Don’t even think about it
WHEN IT COMES TO CORRUPTION, THE LONG ARM OF THE LAW JUST KEEPS GETTING LONGER. EVEN COMPANIES NOT DIRECTLY INVOLVED CAN BE SEVERELY PENALISED.
Icompanies to ensure employees, contractors, business partners and even suppliers adhere to the highest ethical standards. But this is especially true for those operating internationally.
Not only are there strong laws in place to cover bribery and corruption, particularly with the passage of Britain’s Bribery Act of 2010, but the reputational damage caused by the disclosure of inappropriate or illegal activity in other countries can be immense.
The dangers were highlighted earlier this year with revelations of shady practices by Walmart executives in Mexico. The details were publicly disclosed by New York Times journalists after an extensive investigation. And while the story is depressing enough – years of monies being given to third parties to pay local officials to grant favourable site and environmental approvals, to speed up decision making and to block competitors – the more alarming part of the saga is that senior managers in the US knew about the practices and attempted a cover-up.
Their efforts involved a low-level internal investigation run by an executive who was practiceallegedlyallegedly involved in the corrupt practices. Casting aspersions on the whistleblower – at one stage, there was an attempt to blame him for any dishonest actions that may have taken place – was also part of the mix.
Under the US Foreign Corrupt Practices Act, the Walmart executives could end up being charged and the company forced to pay a substantial fine. In the meantime, the company’s share price has suffered.
Another case prosecuted under the FCPA involved Magyar Telekom, the Hungarian telecommunications firm now wholly owned
by Deutsche Telekom. The two companies have been fined almost $US100 million in criminal and civil penalties. The case involved alleged bribery by Magyar Telekom executives in Macedonia and Montenegro; Deutsche Telekom was not directly involved.
Another example concerns the German engineering firm Siemens, which has agreed to pay $US1.6 billion in fines to American and German authorities after executives were found to have bribed government officials in Argentina. Siemens had put in a bid to rebuild the national identity- card system and a bribe of $US100 million was paid in order to secure the contract. In addition, criminal charges have been laid against eight company executives under the FCPA.
It is interesting to note that in these last two cases there were no direct links to the US and only tangential connections via the firms’ other corporate relationships. Yet the companies were prosecuted under the FCPA, underlining the wide reach of the legislation. Moreover, there are clear signs that the US Department of Justice, which launches FCPA investigations, is keen to secure prosecutions with large fines attached.
Britain’s Bribery Act has been described as the world’s toughest anti- corruption law. While there are many similarities to the US rules, the British act goes further in looking through transactions for possible violations on the part of a company with any link to Britain. There is a presumed responsibility for the actions of associates. For instance, an act of bribery by a firm with no connection to Britain, but in which a British firm has a small, but passive investment could expose the British firm to prosecution. Even corporate hospitality could be deemed improper.
Corruption and bribery are, of course, not unheard of in Australia. Possibly the most celebrated case involved the Australian Wheat Board, in which payments were laundered through a transport company on their way to the regime of Saddam Hussein in its final years. The aim of the exercise was to secure a favourable contract to sell wheat to Iraq.
OF COURSE, THE MERE EXISTENCE OF A CODE WILL NOT ELIMINATE THE RISK OF BRIBES BEING OFFERED OR EMPLOYEES
The consequences for the company and several of its executives have taken many years to sort out. Only two months ago, former AWB chief Andrew Lindberg was fined $ 100,000 and given a temporary ban from managing companies for having failed in his duties under the Corporations Act. AWB no longer exists, having been sold to Canada’s Agrium.
A more recent example involved Leighton Holdings and actions taken by an executive employed by Leighton Offshore in Iraq. The company itself has acknowledged that failures to meet the “governance standards in respect of the proper documentation of contractual arrangements” did occur. The manager has been dismissed and the Australian Federal Police, having received a referral from the company, are investigating.
So what are the lessons? Clearly, there is a need for a thorough code of conduct (which offers a partial defence under the British act), to which all employees and contractors must sign up. This code must provide guidance as to what bribes or facilitation payments are and emphasise their prohibition. In relation to gifts and entertainment, guidelines are required and approval should be sought where there is any doubt, even when it comes to small gifts such as pens and umbrellas.
In combination with a clear whistleblower policy, all companies should encourage the reporting of suspicious activity and intensive training should be given to those personnel who are the most likely to be exposed to an environment where bribery and corruption are, or have been, common.
Of course, the mere existence of a code will not eliminate the risk of bribes being offered or employees acting corruptly. After all, Leighton Holdings had a code of ethics. Measures are needed to ensure that the talk is walked, and leadership on this must come from the very top. Internal auditors and risk managers will need to step up to the plate; the appointment of external probity officers may be required at times.
It is not simply the threat of legal action against the company and its executives that should encourage vigilance against bribery and corruption, but also the need to protect the corporate reputation and shareholders. The old excuse that “this is just the way that things are done in some countries” is no longer acceptable, if it ever was.
Former Australian Wheat Board chief Andrew Lindberg (right) leaving the Victorian Supreme Court in August, after being fined $100,000 and temporarily banned from managing companies. Below: US Walmart executives could face charges over the actions of...