The Organisation for Economic Co-operation and Development (OECD) Foreign Bribery Report, which analysed anti-bribery enforcement actions around the world, revealed that three-quarters of bribery cases involved payments through intermediaries. The importance of this for compliance officers should not be underestimated given the potential legal repercussions that their conduct can have for companies.
The December 2014 report, which generated a number of other interesting takeaways for compliance officers, studied 263 individuals and 164 entities who had been subjected to enforcement actions for foreign bribery violations between 1999 and 2014.
It found that in 41 percent of cases the intermediaries used to pay bribes were sales and marketing agents, distributors or brokers. In 35 percent of cases the intermediaries were corporate vehicles, such as subsidiaries or companies in offshore financial centres and tax havens.
The OECD defines an intermediary as ‘a person who is put in contact with or in between two or more trading parties’. It adds that, ‘In the business context, an intermediary usually is understood to be a conduit for goods or services offered by a supplier to a customer. Hence, the intermediary can act as a conduit for legitimate economic activities, illegitimate bribery payments, or a combination of both.’
Given the potential of intermediaries to create vulnerability in the securing of contracts and in business operational risk, compliance officers are encouraged to conduct thorough due diligence on third parties. It is imperative that officers ensure that third-party associates are fully aligned with their company’s policies and ethical standards in order to prevent misconduct. If compliance standards are felt to be lacking, then third-party training should be considered.
One of the most alarming results from the OECD Report also reinforced the need for training and audits at every level of a company: in 12 percent of all enforcement actions, company chief executives paid or endorsed the payment of bribes. With senior managers involved in 41 percent of cases, the findings confirm that company superiors are often aware of, if not directly involved in, corrupt activity.
The OECD Report also confirmed that the majority of companies still have a lot of work to do when it comes to their reporting systems. Only two percent of the 427 cases were instigated by whistleblowers or media coverage, while 33 percent of them came after companies and individuals self-reported. Investigations initiated directly by law-enforcement authorities were responsible for 13 percent of cases, which was also the volume generated by formal or informal mutual assistance between countries.
In 17 percent of cases where companies self-reported, an internal whistleblower raised the issue with his or her company. However, of those 17 percent, only one company had an official compliance programme and reporting hotline in place. The lesson here is that companies must create a system that allows employees to report and feel as though their concerns will be addressed without fear of repercussion.
It is also necessary to understand whether your industry faces particular risks, and the OECD Report confirmed that there are four that are more hazardous than most. Two-thirds of foreign bribery cases came from the following four areas:
- extractives (19 percent)
- construction (15 percent)
- transportation and storage (15 percent)
- information and communication (10 percent).
According to the Report, the majority of bribes (57 percent) were given with the intent of obtaining procurement contracts. Far fewer (12 percent) had the aim of securing customs clearance.
On the sanctions front, the United States has sanctioned companies and individuals from 128 different schemes, with each scheme containing multiple entities. Germany is a distant second, with just 26 sanctions.
The OECD Report makes a point of noting that foreign bribery cases do not always take place in the sanctioned country; indeed it is not always a citizen or company headquartered in the said country either. Wide-reaching anti-corruption laws extend across borders, and a guilty party may be punished by multiple jurisdictions.
There is also no proportional correlation between the number of cases prosecuted and a country’s importance to exporters and outward investors.
Finally, the OECD highlighted the low numbers of cases initiated by tax officials, embassy officials, financial-intelligence units, public-procurement officials and competition authorities. The fact that these officials are in a good place to spot foreign bribery, yet often fail to, suggests a need for strengthened foreign-bribery detection and reporting mechanisms.
With many of the cases that were analysed for the Report missing important information, the OECD has urged for information about foreign bribery to be made more widely available. This would highlight a commitment to combatting corruption.
What compliance officers can learn from the Report
The preface to the OECD Foreign Bribery Report states, ‘Corruption, and the perception of corruption, erodes trust in governments, businesses and markets.’ In order to successfully combat the risk of foreign bribery, compliance officers should implement the following measures into their compliance programmes:
- With representatives at the highest level of a company often exposed to corrupt behaviour, officers must ensure, through training, that executives lead by example when implementing anti-bribery compliance programmes
- The overwhelming use of intermediaries demonstrates the need for enhanced and effective due diligence, oversight and application of the compliance programme to third parties (whether individuals or companies) in international business transactions
- Compliance programmes should focus specifically on due diligence with respect to agents, and on verifying the rationale and beneficial ownership of other companies involved in the transaction
- Bribery risk assessments should focus on the context of transactions (for example, whether deals involve partnering with a public company, public procurement processes, or the use of intermediaries)
- Incentivising preventive anti-bribery compliance programmes by recognising the existence and effectiveness of such programmes in the mitigation of sanctions in foreign bribery cases.