Forbes: Mitigating Corruption Risk - The Multinational Toothache That Won't Go Away
This article was originally published in Forbes on August 13th.
Given the dramatic upsurge in antibribery prosecutions worldwide, are multinational corporations doing enough to comply with the latest dictates on ethics and antibribery? That’s a question that bedevils CEOs and board members across the globe.
“There’s a good reason that C-suite executives are focusing more than ever on international bribery risks within their organizations,” observes George “Ren” McEachern, a former Acting Chief of the FBI’s International Corruption Unit who now helps multinational corporations address regulatory risk as a Managing Director at Exiger.
“It’s no longer just the U.S. Department of Justice and the FBI’s International Corruption Unit that under the Foreign Corruption Practices Act (FCPA) have ramped up their anticorruption investigations. In the last few years, the international enforcement landscape has profoundly changed, too,” McEachern points out.
“Through global exposure of the Panama and Paradise Papers exposés in 2015, and recent significant global resolutions like Odebrecht, countries around the world have begun to recognize the financial windfall that can be made from prosecuting culpable executives through cross-border government cooperation,” he argues.
The United Kingdom’s Serious Fraud Office (SFO), through parallel investigative efforts with the U.S., has continued to strengthen its foreign bribery capabilities. Its recent hiring of a former assistant U.S. attorney and U.K. barrister, Lisa Osofsky, as its director sends a strong message to multinational executives regarding liability and accountability. It also underscores the importance of building global and sustainable compliance programs. This new enforcement dynamic means that the U.S. and U.K. are now sharing intelligence on global corruption matters at levels not previously observed.
International business has never been more lucrative – or more potentially dangerous to corporate executives, board members, and their business partners and consultants – than it is now. Through dedicated organizations like the Office of Economic Cooperation and Development (OECD), countries where corruption has been endemic have suddenly adopted antibribery statutes and empowered prosecutors to enforce them.
Over the past five years, a significant majority of foreign bribery resolutions worldwide were a direct result of corporations not fully understating the risk attached to their organization’s third parties – a list that includes distributors, channel partners, retailers, and vendors. It’s a corporation’s consultants, venture partners, intermediaries, and subsidiaries who are most likely to get crosswise with regulatory enforcement, thus resulting in potential criminal and civil liability for the parent companies and their executives.
It’s imperative, therefore, that executives and consultants, especially those operating in high-risk industries and geographies, receive the best possible training. Executing a meaningful compliance regime carries stiff challenges, maintains Richard Bistrong, the founder and CEO of Front-Line Anti-Bribery LLC.
An organization’s messages need to be both “spoken and unspoken” to eliminate confusion at the field level about “what management really wants,” Bistrong says.
“Too often, bribery is seen by executives in the field as the ‘way things get done around here.’ I look to strengthen certain aspects of training, which if enhanced, might better provide field-level executives with a deeper understanding of why bribery is never a ‘win-win,’ which is an illusion too often embraced at the front lines of international business,” he says.
The temptation for a corporate executive tasked with growing business to accept or offer an illicit bribe remains great in high-risk areas, especially when they might observe the corrupt behavior of competitors and local officials. “Keeping those in such environments on the ethical ‘right side’ of conduct does not happen without engagement, understanding, and training,” says Bistrong.
In any business that’s committed to top-line growth, especially in emerging markets, there’s going to be tension between the pressure to succeed and the pressure to comply, he notes. “Both business and compliance leaders have an obligation to make sure that forward-based teams don’t think of ethical decision-making as delegated to the front lines, where they are left alone to deconflict what might be competing corporate objectives,” he points out.
He also forewarns: “That tension is inherent, and growing a business is going to challenge values in any journey to meet corporate targets. Ignoring those conflicts doesn’t make them go away, whereas shining a light on them at least makes the difficult discussable.”
When a multinational’s senior leadership determines that it wants to establish a presence or introduce a new product or increase its market share in a high-risk business segment, it must conduct culture-specific risk and vulnerability assessments before jumping in with both feet, urges McEachern. An integral piece of that assessment revolves around third-party mitigation – in other words, taking a careful look at potential consultants, partners, and prospective interactions with government officials. If their track record isn’t clean, it could spell big trouble down the road.
Experts like McEachern and Bistrong argue that companies need to develop specially calibrated “tools” designed to combat the dark side of global business-making. Those tools, McEachern says, should include:
- Creating a risk-based approach to compliance;
- Implementing programs that hinge on detailed testing;
- Hiring qualified compliance professionals with the appropriate resources;
- Instituting a culture of compliance that includes incentives from the top to the bottom; and
- Shifting from good to great compliance – from reactive to proactive leveraging of technology and automation.
- A proactive compliance program allows companies to pivot quickly into opportunities that would normally leave organizations exposed to criminal and civil liability. The best corporations, point out McEachern and Bistrong, know how to mitigate third-party risk efficiently, thus allowing them to enter emerging markets before the competition while gaining valuable market share faster.
Embracing such a proactive approach and culture just might help a multinational’s executives sleep through the night.