Corruption: a complex phenomenon

Corruption is a complex phenomenon that affects all countries, cross the social, political and economic areas, manifesting itself through bribery, trafficking of influences, extortion, embezzlement, counterfeiting, collusion, conspiracy, among others. Corruption undermines democratic institutions, slows economic development and contributes to governmental instability. (UNODC).

Several studies conducted in recent years have shown that, in business, the risks of corruption, as well as how to control them, determine the efficiency with which companies and markets fulfill their productive and contributory role and the motor force of economic development.

Among the factors that may be decisive for the depreciation of the investment, and the development of the business sector, the exposure of an organization to crime is one of the most significant, because crimes such as corruption, fraud and bribery, can cause high costs and damages.

When uncontrolled, corruption becomes a destructive force that undermines fair competition, hinders economic growth and political development, and ultimately undercuts the very existence of companies.

According to Control Risks y Simmons & Simmons guide, “Facing up to Corruption in 2007”, about half of the managers of international companies estimates that corruption increases project costs by at least 10% , and in some cases, in more than 25 %.

This perception of the financial and operational impacts of corruption, which joins a rising awareness of the legal and reputational impacts coming after corruption scandals, has given rise in the past two decades to a growing concern for the pursuit of strategies to mitigate risks and, in addition, to contribute to sustainable efforts in the business sector.

The entry into force of the OECD Convention against Bribery of Foreign Public Officials (1997) and the United Nations Convention against Corruption (2003) has given new impetus to the action of companies in combating corruption.

In the legal field, the adoption and entry into force of the Bribery Act in July 2011, in the UK, by bringing up a new criminal offense with transnational vocation, confirmed the growing need of companies to acquire and promote responsible practices in this area.

The introduction of the principle ten in the field of action of the United Nations Global Compact (2004), by stating that business companies should work against corruption in all its forms, including extortion and bribery, reinforces the important role that the business sector can take in promoting transparency and fighting corruption.

Corporate integrity

The corporate integrity is increasingly understood, as a factor of greater leadership and ethics and as a form of regulation that determines what is an illegal conduct and its punishment. However, while essential, per se, each of these elements is not sufficient to address, in a comprehensive and sustainable manner, the complex range of risks related to corruption.

Currently, the companies have a clearer responsibility, deeper self-interest and greater potential in order to play a crucial role in combating corruption. However, for this to happen, the business sector needs to involve all stakeholders – from collaborators to entrepreneurs, auditors, investors, regulators and civil society – in this common goal of promoting greater corporate transparency and integrity, as well as to address the problem of corruption in a wider and more comprehensive way, recognizing that corruption risks are beyond bribery. It is necessary to take a closer look at issues such as corruption and nepotism: many executives of OECD countries use their personal relationships and family ties to acquire contracts in countries where they do business and outside the Organization.

Corruption within the companies themselves is also an acute threat to a sustainable performance and real accountability, as it manifests itself in the form of abuse of power for personal gain or profit and/or of a third-party at the expense of entrepreneurs and collaborators, investors, and society in general, compromising a normal distribution of gains among all stakeholders.

The conflicts of interest coming after the poor coordination between the private and public systems, companies and governments may hinder deep democratic decisions and pose a threat to responsible and inclusive governance.

If in the business sphere, corruption may have high costs, cause insecurities and endanger the reputation (through a reduction of the company’s ratings and the cancellation of the legitimacy and reliability of which depends on the company), in the context of an increased and wider market, corruption jeopardizes the business opportunities and the development of free competition.

Despite some sections being subject, in a more systematic and clear way, to the risks of corruption, because of gaps in transparency, accountability or oversight – no business or economic sector are fully protected against this scourge, and its overall impact is rather notorious worldwide.

At each stage of the value chain, to negotiate contracts with suppliers, collaborators or customers, the collaborators of companies face opportunities to “commercial bribery”, i.e., opportunities to participate in corrupt payments.

According to Transparency International’s Global Report 2009, companies continue to play a prominent role in the payment of bribes to government officials, members of the government and political parties, being bribes required or offered. Therefore, regardless of the level of coercion involved, bribery, beyond harming the business sector and, consequently the economic development, promotes a culture of impunity, spreading corruption, undermining the functioning of public institutions and contributing to public perception that governments and authorities can be bought by the highest bidder.