ETHIC Intelligence was very pleased to host its second annual international conference on Standards and Guidlines: Recent developments in Anti-Corruption Compliance on September 11, 2017 at the OECD conference centre in Paris. You can now view photos and video from the conference where experts from business, civil society and government exchanged and debated on how best to progress in the fight against corruption.
When I first started working with companies in corruption prevention 20 years ago their primary concern was related to the issue of passive corruption: how to ensure that no member of staff accepted a bribe, for example, from a supplier or even a client, in exchange for special treatment? If an employee accepts a bribe from a supplier clearly, he does not do so for the benefit of the company. Passive bribery is a concern for companies as it impacts negatively on a company’s profitability and hampers its competitiveness. For a long time, therefore, companies focused primarily on passive as opposed to active corruption.
Twenty years ago, active corruption, the offering or giving of a bribe, was rarely prosecuted and few companies gave it much consideration as a potential threat. After all, active bribery was used to increase turnover or to ease relations with a relevant administration. Today, with developments in anti-corruption legislation, the more systematic prosecution of active bribery and the consequent fines in cases of conviction, companies have been equipping themselves with robust corruption prevention tools. These tools are not designed to prevent passive corruption, however, and many companies and their executives feel ill prepared to prevent passive corruption.
Why don’t tools designed to prevent active corruption prevent passive corruption?
To commit an act of corruption for the company’s benefit, an employee will have to engage in fraud. He or she will have to divert something of value from the company to give it to a third party: public official (public corruption) or an employee from another company (commercial bribery). The fraud will use one of the company’s own processes: it could take the form of a fake contract with a sales agent who will be officially required to provide legitimate services, but whose primary function is to pay a bribe or offer something else of value. This contract would obviously be fraudulent. The fraud could also involve the real or fictional hiring of a relative of a public official from whom the company hopes to receive a favorable decision: this hiring in itself would be an act of corruption and contrary to legal employment practices. Fraud specialists list seven business processes that can be abused to commit fraud: sales, purchasing, stocks, etc. Usually fraud is committed for personal enrichment whereas in a case of corruption, fraud is committed to divert value from the company to a corrupt third party with no personal enrichment for the initiator of the fraud.
In any case, fraud can be prevented through the implementation of procedures which trace an employee’s decisions. For example, a gifts and invitations policy will enable the company to monitor and regulate gift giving to ensure that they are not used as bribes. Detection will also be possible through the monitoring of procedures – internal controls – and accurate accounting practices – internal and external audits.
Corruption prevention and detection procedures are useful in precluding the payment of a bribe; they are not, however, useful in preventing passive corruption. Why? Because the logic behind passive corruption is completely different.
In the clear majority of cases of active corruption, the corruptor receives no illegal, personal advantage i.e. a kickback. At best, if a contract is signed because of a bribe, the corruptor could receive the bonus attached to his business objectives.
A corrupt employee, on the other hand, acts knowingly and exclusively, for his or her own benefit and personal enrichment. Moreover, it is easy for an employee to receive an undue advantage or bribe: he just provides a bank account number, accepts the luxurious gifts, travels to the complimentary holiday destination or uses the personal staff which has been put at his disposal…it is all within the sphere of his or her private conduct, thus, beyond the reach of company controls. In this context, corruption prevention procedures are ineffective. That is why a radically different approach is necessary.
Although incidents of passive corruption often originate with the purchasing department it is not an activity exclusive to this function. Passive corruption can also occur with employees responsible for product specifications, or managers who occasionally need to use emergency or exceptional purchasing procedures.
To minimize the risk of passive corruption in purchasing, four different but complementary actions are necessary: regulation of purchasing procedures, traceability of decisions, regular but random controls and support for employee integrity.
Regulation of purchasing procedures
Any company with a significant sourcing activity has specific procedures for regulating procurement: supplier databases, calls for tender, group decision-making, etc.… In addition, purchasing officers must follow strict principles and rules and their relationships with suppliers are frequently monitored: no gifts, no tête-à-tête invitations, the annual signing of a declaration on the absence of conflicts of interest, etc.….
There are occasions, however, when purchases must be made exceptionally and expeditiously and regular procedures cannot be respected if the urgent demand is to be met. The risk of corruption at this point shifts from purchasing to operations. This shift triggers the need for the second action: the traceability of decisions.
Ensure the traceability of decisions
A department can have a legitimate reason for bypassing standard purchasing procedures. In these instances, it is vital that the decision to bypass standard procedures as well as the choice of a particular supplier be fully justified. It is possible to have employees sign a declaration of an absence of conflict of interest which includes relationships in their private life i.e. memberships in the same tennis club, member of the same association, etc.
If corruption prevention cannot be assured before the transaction by standard procedures and controls then it is necessary to ensure that these controls will be possible after the fact.
Regular, but random, controls
Monitoring respect for purchasing procedures, including those that do not or could not follow standard procedures, is usually included in the company’s regular controls whether internal or external. More and more importance is being given to the role that controls play in the prevention of fraud and corruption particularly if the controls are random.
Publicizing the existence of regular, but random controls, particularly on purchases that were unable, regardless of the reason, to respect standard procedures, is essential to prevent acts of passive corruption, but you must go further…
Support employee integrity
In acts of passive corruption, the employee puts his or her personal interests above those of the company taking advantage of the confidence the company has placed in him for the proper execution of his duties. His or her decision demonstrates a lack of personal integrity.
When a company publicizes or communicates on the importance of personal integrity, loyalty towards the company and respect for the company’s ethical heritage, it reinforces and supports ethical behavior. There is no way to definitively prevent corrupt behavior by an individual whose desire for personal gain – illegal or immoral – is so strong that ethical considerations hold no weight. But this public support of ethical business practices throughout the company will encourage other staff who, if they witness dubious behavior, may be encouraged to blow the whistle.
Support for personal integrity acts as both a daily reminder of the company’s zero tolerance for corruption as well as the risks an employee runs if he decides to ignore this policy.
The logic behind passive corruption is completely different from that of active corruption
A corporate policy to prevent passive corruption cannot work if the company has not designed and implemented a robust and visible policy to prevent active corruption.
This could seem paradoxical because, as noted earlier, the tools necessary for the prevention of active corruption are structurally different from those necessary for the prevention of passive corruption. If the employee has the slightest doubt about the company’s ethical business practices or if he thinks that corruption is tolerated by those who deal directly with clients i.e. sales personnel, then the policy of zero tolerance for corruption loses all credibility with the purchasing staff and other departments. Why would an employee behave ethically if he believes that ethical business practices are flexible? Why, if corrupted business practices are tolerated by the sales division, wouldn’t they be by the purchasing department?
It is precisely by communicating widely and vigorously on the company’s pledge to conduct business with integrity and its investment in the means necessary to ensure that turnover is linked exclusively to innovation and competitiveness and is not tainted by corruption that it will demonstrate the corporate commitment to ethical business practices. It is on this public declaration on the importance of ethical business that the company will rely to justify its demand for business with integrity by each employee including those who could be tempted by an act of passive corruption.
The very existence of a corruption prevention program for active corruption has a direct impact on the efficacy of a corruption prevention program for passive corruption. This is true even though the programs with have different tools for prevention and means of control. In a nutshell: to be credible the zero-tolerance policy should apply to both active and passive corruption.
Philippe Montigny is CEO of ETHIC Intelligence and Chairman of its Certification Committee. Philippe has over 20 years of experience in advising companies on strategies to prevent corruption and leverage business integrity.
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