Guest Post: The Draft ISO 37001 Anti-Bribery Standard’s Promise and Limitations

William Marquardt and David Holley, respectively Director and Managing Director at the Berkeley Research Group, LLC (a private management consulting firm) contribute the following guest post, which is written in their personal capacity and does not necessarily reflect the opinions, position, or policy of the Berkeley Research Group or its other employees and affiliates:

This past April, the International Organization for Standardization (ISO) released its draft standard on anti-bribery management systems (ISO 37001). The standard is tentatively scheduled to be finalized later this year. In substantive content, the draft ISO standard is similar to the FCPA Resource Guide provided by the U.S. Department of Justice and Securities and Exchange Commission, in that it provides a list of elements that an effective anti-bribery/corruption (“ABC”) program should contain. In terms of the specific elements listed, the proposed ISO standard provides a number of sound recommendations – such as a comprehensive, risk-based approach, as well as management commitment to promoting an ethical corporate culture—but with a few exceptions, the draft ISO 37001 standard is not much different from the guidance available from the DOJ/SEC and other sources in multiple jurisdictions.

That’s not to say that there is nothing whatsoever distinctive about ISO 37001. It does differ from the existing guidance in some ways, some good (such as the comprehensive focus on documentation, document retention, and document availability) and some not so good (such as the unrealistic recommendations regarding extension of management’s internal control systems to third-party vendors). The draft ISO standard also puzzlingly omits consideration of certain key issues –such as the labor law and data privacy issues that arise in connection with bribery investigations, questions regarding how to address anti-bribery concerns in connection with M&A or joint venture due diligence, and (most generally) the integration of ABC management systems into the firm’s wider financial, operational, and regulatory functions. But, again, in most respects the ISO 37001 draft standard closely resembles existing ABC guidance.

What makes the ISO 37001 standard distinctive, and the reason its finalization would be potentially such big news, is that ISO 37001 (like other ISO standards dealing with more technical matters) is intended to be subject to independent “certification” by third-party auditors. In other words, if and when the ISO 37001 standard is finalized, companies will be able to hire auditing firms to review their ABC programs and (if the auditor determines the firm meets the ISO 37001 criteria) to provide a formal certification that the company is ISO 37001-compliant. The question whether formal ISO 37001 certification of this sort will be a good thing (for firms, or for the world) has been hotly debated (for previous discussions on this blog, see here and here). Continue reading

Watch Your Language: Not “Everyone” Is Corrupt–Anywhere.

I’ve noticed something about the way many people (including me) sometimes describe the severity of the corruption problem in many parts of the world: When calling attention to the problem of widespread, systemic corruption, it’s not uncommon to hear people say—usually in casual conversation, occasionally in more formal presentations—that in this or that country, or this or that government or department, “everyone” is corrupt, or “everybody” takes bribes, or similar. I’m sure I’ve used this or similar language myself, without even thinking about it. And I understand that when most people say things like “everyone in [X] is corrupt,” they don’t mean that literally. Yet I find myself increasingly bothered by statements like this, for several reasons: Continue reading

Artful Transactions: Corruption in the Market for Fine Arts and Antiques

The fascination surrounding art theft and forgery has long been the subject of much exploration. Only more recently, however, has the art market come under increased scrutiny regarding its connection to money laundering and corruption. It’s not just that stolen artworks often end up in the hands of criminals: even the market for non-stolen art is especially vulnerable to money laundering and corruption. With more banks cracking down on illicit activities, art has become an “efficient instrument for hiding cash.” As an article in the New York Times observed, no business seems “more custom-made for money laundering, with million-dollar sales conducted in secrecy and with virtually no oversight.”

Considering the attention paid by anticorruption and anti-money laundering activists to the role of the real estate market and the market for other luxury goods to facilitate money laundering and bribery, it is perhaps a bit surprising that there hasn’t been more attention to the art market—which is perhaps even more deserving of scrutiny. Continue reading

Anticorruption Bibliography–August 2016 Update

An updated version of my anticorruption bibliography is available from my faculty webpage. A direct link to the pdf of the full bibliography is here, and a list of the new sources added in this update is here. As always, I welcome suggestions for other sources that are not yet included, including any papers GAB readers have written.

When Lunch is a Bribe: American and Korean Law Compared

It is the rare businessperson or lobbyist who takes a politician or bureaucrat they barely know to lunch just for the pleasure of their company.  Lunch-buyers may enjoy the food (particularly if the money comes out a corporate pocket) and not all politicians and bureaucrats are self-centered bores.  But face it: the main reason bureaucrats and politicians world-wide are wined and dined by people they hardly know is because they are in positions of power and the meal-buyers want to influence them — perhaps to persuade them to purchase the lunch-buyer’s product for their ministries, maybe to change their minds about pending legislation.  Yet as obvious as the reason for picking up a lunch the tab is, in the Republic of Korea, and many American jurisdictions as well, on its face the law provides that if lunch-buyers admit why they paid for lunch, they and their luncheon companion go to jail.

That despite these laws Seoul’s upscale restaurants and their counterparts in many American state capitols continue to do a brisk lunchtime business suggests many lunch-buying businesspersons and lobbyists and their government guests regularly deny the obvious.  It would be one thing if lawmakers had intended to turn this group into liars and hypocrites, but they did not.  It is instead an unintended consequence of laws actually meant to permit public servants to take lunch with those having business with them. Continue reading

Guest Post: The U4 Proxy Challenge and the Search for New Corruption Indicators

Osmund Grøholt, a research assistant at the Chr. Michelsen Institute and the U4 Anti-Corruption Resource Centre, contributes the following guest post:

One of the major challenges that the development community faces in promoting effective anticorruption reform efforts is the difficulty of measuring progress. This challenge has become all the more pressing in light of the explicit inclusion of anticorruption targets as part of the Sustainable Development Goals. Unfortunately, many of the most widely-used national-level corruption perception indexes, such as the Transparency International Corruption Perceptions Index and the Worldwide Governance Indicators control-of-corruption index, are not suitable proxies for measuring anticorruption reform effectiveness.

To help address this challenge, the U4 Anti-Corruption Resource Centre is announcing its second “Proxy Challenge Competition.” The Proxy Challenge Competition invites researchers and practitioners to submit proposals for indicators that can help show the direction of change and the progress of reform efforts, rather than measuring the quantity or volume of corruption per se. Ideally, the proxy indicators should be reliable, intuitive, accessible, and cost-effective.

The proposed proxies will be evaluated by a panel of experienced anticorruption practitioners and academics, and the individuals who submit the two best submissions will be invited to present their proposed proxies at a special session at the International Anti-Corruption Conference in Panama (Dec. 1st-4th, 2016), with travel, hotel, and conference registration expenses covered. In addition, the UK’s Department for International Development (DFID) will work with the proposal authors to test the relevance and the validity of the proposed indicators, including financial support for a policy paper on the proposed proxy indicators and, if appropriate, developing a plan for testing the proxy indicator for actual reporting in selected countries.

Proposals of no more than 700 words should be submitted to proxychallenge@u4.no by September 1st, 2016. The submissions should:

  • Clearly define the proposed proxy indicator, and explain why and how this indicator reflects changes in corrupt behavior;
  • Explain how the indicator can be combined with other indicators to obtain a better measurement of overall anticorruption progress, including how the proxy indicator would be useful for different agents (e.g., aid agencies, governments, civil society) for purposes of monitoring and reporting;
  • Comment on the strengths and weaknesses of the proxy indicator, including how they differ with shifting national contexts.
  • Present ideas for how to test the validity of the proxy indicator.

More information on the Proxy Challenge Competition, including a complete list of requirements, can be found here. Additional background reading, including material from the first Proxy Challenge Competition (held in 2013-2014) can be found here and here.

We look forward to your submissions!

Culture Matters: How Indonesia Should Account Culture to Eradicate Corruption

Corruption in Indonesia is endemic, permeating all levels of society. As I argued in my last post, Indonesia’s culture of corruption is a result of the corruption of culture: Far too many people see corruption as unsolvable and even “normal,” even though they clearly realize its wrongfulness.

To date, Indonesia’s independent anticorruption agency, the KPK, has pursued a main strategy of prosecuting the “big fish”—the high-ranking officials (including numerous parliament members and powerful politicians) whose corrupt behavior has caused massive damage to the country. Laudable though the KPK’s bold enforcement efforts have been, eradicating corruption requires more than prosecutions. Rather, the KPK needs to complement its aggressive law enforcement with preventive measures designed to change Indonesia’s “culture of corruption” to a “culture of anticorruption.” There are several strategies the KPK could pursue to foster such cultural change:

Continue reading