Asian Firms and Governments Demonstrate Need to Fortify Anti-Corruption Efforts

Aug 3, 2016 2:50 PM ET

A joint research project conducted by the ASEAN CSR (Association of Southeast Asian Nations Corporate Social Responsibility)  Network and the National University of Singapore Business School’s Center for Governance, Institutions and Organization revealed that businesses in Southeast Asia are not doing enough to combat corruption. The study, “Corporate Disclosure on Business Integrity in ASEAN,” provided an analysis of top-listed companies in Southeast Asian countries. Just half of the companies surveyed have a public statement outlining anti-corruption efforts, such as company disclosures or policies made available on corporate websites. In addition, only 18 percent of company executives indicated that they are in support of anti-corruption initiatives. 30 percent of the top listed companies either prohibit, or require the public disclosure of, political contributions. Just 20 percent of companies have a policy expressly prohibiting facilitation payments, often paid to public officials to help smooth or expedite documentation or transaction processes.

In some Asian countries, facilitation payments are a deeply-embedded part of business culture, representing a troublesome gray area that makes it difficult to draw a line where traditional business customs cross over into the realm of bribery. For example, a practice called “guanxi” in China describes a network of business relations that encourages cooperation in doing business. Guanxi often results in actions, taken by businessmen or public officials, that could be defined as bribery. Ling Li, author of “Performing Bribery in China: guanxi-practice, corruption with a human face,” argues that entities utilize guanxi as an operating mechanism that enables the facilitation of corruption. In 2011, revisions were made to China’s Anti-Unfair Competition and Criminal Laws, which specify that any facilitation payments made must be reported and submitted to the state, in an effort to prevent guanxi used as bribery.

Last month, Transparency International released a study assessing anti-corruption transparency in growing multinationals in emerging economies. The companies assessed received a score of 3.4, on a scale of 10, but Chinese companies fared the worst with a score of 1.6. These results compelled Transparency International Chair Jose Urgaz to call transparency efforts of emerging market companies “pathetic.” Transparency International also releases an annual Corruption Perceptions Index, which ranks countries according to levels of corruption in the public sector. Most Asian countries, with the exception of South Korea and Japan, scored closer to “highly corrupt” on the corruption perception spectrum. For example, in the 2015 Corruption Perceptions Index, China ranked 83rd out of 168 countries, with a low score of 37%. In the 2011 Bribe Payers Index, the country ranked 27th out of 28 countries, and ranked in the 33rd percentile in the 2010 Control of Corruption study. China’s public sector also ranked as “scant or none” in the category of budget openness. Indonesia ranked 88th in the Corruption Perceptions Index, 25th out of 28 in the Bribe Payers Index, and in the 27th percentile in the Control of Corruption ranking. Neither country has signed the OECD Anti-Bribery Convention, but had endorsed the OECD Anti-corruption initiative for the Asia Pacific in 2005 and 2001, respectively.

Corruption and bribery are extremely challenging issues for firms and governments to address. For example, political parties of the Australian parliament are currently struggling to come to an agreement regarding the establishment of an anti-corruption commission. Acts of bribery are difficult to identify, measure and prevent, especially if facilitation payments are embedded in the business culture. However, the negative effects of corruption are costly. The existence of corruption in an organization can jeopardize the rights and safety of employees, and expose an entire firm to risk. If a firm is prosecuted for acts of corruption or bribery, fines can range from tens of thousands to hundreds of millions of dollars; in some cases firms are fined amounts that lead to bankruptcy. Individuals convicted for corruption and bribery face criminal charges as severe as lifetime imprisonment, depending on the severity of the crime. However, having an effective compliance and ethics program in place can save businesses thousands and sometimes millions of dollars in instances of investigation, prosecution or conviction by government agencies. For example, the United States Sentencing Commission states that companies that have an effective compliance program in place and fully cooperate with the investigation process can qualify for up to a 95 percent reduction in federal fines. This scenario is applicable to prosecutions under the Foreign Corrupt Practices Act (FCPA).

Governments and corporations can take preventative measures to mitigate risk of corruption in their economies. Governments can implement due diligence guidelines, or regulations and compliance requirements, for public entities and businesses to implement. In any case, businesses have a responsibility to take measures in order to reduce the risk of corruption occurring anywhere along the value chain. Regardless of the existence of governmental guidelines or regulations, businesses can implement mechanisms such as a Code of Conduct for the entity and suppliers to abide by, as well as a Whistleblower Grievance Mechanism made available to all employees along the supply chain.

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