“Any competitive advantage gained through corruption is a mirage.”
Why is bribery and corruption such a challenge in the sector : Construction and Infrastructure Industry?
In addition to the bribery and corruption risks prevalent in all industries, companies in the this sector face a number of specific risks due to the following factors:
• Obtaining planning permission and licenses is a lengthy process and can be open to abuse.
• Funding by government, public or private partnerships or by donor agencies in developing economies requires many interactions with government officials.
• The use of subcontractors and consultants or agents is prevalent, increasing the risk of third parties making or soliciting bribes.
• Joint ventures are commonly used.
• Negotiations concerning additions to specifications and cost overruns are critical to determining the profitability of a contract. These negotiations offer opportunities for consultants or clients to attempt to leverage payments or other benefits.
• Many contracts are large, and decision-making power can sometimes be concentrated in the hands of a small number of politically exposed persons (PEPs).
• Organized crime networks exploit labor-intensive sectors such as construction and infrastructure.
“Corruption threatens the integrity of markets, undermines fair competition, distorts resource allocation, destroys public trust and undermines the rule of law.”
G20 Anti-Corruption Action Plan
Recent prosecutions have brought bribery and corruption to the fore
Bribery and corruption remain a major challenge in India. The 2012 Transparency International Corruption Perceptions and Bribe Payers Indices rank India 94 (out of 176) and 19 (out of 28) respectively, indicating the severity of the issue. Hardening public attitudes and the need for businesses to secure foreign direct investment have led to strengthened Anti-Bribery and Corruption (ABAC) efforts.
Government introduced new anti-corruption legislation
Indian policy-makers are taking robust steps to increase the confidence of investors — corporate and public. In Parliamentary sessions, a number of important bills were introduced, including the Prevention of Bribery of Foreign Public Officials Bill, the Anti-Corruption, Grievance Redressal and Whistleblower Protection Bill. In addition to this, ratification of United Nations Convention against Corruption (UNCAC) by the Government in 2011 has helped India demonstrate its commitment to improved governance. In another significant development, the Government may bring the Lokpal Bill, which aims to create stricter regulations and has given more credibility to its fight against bribery and corruption.
The impression of poor enforcement is changing
The perception that corruption is rarely prosecuted is changing as a result of recent investigations and high-profille prosecutions — for example, the arrest of former cabinet-level officials in the 2G telecoms license scandal. It is likely that bribery and corruption will continue to feature as a political hot topic, resulting in increased enforcement as political parties seek to demonstrate their willingness to act.
Some long-standing challenges:
Bribes to government officials remain a serious risk — In some cases, officials have expected bribes from project officials to release project funds, for example, where they hold funds of donor agencies.
Financial manipulation to obtain financing benefits — promoters or builders may manipulate financial statements and valuations to obtain financing on particularly beneficial terms.
Weak records management — poorly developed systems provide an opportunity for the manipulation of ownership documentation, including title to land rights.
Pressure from project officials — application of inappropriate pressure to select a certain agent or contractor might indicate a hidden financial interest.
Limited or unreliable information — in practice, it is often difficult for companies to conduct due diligence on contractors, subcontractors and agents due to poor information. The introduction of unique identifiers for businesses by the Government may improve this situation going forward. But obtaining complete and accurate historical information is likely to remain a challenge.
What should companies be doing?
Dealing with bribery and corruption has always been a challenge for companies in the construction and infrastructure sector. The awarding of contracts and obtaining of planning permission or permits create particular bribery and corruption risks, with many of the enforcement cases in the public domain relating to these areas.
Key activities of a successful ABAC program for companies in the sector include:
• Setting the correct tone at the top. It is extremely important that ABAC is on the agenda of senior executives.
• Completing a comprehensive bribery and corruption risk assessment — considering the type and location of projects undertaken so that the specific risks faced are identified and understood.
• Once the risk assessment is complete, reviewing the overall bribery and corruption compliance program to determine if it is proportionate to the risks identified.
• Reviewing existing communication and training programs to help ensure that the desired corporate culture is achieved on the ground, especially in more remote and higher-risk locations.
• Conducting due diligence on contractors, subcontractors and agents, with continued monitoring performed to make sure they comply with relevant ABAC laws.
• Ensuring that there are clear contracts with consultants and agents that refer to ABAC procedures and give the company audit rights over relevant contract records. Payments to consultants should be reviewed and approved at a senior level of the organization, including the payment of expenses.
• Proactively analyzing operational data on an ongoing basis, using forensic data analytics to detect transactions that indicate a heightened risk of bribery and corruption.
• Monitoring expenses such as corporate entertainment carefully, paying particular attention to the specific recipient, the context and the timing of the entertainment or gift.
• Undertaking vetting of key employees, contractors or partners, especially those unknown to the company, for example, in joint venture situations.
Eight steps to an effective anti-corruption compliance program :
1. Conduct a risk assessment program
What risks are posed by the nature of the company’s operations; the degree of business with governmental entities; its use of agents and other intermediaries; the countries it works in; and the regulatory environment it works under? Identify the policies and controls in place that mitigate the corruption risk and evaluate their strengths and weaknesses.
2. Develop a corporate anti-corruption policy
There needs to be a clear and unambiguous statement of the company’s position that both governmental and commercial bribery on any scale will not be tolerated. The policy will provide operational guidance on such issues as bribing government officials; commercial bribery; misreporting and concealment in accounting records; facilitating payments, charitable and community gift giving; and policies covering travel, entertainment and gifts for government officials.
3. Implement anti-corruption policies and controls
Putting in contracting provisions and warranties that include compliance with legislation and company policy are important controls. It is also key to implement some form of certification to ensure there has been compliance. Make sure special payments and approvals are recorded. Do you undertake vendor anti-corruption audits? How does the company process and deal with employee travel, gifts and entertainment? Develop guidance that ensures charitable giving ends up in the right hands and gifts are bona fide.
4. Implement anti-corruption financial controls
Implement additional financial controls in high-risk countries and for high-risk operations. These may include controls around banks accounts and petty cash, executive travel, meals and entertainment. Transactions with consultants, agents and high-risk intermediaries will also need enhanced controls.
Implement strict account posting requirements for high-risk transactions, including sufficient supporting documentation and adequately delegated authority to promote increased transparency and accountability.
5. Conduct anti-corruption compliance training
Training is imperative for global organizations operating in countries that have a history of corruption. Local employees need to understand that your culture may differ greatly from their own. Training should also be prescriptive and pragmatic — it should explain the requirements of the various Acts, but also give examples of “red flags” or difficult situations that may relate directly to them as employees. Training should be appropriately targeted. It should be based on roles and responsibilities within the company and be periodically updated for new and transitioning employees.
6. Monitor the program
Organizations need to be able to test for compliance by identifying potential violations or “red flags.” This is effectively an anti-corruption audit. In the best case scenario, ABC Analytics can be used as a tool for compliance monitoring. A form of anti-corruption certification should be designed for employees, which should be re-tested periodically. Are there tests for compliance with policies and are there concrete and well-understood consequences of non-compliance?
7. Anti-corruption procedures in mergers and acquisitions
Companies should conduct appropriate due diligence on potential acquisitions to avoid the risk of inheriting liability for legacy actions. Compliance with ABAC tenets should be high on the integration plan and look at all the corruption risks potentially posed by the new organization. M&A checks should not end before the acquisition — they need to be continued after the integration process.
8. Re-assess risk and modify program
Corruption risk assessments should be conducted periodically to ensure that the anti-corruption program is evolving to meet new risks posed by the changing business and external environment.