In December 2008 the U.S. federal government instituted its Contractor Code of Business Ethics and Conduct program. Since then, any firm awarded a contract of $5 million or more requiring at least 120 days to perform must establish within 90 days of the award an anticorruption compliance program that i) contains a written code of business ethics and conduct, ii) trains employees on ethics and compliance periodically, and iii) has an internal control system able to discover improper conduct. The rules also require that the program be overseen by someone of “sufficiently high level [with] adequate resources to ensure [its] effectiveness.” When a review found government agencies were not systematically checking their contractors for compliance, the regulations were amended to require the government employee responsible for contract execution to verify that the contractor had an anticorruption compliance program in place.
No developing state now imposes any similar requirement on those with which it contracts — at least according to interviews with development agency procurement staff and internet searches. But there is no good reason why developing countries should not mandate such a program and good reasons why they should.
Two objections to requiring firms to have an anticorruption compliance program are commonly heard. The first, raised by some procurement staff at the World Bank, is that while many firms headquartered in OECD countries have them, many headquartered in non-OECD countries do not, and thus were developing countries to mandate them, it would privilege OECD businesses at the expense of non-OECD businesses. This is no objection at all. The purpose is to “level up” businesses doing business in poor countries — countries where corruption is often quite harmful — to the OECD best practice anticorruption standard.
The second objection, often linked with the first, is that a compliance program can be a sham, something for show with no real teeth. This is certainly a possibility, and a July New York Times article reports that a major hedge fund accused of numerous securities law violations had what on paper appeared to be a robust compliance program. That some may not obey a law is not a reason not to have a law. Were this a controlling precept, murder would still be legal in all countries.
The first reason developing states should require firms doing business with them to have an anticorruption compliance program is that it will help ensure that companies that genuinely want to conduct their business with integrity are observing practices that will ensure they do. Fines, debarment, and possibly even jail terms for failing to adopt practices most likely to prevent corruption can focus the mind of a firm’s senior executives in ways that generalized appeals to corporate citizenship or responsibility may not. Moreover, where executives within a firm are divided on the value of integrity, mandating a program may strengthen the hand of those favoring integrity.
The second reason why developing states should demand firms have a compliance program is to provide one more trap for the corrupt unwary. Some firms may be clever enough to operate a compliance program that can pass audit muster while engaging in corruption, but more likely, most will not. Suspicions of firm wrongdoing will trigger a review of the compliance program, and a sham or paper one can be easy to spot, far easier than proving outright bribery.
The move to require firms to institute anticorruption compliance programs is gaining ground. Along with the U.S, the 2010 U.K. antibribery law now in effect mandates British firms or those subject to British jurisdiction to have one and German and Brazilian authorities also provide good reasons for firms to have one. The UNODC, World Bank, and OECD have published a best practices guide to corporate compliance programs, and as Matthew explained in an earlier post, the corporate compliance movement is now so widespread that an effort to certify their quality is now underway. The time for those states most at risk of harm from corruption to demand firms police themselves is here.