Fraud and corruption are significant threats to all organisations in every jurisdiction. Wherever a company operates, politics or the prevailing political climate defines the severity of corruption regulations and enforcement. Companies develop their policies based on their interpretations of local and international regulations and typically practise a balance between internal policies and existing business practices.
In order for a company to understand its full exposure to corruption risk and develop robust compliance frameworks, the three P’s should be examined together. With an abundance of international guidelines and many companies now operating in multiple jurisdictions with varying regulatory requirements, achieving a healthy balance can be a challenge.
Vice-President and Prime Minister of the UAE and Ruler of Dubai H.H. Sheikh Mohammed bin Rashid Al Maktoum made a speech at the World Government summit recently. He stressed the importance of eradicating corruption and affirmed the UAE’s position on the issue, saying:
"Corruption is bribery, and it exists everywhere and some people take it as a way of life. We went to some countries and saw corruption, and decided not to invest there. We don’t tolerate corruption – we have zero tolerance here."
The UAE government’s intention to eradicate corruption in the last few years has been clear, and the establishment of an anti-corruption unit in 2015 is testament to this. It remains to be seen how effectively this body can effect positive change in the policies and practices of companies operating in the UAE and wider Middle East, and whether it instils confidence or fear among employees.
The gap between policy and practice
In many parts of the world, there are varying cultural perceptions between what constitutes normal business practice and what is corruption. In many jurisdictions, a local partner or shareholder is required to establish a company, and in certain cases this can be local nationals’ largest source of income. Complicating this, these individuals can be involved in private business while serving in government positions or in government-affiliated organisations, which can in turn leave them open to conflicts of interest. Similarly, giving gifts and hosting parties may be common practice globally, and companies may not want to restrict the expenses on these occasions. Companies must be mindful of whether this increases the gap between policy and practice, as well as the interpretation of regulatory bodies on such practices.
Political will help to reduce the disparity between policy and practice. How? Politicians clarify what is allowed and what is not allowed, draft clear laws and ensure that they will be enforced. Reducing bureaucracy, easing the need for constant interaction with government authorities in approval processes and simplifying procedures are further steps towards achieving transparency. We are seeing some progress within international regulations: new laws have been implemented in Europe and South America, though the complex nature of corruption investigations and evidence gathering means that it will be several years before we have an insight into their efficacy.
Corruption and fraud risks have increased for companies as the global nature of business has made international borders less defined. As a result, most companies now base their internal compliance policies on regulation with an international reach, such as the US's Foreign Corrupt Practices Act and the UK Bribery Act 2010. .
Meaningful due diligence is an essential component to ensuring compliance with international relations. Companies must also train employees, conduct regular risk assessments that address company specific risks and make sure controls and mitigation measures are in place. In practice, companies still fall short of implementing their internal policies in full: facilitation payments are made, bribes are paid to secure contracts, and third-party agents or specialist consultants are appointed through whom corrupt payments may be routed.
For companies to sustain growth, be successful, and protect their reputation they need to understand their political environment; have stringent compliance and ABC policies in place; develop methods to proactively identify risks; invest in remediation; and ensuring that these policies are enforced and put into practice.
Author
- Kanupriya Jain, Associate Director