A 12-year study has found that over 85% of UK managers operating abroad in emerging markets are involved with bribery on a monthly basis.
The study, carried out by Henley Business School, also found that 80% of board level executives are aware of the practice, but that very little can be done to stop it. The inquiry was carried out over a 12 year period, beginning in 2004, and is based on private “intimate” conversations with the executives, ranging from general managers to chief executives, of more than 1000 businesses operating internationally, of which more than 10% were UK based.
Struggling to Combat Bribery
According to Andrew Kakabadse, professor of governance and leadership at Henley Business School, the report originally began as an exercise to help coach and support high-level business individuals struggling with aspects of their employment. “However,” he added, “it quickly became apparent that a key obstacle was dealing with everyday fraud, bribery and corruption.”
The study has drawn from research in Australia, Belgium, China, Finland, Georgia, Germany, India, Ireland, Nigeria, Pakistan, Russia, Saudi Arabia, South Africa, and Sweden. It also found that bribery was costing the organisations in question some 5% of their annual revenue on average.
The report noted that bribery was so institutionalised in some markets that it had been informed of instances where agents would try and ‘out-bid’ each other by asking for lower bribes – usually a percentage of the contract’s value and often up to 10% – to ensure a company would engage them over competitors.
Mr Kakabadse stated that while the stiff penalties contained in laws like the UK’s Bribery Act and the US’s Foreign Corrupt Practices Act “bring fear to boards”, they have also created a class of “fall guys”.
“Many boards are following the act but know bribery is a fact of life lower down the company, the people on the ground,” he added. “It is the managing directors and general managers in country… who are being forced to give bribes to win business. These are good people being forced to do bad things. Boards are doing worse than paying lip service to anti-corruption laws because they are using them to protect themselves while they know bribery is going on.”
The study found no specific sector or area which was particularly susceptible or likely to indulge in bribery and Mr Kakabadse expressed surprise that only 85% of managers had admitted to using bribes. These findings stand in sharp contrast to PwC’s recent global economic crime survey which found that 18% of senior management was involved in crime, including accounting fraud, while 80% of senior executives admitted to having seen such corrupt practices.
Mr Kakabadse reported that many of the managers in question felt that bribery was the only option if they wished to remain competitive in these emerging markets, with the only other option being to withdraw from the market completely. In other words, “if they didn’t pay-up to achieve their organisation’s objectives, then their competitors certainly would.” Working in foreign markets naturally means adopting local practices, and when that country or market is deeply corrupt, the only alternative to corrupt business is no business. It is therefore somewhat unsurprising that many companies have chosen to turn a blind eye, giving tacit permission to their subordinates. Commenting on the report, Michael Littlechild, director of GoodCorporation, the anti-corruption and business ethics advisor, observed that it starkly illuminates the difficulties faced by companies operating in emerging markets. He added: “Many large international organisations give explicit instructions to staff to refuse bribes and some have pulled out of countries where the risk is too great (…) Those that have ignored the law have faced huge fines.”
Severe Penalties
If any of these “fall guys” or the companies who employ them are found guilty of an offence under the Bribery Act 2010 the consequences can be severe. Section 11 of the Act provides for a potentially unlimited fine and up to ten year’s imprisonment for individuals found guilty of serious bribery offences and a similarly unlimited fine for any company or partnership who fail to prevent such bribery from happening.
A criminal conviction also triggers the power to impose a confiscation order under the Proceeds of Crime Act 2002. This order will almost always be applied for after a conviction unless there are compelling reasons not to do so. It is designed to prevent offenders from benefitting from the crime they have committed and forces those convicted of an offence to pay a sum of money equal to the ‘benefit’ they received as a result of the bribe.
If the defendant cannot be brought to trial, has been acquitted, or where there is insufficient evidence to obtain a criminal conviction, a Civil Recovery Order can be applied for. Being a civil claim, the agency bringing the claim (for bribery the Serious Fraud Office) need only establish criminal activity and that the funds it is seeking to recover are the proceeds of that crime. This is a lower standard of proof than in a criminal case. There are clear advantages to using this procedure for both parties as, if they settle (which they typically do), the resulting settlement will be confidential and will not result in a criminal conviction.
It seems likely that the companies in question see the possibility of such measures as par for the course and a worthy price to pay for the opportunity of working in these emerging markets. It also seems to demonstrate an almost foolhardy faith in not getting caught, or in being able to lay the blame squarely at the door of a subordinate and walk away scot free.
Lewis Nedas Financial Crime Lawyers, London
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