Anti-Bribery and Corruption laws: not as easy as ABC

Globalisation and cross-border trade has unquestionably brought huge benefits to the Australian economy. But there are darker sides – and the challenge of dealing with bribery and corruption is one of them.

Australian companies doing business overseas are facing greater challenges on anti-bribery and corruption (ABC) compliance than ever before, according to a new report by KPMG International, which surveyed 659 senior executives in 64 countries, including Australia.

The report shows that a growing number of governments around the world are tightening ABC regulations or introducing new ones. For Australia, of most relevance is the fact that the Chinese authorities are making significant efforts to crack down on corruption. China is already our biggest trading partner and if the Free Trade Agreement goes ahead, as we hope it does, business levels will increase. But Australian businesses operating there do need to be aware of the risks and how to manage them.

Mining companies, which operate in many parts of the world where bribery & corruption is problematic, are very aware of the risks and have taken considerable steps to mitigate them. But in many other sectors, companies still don’t seem to be prepared for the reputational threat inherent in a bribery scandal. It is perhaps surprising given the ever-increasing stakeholder focus on corporate behaviour – witness the tax transparency debate – that we still don’t see sufficiently detailed risk assessments or reviews in many cases.

This can be a board problem – lack of sufficient high-level commitment to ensuring proper procedures and processes – or at a management level, where internal controls are not resourced or operating effectively. Many respondents complained of lack of resources dedicated to this area.

One key issue which affects companies doing business in regions suffering from high levels of bribery & corruption is their heavy reliance on third parties, such as agents, to make introductions and help facilitate business dealings. Companies often have the right to audit these third parties, yet the survey showed more than half do not do so. They seem to fail to understand that these agents are viewed as representatives of their firm with all the reputational risk involved if they engage in acts of bribery. Third parties are often conduits for bribes and they are difficult to detect, so management of these parties is a real challenge when it comes to ABC compliance.

Another interesting issue is acquisitions. M&A activity is currently strong – and nearly two thirds of respondents indicated that M&A is part of their growth strategy – but again many admit they are unaware of the consequences of failing to identify ABC risks during the acquisition phase. And of course once the deal is done, all those risks will often become the buying company’s problem to deal with.

The findings and issues revealed by our global survey have clear resonance in Australia, where bribery and corruption cases are on the increase and have the potential to seriously damage an organisation’s reputation. But there are specific issues which we as a country should consider.

Firstly, while other countries – notably China and the US – are cracking down hard on bribery & corruption, we don’t always prosecute allegations with the same vigour of other countries, and findings of corruption do not always result in criminal prosecutions. This does not persuade companies to make the investment necessary to manage bribery and corruption risk effectively.

This is no knock against the Australian Federal Police, which is making renewed efforts to crack down on bribery and corruption in Australia, but while the US and UK have dedicated regulators who focus on bribery & corruption, we have no such equivalent. Why?

Secondly, while the UK and many other jurisdictions have have strict anti-bribery laws that do not distinguish between bribes and ‘facilitation payments’, our equivalent legislation allows for ‘facilitation payments’ in certain circumstances. Such ambiguity weakens the fight against bribery and corruption and should be looked at again by the authorities.

To help in the fight against bribery and corruption, KPMG has established a whistle-blower hotline called FairCall, which allows clients’ employees to report suspicions of fraud, bribery, corruption and other similar misconduct anonymously. Over the past two years we have seen a significant increase in the take-up of the service, in particular by clients who want the service to be available to the third parties with whom they engage, in Australia and in foreign jurisdictions.

This is an essential part of our offering to companies as it is so often the people on the ground who really get to know what goes on. Data and analytics has an increasingly important role to play in assessing ABC controls and identifying violations – and can be cost-effective. It is slightly alarming that only a quarter of survey respondents said they use it. But even so, data can never be a substitute for getting out ‘into the field’ and really finding out what is happening.

Despite Australia’s reputation as a ‘clean’ country, Bribery & Corruption is a growing issue here. It needs government and business to play their part in fighting it.

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