OECD bribery report demands action from leadership

Global Fraud Focus: Examining cross-border issues

Corporate leadership is involved, or at least aware, of the practice of foreign bribery in most cases, rebutting perceptions of bribery as the act of rogue employees." That's from a 2014 foreign bribery report, released by the Organisation for Economic Co-operation and Development (OECD). "Intermediaries, both agents and corporate vehicles, are used in most corrupt transactions while the majority of bribes are paid to obtain public procurement contracts."

The findings in the "OECD Foreign Bribery Report: An Analysis of the Crime of Bribery of Foreign Public Officials," are based on the analysis of 427 bribery cases that have been concluded since the entry of the OECD Anti-Bribery Convention in 1999 in the participating 41 state parties. (See page 3.)

The report contains a wealth of statistical information worthy of close analysis. Here I include the most relevant statistics for fraud fighters and focus on conclusions and next steps.

"The prevention of business crime," writes OECD Secretary–General Angel Gurría in the report's preface, "should be at the centre of corporate governance policies, and public procurement needs to be synonymous with integrity, transparency and accountability."

The report — a clear wake-up call — has identified bribery at every international level. "In a number of foreign bribery cases concluded to date," the report notes in its conclusion, "the bribes have been paid or authorised by representatives at the highest level of a company, showing the ongoing need for executives to lead by example in implementing their companies' anti-bribery compliance programmes. While SMEs [small- and medium-sized enterprises] were among the minority of companies sanctioned (4 percent), companies of all sizes involved in international business should implement measures to combat the risk of foreign bribery. … There is also scope for greater incentivising preventive anti-bribery compliance programmes, including by recognising the existence and effectiveness of such programmes in mitigation of sanctions in foreign bribery cases."

The report defines the act of committing foreign bribery as "to offer, promise or give any undue pecuniary or other advantage, whether directly or through intermediaries, to a foreign public official, for that official or for a third party, in order that the official act or refrain from acting in relation to the performance of official duties, in order to obtain or retain business or other improper advantage in the conduct of international business" (page 37).

Top management involved

Based on analysis of enforcement actions against 263 individuals and 164 entities, the report, on page 8, found that corporate management was involved in 53 percent of cases, and the CEO was involved in 12 percent of cases. Intermediaries were involved in three out of four cases. Thirty-five percent of intermediaries were corporate vehicles, such as subsidiary companies, local consulting firms, companies located in offshore financial centers or tax havens, or companies established under the beneficial ownership of the public official who received the bribes.

On average, bribes equalled 10.9 percent of the total transaction value and 34.5 percent of the profits, according to page 8 of the report. The highest fine against a company was 1.8 billion euros and against an individual was a forfeiture order amounting to $149 million (page 9).

According to the report on page 14, court time for foreign bribery cases is trending longer: the average time in 2002 and 2004 was 1.3 years; the average time in 2013 was 7.3 years. This could be attributable to a longer time for appeals or increased sophistication of bribery techniques, which require more investigatory time and resources, according to the report. One case took 15 years before concluding.

Thirty-one percent of companies self-reported (page 15) and of those internal audit discovered bribery in 31 percent of the cases and detected bribery in 28 percent of cases (page 16) as part of due diligence in a merger or acquisition.

Whistleblowers were responsible for reporting 17 percent of cases (page 17). "An effective compliance programme," according to the report, "that incorporates strong whistleblower protection mechanisms will enable the company to elicit early, bona fide information on misconduct that could potentially save the company from both the risk of corruption and the costs involved in exposure and sanctioning."

In 60 percent of the report's cases, the company involved in foreign bribery had more than 250 employees (page 21). The fraudsters promised, offered or gave 41 percent to management, 22 percent to non-management, 12 percent to presidents or CEOs, 16 percent to unknown and 9 percent to third-party agents (page 23).

The report showed on page 25 that 95.1 percent of bribes were paid to officials in five categories: state-owned enterprise official, head of state, minister, defense official and customs official. State-owned enterprise officials received 80.11 percent of the bribes and customs officials received 1.14 percent.

Quantify costs

The report acknowledges that it's always difficult to quantify the costs of bribery. For example, some bribes might lead to ongoing business or entry into a new market or a market monopoly. So we need to consider a number of factors apart from the amount of bribes actually paid. The report considers the amount as a percentage of transaction as well as a percentage of value per sector.

Data from 37 cases considered the total sanctions imposed as a percentage of the profits gained from the bribery payment (page 28). In 17 cases (46 percent), the monetary sanction was less than 50 percent of the proceeds obtained by the defendant as a result of the payment, while in 15 other cases the sanctions ranged from 100 percent to 200 percent of the benefit derived.

The vast majority of bribes — three out of four — are paid by an agent or intermediary (page 8), which the OECD defines as "a person who is put in contact with or in between two or more trading parties. In the business context, an intermediary usually is understood to be a conduit for goods or services offered by a supplier to a consumer. Hence, the intermediary can act as a conduit for legitimate economic activities, illegitimate bribery payments, or a combination of both. … Both natural and legal persons, such as consulting firms and joint ventures are included," (page 28). Also, included in this definition are corporate vehicles such as subsidiary companies, local consulting firms and firms owned in which the beneficial owner is bribing or being bribed.

The report revisits the assumption that businesses from the wealthiest countries bribe officials from the least-developed countries. It shows that almost one in two bribes paid were to public officials not from developing countries but to countries having high to very high levels of human development (page 29).

When it comes to enforcement and punishment, the U.S. is way ahead of other countries with sanctions of 128 separate foreign bribery schemes. Germany is second with 26; Korea, 11; and Italy, Switzerland and the U.K. are in third place with six schemes each sanctioned (page 31). Concluded foreign bribery cases don't always involve citizens and companies headquartered in the sanctioning country. The report identifies that the majority of bribery cases involve public procurement.

The OECD, in its report, suggests that countries should publicize foreign bribery cases in detail. It says that tax officials, embassy officials, financial intelligence units, public procurement officials and competition authorities, in particular, need to strengthen detection and reporting mechanisms and improve interagency cooperation.

The OECD also calls for enhanced and adopted whistleblower protection mechanisms. It says that organizations should meet the OECD Anti-Bribery Convention standard for "effective, proportionate and dissuasive" sanctions.

Anti-corruption training for all

I know you've heard it all before, but these are fraud examiners' mantras. All organizations should provide anti-corruption training to its public procurement employees. Raising overall awareness to combat corruption, collusion and money laundering has to be a public priority.

Executives, leading by example, need to establish compliance programs and anti-money laundering programs and make sure management enforces them. The ACFE can assist in providing training via its Corporate Alliance program. (See sidebar on page 59.) Then many more companies can join other Fortune 500 companies that want to make a clear and visible statement that they are zero-tolerant of bribery and corruption.

The OECD acknowledges that this is its first attempt to measure transnational corruption. It says, of course, much more has to be done including further research. For more information about crime trends in relation to occupational fraud, including corruption, see the 2014 ACFE Report to the Nations on Occupational Fraud and Abuse (ACFE.com/RTTN).

Tim Harvey, CFE, JP, is director of the ACFE's UK Operations and a member of Transparency International and the British Society of Criminology.

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