidence to show that it is when times are tough and pressures on individuals to perform are higher, that the temptations can become irresistible. Unfortunately, this is just when the temptation to try to secure business may also become a corporate attitude which turns a blind eye, or even actively condones corrupt practice. Don’t let this creep up on you, your organisation’s culture, or your employees or agents.

Two large-scale international examples can indicate the size these problems can grow to. In later articles we will discuss smaller-scale New Zealand cases.

Australian Wheat Board

The Australian Wheat Board, later AWB, was the Australian government’s single-desk handler of all wheat marketing for Australia. Towards the end of the 20th century they managed to capture up to 90% of Iraq’s wheat market, especially during the United Nations period of financial and trade sanctions against Saddam Hussein’s government. What started as innovative contract approaches intended to re-secure business against the threat of market loss, became a programme seemingly designed to circumvent international law and reward local Iraqi administrators to the tune of hundreds of millions of dollars in providing and delivering wheat to Iraq. Worse, some of the funds paid out in this way came through UN humanitarian funds under the Oil-for-Food programme.

After Hussein’s loss of Iraq, United Nations enquiries started, followed by a range of commissions and court actions internationally and within Australia. Individuals in responsible roles and senior management were the subject of serious cases, some of which continue to this day. Other outcomes were the dismantling of the single-desk role for AWB, the replacement of the main management, restructuring and then sale of the organisation to an international corporation. What started as innovative contract ideas to maintain business became a world-visible scandal, with damage potentially in the billions of dollars. Cultural attitudes within AWB at pivotal times in this sad story must have enabled the eventual result.

Siemens

In this well-documented bribery scandal, widely regarded as the greatest in Germany’s history, Siemens strong corporate growth strategy around the turn of the millennium may have led to some managers paying bribes to ensure meeting performance targets. Decentralised reporting obscured these practices, but some informed opinion holds that central corporate attitudes accepted their necessity. Between 2006 and 2008 various enquiries and court actions found Siemens managers had given bribes in many world markets totalling at least E 1.3 b, resulting in fines of E 1.6 b. Associated legal and accounting costs added a further probably equal amount to Siemens pain.

In turning this unenviable corporate position around, at great cost, Siemens totally revised their structure and committed to successive remedial programmes to change ethical attitudes and introduce effective processes to support them. By 2011 Siemens seemed to turn the corner, but their losses to reputation, profit, investor values, future opportunity and individual lives can never be calculated.

These spectacular examples represent the high end of world corrupt practice, but sadly are only a tiny fraction of the worldwide problem. In New Zealand this level of illegality won’t occur, however the growth here of corruption, even from a low level, is a serious concern. Company attitude and vigilance is key, whether the stakes are high or low. We know this is just one plank in companies’ need to adopt responsible investment principles and seize the greater business opportunities and profitability high ground.

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