Compliance executives from around the world increasingly are banding together as part of a concerted effort to tackle corruption risks in emerging markets.
The thrust of such global movement is to share best practices to collectively reduce corruption within every industry, and also to provide a united front to dishonest government officials who are looking for kickbacks or grease payments. “The spirit of collective action is that we, together, are stronger and more intelligent than on an individual basis,” says Claudia Maskin, regional compliance officer for Siemens, Argentina.
Siemens is one of five energy companies—along with ABB, Alstom Grid, Arteche, and Lago Electromecánica—to sign an agreement to commit publicly to conducting all business operations in a fair, honest, and transparent manner, and to enhance integrity and transparency in their global day-to-day business operations. A centerpiece of the agreement is a pledge not to pay or accept bribes.
Sponsored by the Center for Governance and Transparency, a division of the Institute of Economic Affair's School of Business in Buenos Aires, the formal collective action agreement is believed to be the first of its kind in Latin America.
Argentina is a high-risk country with a history of corruption problems, Maskin says, so companies cannot afford to turn a blind eye and merely depend on the government for greater transparency. “We have to face our problems, and we have to find out together the best way of solving such problems,” she says.
The companies meet regularly to confirm their commitment not to pay bribes. “If one or more group members don't cooperate, the benefits from the collective action are lost,” explains Gustavo Regner, director in charge of forensic and litigation services for BDO, Argentina.
As part of the pact, the companies also agreed to maintain effective internal processes to prevent bribery, and ensure that their employees, business partners, and third parties embrace these principles. To that end, each company has an individual responsibility to train and advise their employees on the best way to approach vendors and suppliers and train managers on how to solve corruption risks, says Maskin.
Because the purpose of the agreement is not to manage a business or an industry in a certain way, nor to establish a basis for pricing, anti-trust concerns are not a problem, says Regner. “Actually, when the collective action agreement is properly implemented, anti-trust is one of the risks that are properly addressed and treated,” he says.
As a facilitator for the collective action agreement, the IAE School of Business monitors the group's execution and promotes the future inclusion of other industry players. To ensure that anti-trust concerns are addressed, an inter-company ethics committee was created to exchange insights and experiences on anti-corruption issues.
The ethics committee additionally has the power to sanction any party that infringes the collective action agreement. The general purpose of the ethics committee is that “any member can bring a claim against other members, and sanctions apply if a violation is confirmed,” says Guillermo Jorge, a law professor at San Andres University in Buenos Aires, and a consultant in anti-corruption issues.
Until the establishment of the group, companies have tackled corruption risks, more or less, on an individual basis. That is when the IEA formed an initiative to learn more about the compliance programs of companies that operate in the country, explains Maskin.
“The spirit of collective action is that we, together, are stronger and more intelligent than on an individual basis.”
—Claudia Maskin,
Regional Compliance Officer,
Siemens, Argentina
As part of a broader initiative to help more companies fight corruption and kick off such a movement, the IEA School of Business sent out a mailing to more than 300 companies in Argentina, inviting them to participate in the first meeting at the campus, explains Maskin. She estimates that between 40 and 50 compliance executives from a cross-section of industries attend the meetings each month, although not always the same companies. “We have had very good experiences sharing our knowledge, our practices, and our problems,” she says.
The group isn't the first to attempt to present a united front to government officials on the take. Another consortium of compliance executives in the energy industry established a similar group last September. With a specific focus on facilitation payments, the strategy of the so-named Committee to Address Facilitating Payments is to convince governments to crack down on requests for facilitation payments by their officials, thus reducing the demand.
In additional to its worldwide effort to discourage the demand for facilitation payments, CAFP also has created country-specific committees—so far in India and Indonesia—where local leaders are charged with both identifying country-specific risks as they apply to potential demands for facilitation payments and creating action plans for addressing those risks. The group is looking to establish committees in other countries or regions, including Gabon and North Africa.
Since the launch of the group, several companies have joined the CAFP's global steering committee, including Transocean, Baker Hughes, ExxonMobil, Fluor, Halliburton, KBR, McDermott, Tidewater, Weatherford, and others that wish to remain anonymous.
COLLECTIVE INTEGRITY
In their collective action agreement to promote transparency, ABB SA, Alstom Grid Argentina SA, Arteche SA, Lago Electromecánica SA, and Siemens SA have agreed to make their integrity standards explicit on the ten issues listed below:
1. Conducting their business operations in a fair, honest, transparent manner, strictly abiding by all current Argentine laws, as well as the principles laid out by the UN Convention Against Corruption and the Inter-American Convention Against Corruption;
2. Refraining from paying any kind of bribe (direct or indirect bribery);
3. Refusing to accept bribes or to let others accept bribes on their behalf;
4. Avoiding bid tampering or engaging in any form of bid or technical, commercial and/or financial specification tampering;
5. Refraining from making local contributions to political campaigns;
6. Maintaining clear, transparent sponsoring, giving and charitable contribution policies, recording all donations accurately in their financial statements;
7. Maintaining or establishing effective internal processes to prevent direct or indirect bribery;
8. Ensuring that their employees, business partners and third parties embrace these principles, providing adequate training to that end;
9. Trying to avoid doing business with others who do not abide by these principles or who may jeopardize these companies' reputation;
10. Actively promoting transparency in their industry by engaging in coordinated communication and training efforts to disseminate this collective action agreement, so that others become aware of its provisions and align their behavior to them.
Source: IAE Business School Center for Governance and Transparency.
On a global level, similar working-group initiatives are also being sponsored by the UN Global Compact, the World Bank and Transparency International, and the UN Global Compact.
Bribery Trends
The collective action agreement in Latin America could not have come at a better time. According to a new survey by law firms Miller & Chevalier and Matteson Ellis Law, corruption in Latin America continues to have a negative economic effect on the region.
According to the report, which surveyed 439 corporate executives at a broad cross-section of U.S.- and Latin America-based companies spanning 14 countries, half of the respondents said their company lost business due to competitors making illicit payments in the region.
Further, 44 percent of those executives said corruption is a significant obstacle to doing business, and just 28 percent of respondents believe anti-corruption laws are effective in the country where they work.
The good news is that more companies increasingly are making compliance a high priority in their organizations. Among companies publicly listed in the United States and operating in Latin America, 92 percent have developed an anti-corruption policy; 90 percent have implemented anti-corruption training; and 90 percent have established procedures for gifts, travel, and entertainment for government officials.
The survey additionally found that 64 percent of respondents have full-time compliance personnel, and 85 percent of respondents say their company's management has taken steps to protect the organization from corruption risk, up from 77 percent in 2008.
Many respondents to the survey agreed that effective government investigation and prosecution, coupled with enhanced accountability and transparency in the public sector, are seen as keys to reducing overall corruption.
It's too soon to tell if the Buenos Aires-based agreement will have a measureable effect on these trends, but the hope is that overtime, the group can change the status quo. “A corruption risk analysis of the specific market, and a frank discussion about unethical practices, is needed in order to assess the feasibility of the initiative,” says Jorge.
“Compliance is becoming more and more a global standard,” says Maskin. The sooner that companies acknowledge the importance of following their own internal policies and procedures, as well as external regulations, “the more competitive the country will be, the more competitive our companies will be locally and also in the global world,” she says.
Anti-corruption initiatives are “not something to fear, but to take advantage of, and to think about all the related benefits that can come with these actions,” says Regner. Companies work together on social responsibility initiatives, he says, so “why wouldn't they work jointly in reducing corruption in their own industries?”
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