Corruption is a systemic problem that plagues many transitional countries across the world, rooted in weak rule of law and lack of private property rights. Not only does corruption erode trust in public institutions, such practices also hinder economic growth and weaken democratic governance.
The corruption challenge can be addressed by building responsive institutions that offer basic assurances of private property rights and ensure law and order. CIPE programs address the root causes of corruption through a multi-pronged approach. CIPE programs mobilize the private sector to raise anti-corruption standards and advocate for reforms; streamline regulations and reduce implementation gaps to limit opportunities for corruption; improve corporate governance to strengthen firm-level integrity; facilitate collective action to level the playing field and coordinate company efforts; and equip small and medium-sized enterprises to resist bribery and meet the requirements of global value chains.
Two recent case studies, described below, show these CIPE approaches in action.
“I see a great need of vendor supply chain training providers to run the show effectively. If we want growth, train the relevant person first” — Ayesha Muharram, Chief Internal Auditor and Country Compliance Officer, Glaxo Smith Kline.
Lately it has become a requirement among multinational companies to comply with international anti-corruption laws such as U.S. Foreign Corrupt Practices Act (FCPA), U.K. Bribery Act, Canadian Corruption of Foreign Public Officials Act, Brazilian Clean Companies Act. Under these laws, multinational companies need to take appropriate actions for ensuring clean business — including making sure that all of their suppliers, vendors, and subsidiaries around the world are following the rules.
To help local companies and multinationals working in Pakistan deal with this challenge, CIPE Pakistan initiated a discussion on issues related to supply chain compliance in multinational companies. In collaboration with the Overseas Investors Chamber of Commerce & Industry, CIPE conducted a first focus group meeting of the Value Chain-Unethical Practices project. This first meeting was used to conduct a gap analysis, focusing the capacity building needs and the given standards in Pakistan.
Last week Chinese e-commerce giant Alibaba filed paperwork with the U.S. Securities and Exchange Commission for an initial public offering (IPO). As one of the largest companies in the world’s second largest economy, Alibaba represents an enormous opportunity for investors. They are expected to raise between $15 and $20 billion, making this IPO potentially bigger than Facebook’s.
While Alibaba already handles more sales volume than eBay and Amazon combined, there is added room for growth as internet penetration in China is only around 45 percent. Online shopping is projected to increase at a rate of 27 percent per year as the still-poor country grows richer and more connected.
Regardless of the perceived opportunities, foreign investors are not entirely convinced that Alibaba will be a good buy. The attitude toward Chinese companies in general is one of skepticism and uncertainty — perpetuated most recently by concerns about the transparency in auditing practices. Alibaba’s complex network of businesses and a lack of details surrounding partnerships with domestic logistics companies also raise some questions for potential investors.
In all the buzz surrounding Alibaba’a IPO, however, there is a missing element that could be cause for additional concern. By selling shares in the U.S., Alibaba opens itself to more exposure to the Foreign Corrupt Practices Act (FCPA), a piece of legislation that makes it illegal for companies to bribe officials of foreign governments. A number of multinational companies from around the world have already been ensnared in FCPA investigations as a result of corruption in China and the idea that Alibaba has grown within a market rife with corrupt acts could be cause for increased suspicion. Compounding this risk is the fact that the company has been the subject of investigations by domestic authorities in the past.
Faced with a corrupt judicial system, what strategies do Russian businesses employ to resolve business disputes? Lately, less murder and more litigation.
Faced with multinational firms who are liable under U.S. and U.K. laws for their Russian partners’ corrupt practices, how do Russian businesses gain access to international partners? Start putting in place anti-corruption compliance programs.
Those were some of the answers that came from experts from Russia and the U.S. had some answers at a recent panel discussion co-hosted by CIPE and the Kennan Institute, “Corruption and Business in Russian: National Problem, Regional Solutions.” Jordan Gans-Morse, an assistant professor of political science at Northwestern University, presented the results of his innovative research on how non-oligarchic firms are surviving in an atmosphere of endemic corruption. Against this backdrop, CIPE Moscow Program Officer Natalya L. Titova, joined by CIPE partners from St. Petersburg, Chelyabinsk, and Kaliningrad, spoke about a CIPE program in Russia that is helping regional businesses to meet international anti-corruption standards in order to join global value chains.
To improve local governance in Afghanistan, CIPE conducts training seminars for the Provincial Councils in Afghanistan on democratic governance and market economics, including topics like advocacy, corruption, and the informal economy. Using the knowledge gained from the seminars, many of the Provincial Councils have taken on issues affecting their communities.
CIPE recently discussed the efforts of the Kunar Provincial Council with Chairperson Haji Mia Hassan. After discussing corruption issues with local government officials, the Kunar Provincial Council filed corruption cases against several officials with the prosecutor’s office, including the director of the Customs Department and the Director of Haj and Endowments.
By Hyeji Kim
Any corporate compliance program needs a strong relationship between the board of directors and the compliance and ethics officer in order to be effective. In 2010, the Society of Corporate Compliance and Ethics (SCCE) and the Health Care Compliance Association (HCCA) conducted a study which showed that the relationship between the Chief Ethics and Compliance Officers (CECOs) and boards of directors was much weaker than it should be. In 2013, SCCE conducted the study again to see if there were any changes.
The recently published 2013 study, based on over 600 responses from compliance and ethic professionals in the SCCE and HCCA database, seems to be on a much brighter note with generally positive findings.
As my colleague Anna Nadgrodkiewicz recently discussed on this blog, corruption is a preeminent threat to developing countries. In Brazil, corruption has been estimated to cost somewhere around $53 billion (approximately 2.3 percent of GDP) in 2013 alone. Because this loss has a corrosive effect on democratic governance and the country’s ability to deliver continued improvement, Brazilians took to the streets in massive protests. As a result the government of Brazil passed the “Clean Companies Act” which began being enforced on January 29.
The new law, like similar legislation in other countries, establishes corporate liability for corrupt practices committed by Brazilian companies as well as foreign companies that have branches or affiliates within the country. Under the act, companies that bribe public officials (foreign or domestic) can be subjected to civil and administrative sanctions including heavy fines, prohibition on receiving state funds, and even dissolution of the firm. The fact that Brazilian president Dilma Rouseff exercised her line-item veto power to make the law more strict than originally drafted seems to signal to the world that Brazil is serious about reining in corruption.
In the wake of the passage of the Clean Companies Act, much talk erupted over the implications for international trade. Since the law closely resembles existing anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and the UK Bribery Act, experts have warned that companies operating in the region can expect Brazilian authorities to cooperate more closely with their counterparts in the US during investigations.
More general discussion has involved the importance of solid compliance programs in multi-national companies (MNCs) if they are to avoid any run-ins with the law. However, such commentary ignores a large audience that should take note of this development: developing countries.