Survey shows that corrupt practices prevail throughout the world and that companies doing business overseas need to exercise more.
By Bruce McDougall |
Corporate corruption and fraud remain prevalent throughout the world, according to Ernst & Young's 10th global fraud survey, although Canadian and U.S. companies suffer fewer incidents than companies overseas.
With responses from almost 1,200 major companies in 33 countries, including 25 Canadian and 54 American organizations, Ernst & Young says only 20% of North American firms reported one or more incidents of bribery or corruption in the last two years. In the rest of the world, 35% of companies reported such incidents.
In response to fraudulent practices in OECD countries, prosecutors have stepped up their investigations of foreign bribery, pursuing 270 cases in 2007, up from only 51 cases in 2005.
Meanwhile, companies themselves are trying harder to put policies and procedures in place to detect and reduce fraudulent practices. More than two-thirds of respondents said their organizations’ internal audit teams were equipped sufficiently to detect bribery and corrupt practices. Half thought that compliance-focused audits success-fully mitigated these risks.
Nevertheless, almost half of the survey’s respondents said their companies did not have specific procedure in place for dealing with government officials, and 44% said procedures were not in place in their companies for identifying relatives of government officials.
The U.S. Foreign Corrupt Practices Act (FCPA) serves as a measure even for companies beyond North America for measuring their own anti-corruption efforts, the consulting firm says. “The FCPA is the most heavily enforced foreign bribery statute,” says David Stulb of Ernst & Young. “Taking into account its provisions when performing internal audits or due diligence is undoubtedly beneficial.”
“Establishing an anti-corruption compliance program consistent with its requirements is prudent, as well,” he says.
In Canada, the Corruption of Foreign Public Officials Act, passed in 1998 in response to an OECD initiative to address the bribery of foreign public officials, serves a similar role.
Despite North America’s relative domestic success in combating fraud, and despite more anti-corruption legislation and enforcement efforts around the globe, corruption remains a risk for operations expanding worldwide:
1 in 4 survey respondents said their company experienced an incident of bribery and corruption in the past two years.
More than 1/3 of all respondents felt corrupt business practices were actually getting worse.
23% of respondents knew some-one in their company had been solicited to pay a bribe to win or retain business.
Although almost 70% of respondents say enforcement has grown stronger in their region over the last five years, the prevalence of corrupt practices varies widely from one region to another. In Japan, for example, only 2% said bribery or corruption was a problem locally. But Japan was the least likely region to call whistle-blowing a successful measure for minimizing bribery and corruption.
The Middle East, India, Africa and the Far East indicated substantially higher amounts of corruption, the report says.
Among 10 industrial sectors, mining companies cited the highest incidence of corrupt practices: 47% of respondents say these practices are prevalent in this sector. Oil, gas and electricity companies reported the lowest prevalence of corrupt practices, although 30% of respondents in this sector had encountered an incident of corruption.
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