Corruption is one of the biggest risks for companies doing business abroad. Bribery alone costs an estimated $1.5 trillion a year—the equivalent of roughly 2% of the global economy.
Corruption can take many forms but generally involves the abuse of an entrusted power for private gain. Bribes are one example. There’s also fraud, and even “perks” or gifts—like a trip to Disneyland—can, in some circumstances, be kinds of corruption.
Corruption hurts everyone
By interfering with the free market, corrupt business practices make it impossible for conscientious companies to bid successfully on projects. That ultimately leads to higher costs and slows down economic development. Every person and business involved directly or in a corrupted deal is affected, and reputations can be ruined throughout the entire supply chain.
Most countries have anti-corruption laws. Breaking them could land you in jail or facing hefty fines. It’s a criminal offence in Canada to corrupt or try to corrupt a foreign public official.
What’s your corruption risk?
Here are some things to think about when assessing your risk of exposure to corruption:
Where you’re doing business
Some countries are riskier for public-sector corruption than others. Transparency International created the map below to rank countries for perceived likelihood of public-sector corruption, with red being most likely and yellow least likely.
Your industry or sector
Extractives, construction and defence have the greatest likelihood of corruption. These sectors have a lot of regulations—such as the need for permits—and sometimes individuals try to get around the rules with bribes or improper payments.
Who you’re working with
If you employ local agents, make sure they are trustworthy and aligned with your business values. The actions of a local agent can harm your company reputation or implicate you legally. Of U.S. and U.K.-reported cases alleging improper payments, about 90% involved the use of agents, representatives or third-party intermediaries.
How to protect yourself
Follow these tips to minimize your corruption risk:
Know your partners
Ask probing questions to understand who you are dealing with—not just your buyer but also key representatives throughout the supply chain: suppliers, subcontractors, agents/ representatives and third-party intermediaries. Because the greatest external risk comes from the use of agents, representatives and third-party intermediaries, screen these individuals thoroughly. Important due diligence questions to ask include:
- What are the names and addresses of all organizations involved?
- Who owns those companies?
- How long have they been in business?
- Have any had reports of unethical business practices related to the company or its executives?
- Have I checked references?
- Does the compensation make sense, and how is it justified?
The World Economic Forum offers some great advice in its Good Practice Guidelines on Conducting Third-Party Due Diligence.
Know your customer
Knowing your customer is part of a larger regimen of due diligence—making sure you’ve adequately checked out an opportunity to keep your business safe from corruption risk. You can hire suppliers who specialize in third-party due diligence reviews, but here are some questions to frame your approach
- What is the Transparency International Corruption Perception Index score for the country?
- How extensive is your network of government contacts for the project, and how many present potential risk?
- What business stage is the project at, and what pressures might present potential risk?
- How much direct control does your company/employees have over the project/business assets to manage potential corruption and bribery risks?
- Are there past or recent corruption allegations against the government officials in decision-making roles on the project?
Develop anti-corruption policies
Whether your business is small or large, you should have written anti-corruption policies when you start exporting. This should address how you use agents or representatives and outline controls and procedures for gifts, hospitality and travel involving foreign public officials. Make sure your employees know what your policies are and are trained appropriately.
Check out the links below for free information to help you develop relevant policies and training programs:
- Export Development Canada (EDC) - http://www.edc.ca/en/about-us/corporate-social-responsibility/pages/business-ethics.aspx?cid=red1039
- Organization for Economic Co-operation and Development (OECD) - http://www.oecd.org/daf/anti-bribery/44884389.pdf
- International Chamber of Commerce (ICC) - http://www.ethic-intelligence.com/wp-content/uploads/icc_anti_corruption_clause.pdf
- Transparency International (http://dbwb.e-learningportal.com/untracked/Doing_Business_Without_Bribery_CA/start.htm)
- Royal Canadian Mounted Police (RCMP) http://www.rcmp-grc.gc.ca/en/corruption/tools-and-resources
- Global Compact Network Canada[AMC4] (https://www.globalcompact.ca/designing-an-anti-corruption-compliance-program-a-guide-for-canadian-businesses/)
The risks of corruption in world markets are real. The good news is they can be reduced. Having policies in place, implementing them and exercising due diligence are all ways you can protect yourself and your company.
 Combating Corruption. (2017, September 26). Retrieved from http://www.worldbank.org/en/topic/governance/brief/anti-corruption