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.

The Australian - The Deal - - Don’t Even Think About It - BY JU­DITH SLOAN

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

ACT­ING COR­RUPTLY.

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...

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