EU countries pose corruption risks for business

The first EU Anti-Corruption Report, reveals that the playing field for businesses in Europe is far from level.

• Sixty-nine per cent of the businesses surveyed by the EU (nearly 8,000) felt that paying bribes and exploiting political connections were the easiest ways to obtain certain services.
• Three quarters of companies surveyed considered corruption to be widespread in their country
• Four out of ten companies considered corruption to be a problem when doing business
• More than three out of ten companies that have participated in a public tender say that corruption prevented them from winning

Not only is this bad news for the European economy which is losing an estimated €120bn a year in tax revenues and foreign investment; it presents obstacles for businesses.

These findings confirm that European companies need to consider anti-corruption risk assessments much closer to home, not just in emerging and developing markets, more usually associated with ethical challenges.

This is particularly the case for companies involved in public procurement where 50 per cent of businesses perceive corruption to be widespread. The most likely corrupt practices are bid rigging, kickbacks, conflicts of interest and deliberate mismanagement. With construction, energy, transport, defence and healthcare identified as the most vulnerable sectors.

In these sectors, companies are still relying on local agents and intermediaries to negotiate contracts and manage projects. This presents a clear risk to UK-listed companies who can be prosecuted for failing to prevent bribery by third parties acting on their behalf.  Even those companies using their own staff in countries where corruption is prevalent need to ensure they are properly trained, aware of the risks and do not become immune to corrupt behaviour.

Anti-corruption due diligence is a vital component of an adequate anti-bribery procedures, however serious anti-corruption checking is in reality a new activity for many organisations. Consequently the best methods for undertaking due diligence (who to check, how much to check, how to check) are all still emerging.

Where we have seen large international businesses put tough anti-corruption due diligence and requirements on their suppliers, this has had a striking result in changing suppliers’ behaviour and attitudes. In particular we have seen cases where large businesses have blacklisted or sanctioned suppliers when allegations of corruption have arisen. These cases have led to dramatic changes in policies, processes and even personnel in the supplying organisations – all without the intervention of regulators, governments or police forces.

Our view is that these types of changes are genuinely positive for all businesses in the supply-chain, helping to drive up standards and marginalise those businesses not prepared to behave correctly. More businesses need to take this approach and more EU governments need to actively support them, paying particular attention to their own anti-corruption legislation and active prosecution.

Member States need greater consistency in their anti-corruption efforts and strong leadership to make this happen. The problems are widely recognised, but few seem willing to take firm measures to achieve a solution. Those EU countries with effective law enforcement should work proactively with those that struggle. Transparency, particularly in the areas of public procurement, clearly needs to be reinforced.

Anti-corruption legislation is being tightened around the world and leading UK and European companies are already paying the price for failing to take note. As the EU fights to compete in a global market place, it needs trustworthy institutions that attract investment and create a free and fair marketplace in which business can profit without the need to break the law.

Posted February 2014