Tag Archives: compliance program

Fighting Natural Resource Corruption: The Solomon Islands’ Challenge

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On September 8 & 9 the Government of Solomon Islands, the UN Office on Drugs and Crime, and the UN Development Program will host a workshop in Honiara to discuss the national anticorruption strategy the government is preparing.  One issue almost certain to arise is how the government can intensify the fight against corruption in the logging and mining sectors. Both sectors are critical to the nation’s economic well-being.  Commercial logging is currently the largest source of export revenues, but earnings are expected to decline sharply over the coming decade as forest reserves are depleted (due in no small part to corruption).  The hope is that increases in the mining of the country’s ample reserves of bauxite and nickel will replace losses from forestry.

Corruption in both sectors has been documented by scholars (here, here, and here for examples), the World Bank (here), and the Solomon Islands chapter of Transparency International.  The government has not only acknowledged the problem but has committed to addressing it.  Its recently released National Development Strategy 2016 – 2035 makes controlling corruption in logging and mining a priority.  As the strategy explains, corruption in the two sectors robs government of needed revenues and deprives local communities of the benefits from the development of resources on or under their lands.

Identifying a problem is one thing.  Coming up with solutions is another, particularly in the case of resource corruption in the Solomons where the combination of geography, poverty, and huge payoffs from corrupt deals make curbing it especially challenging.  The remainder of this post describes the hurdles Solomon Islanders and their government face and suggests ways they might overcome them.       Continue reading →

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

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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 →

Guest Post: A Behavioral Science Approach to Preventing Corruption

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Johann Graf Lambsdorff, Professor of Economic Theory at Passau University, contributes the following guest post:

Some of our current approaches to corruption prevention perform badly. One reason is that many preventive methods are built on distrust towards officials and employees, who are seen as potentially corrupt actors. Yet research in behavioral science has provided us with impressive evidence that (many) people are (mostly) trustworthy, intrinsically motivated, and responsive to encouragement, praise, expressions of gratitude, and criticism. The problem with assuming that everyone is prone to engage in corruption if not carefully monitored is not only that prevention strategies premised on that assumption are very costly, but also that such approaches can be counterproductive: The atmosphere of distrust that they create can reduce interpersonal trust, intrinsic motivation, and the self-esteem that people get from contributing to public goods and working responsibly.

Economists have labelled these adverse collateral consequences “the hidden costs of control.” In a recent paper entitled “Preventing Corruption by Promoting Trust – Insights from Behavioral Science”, I explain how taking this phenomenon, as well related insights from behavioral sciences about creating positive incentives for good behavior, can help us design more effective policies. The paper illustrates this with the help of six examples: Continue reading →

Guest Post: The Characteristics of Corrupt Corporate Cultures

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Alison Taylor, the Director of Advisory Services for BSR (a global non-profit organization focused on sustainability) contributes the following guest post:

Despite all the investment in corporate anti-bribery compliance programs, supported by a lucrative consulting industry dominated by investigation companies and accounting and law firms, violations of anti-bribery laws, and firms’ own compliance policies, remains widespread. Why? The usual explanations focus on the external environment (“That’s just the way they do business over there”) or on “rogue employees,” but tend to neglect issues of “organizational culture”—how groups and teams behave when they might have a corruption problem. Yet organizational culture, structures, and incentives have been powerful factors in causing professionals to indulge in systemic corrupt practices.

But what, exactly, are the cultural drivers of corruption? What do a “culture of compliance” and its converse, a “culture of corruption,” actually look like? To find out I conducted in-depth, qualitative interviews with 23 experts on anti-corruption and corporate ethics. My questions were simple: What is the culture like in a corrupt organization? Can we generalize about leadership, decision-making, incentives, values, and behavior in corrupt organizations? Can we use these findings to understand the characteristics of an ethical culture?

The answers were revealing, and strikingly consistent in identifying the characteristics of organizational cultures prone to corruption. These traits, which I will summarize below, don’t guarantee that an organization will be corrupt — but the more of these characteristics are present, the more vulnerable an organization is. Continue reading →

The OECD Report on Corruption in Sectors: Will it Hurt the Brand?

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Consequences of Corruption at the Sector Level and Implications for Economic Growth and Development is the OECD’s latest report on corruption. Released March 25, it was written at the request of G-20 governments and follows an earlier one the organization did for the G-20’s September 2013 meeting.  Whereas that report examined the impact of corruption on rates of economic growth and levels of development, this one adopts a micro perspective, analyzing the effect of corruption and suggesting ways to fight it for four sectors of national economies: i) extractive industries, ii) utilities and infrastructure, iii) health, and iv) education. Among its more striking conclusions:

  • ”independent, competent and better regulatory and law enforcement systems” are critical for combating corruption;
  • “transparency should be an integral component of all anti-corruption strategies;” and
  • “anti-corruption measures must . . . be targeted and tailored.”

Additional examples of focused, cutting edge policy recommendations can be found by clicking “Continue reading.” Continue reading →

Should Governments Subsidize Corporate Compliance?

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Several months ago I did a couple of posts (here and here) on the Transparency International USA report from a couple months back on verification of corporate anti-corruption compliance programs. That report also got me thinking about a more general question: Should governments provide a subsidy (perhaps in the form of a tax credit) for businesses — particularly small and medium-sized enterprises — to support spending on the design, evaluation, and testing of their anti-bribery compliance programs?

I haven’t yet come across anything that advocates for something like this, so let me make a tentative case for why it might be a good idea:

Continue reading →

Fighting Corruption:  Lessons from Eastern Europe and Central Asia

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Over the last few years a number of studies have appeared analyzing the lessons learned from the first decade of anticorruption policies.  The most recent is  Why Corruption Matters: Understanding Causes, Effects and How to Address Them reviewed March 18 on this blog.  Others are: the U4 Anticorruption Resource Center’s Mapping Evidence Gaps in Anticorruption; Kennedy School Professor Rema Hanna and colleagues’ The Effectiveness of Anticorruption Policy: What has Worked, What Hasn’t, and What We Know; The Norwegian Aid Agency’s Joint Evaluation of Support to Anticorruption Efforts, 2002 – 2009; Contextual Choices in Fighting Corruption: Lessons Learned by Hertie School Professor Alina Mungiu-Pipidi and associates; the report by GRECO, or the Group of States against Corruption, Lessons Learnt from the Three Evaluation Rounds (2000 – 2010): Thematic Articles; and the analysis by the World Bank’s Independent Evaluation Group, A Review of World Bank Support for Accountability Institutions in the Context of Governance and Anticorruption. While each merits study, I thought it useful to highlight some of the important findings of each in a series of posts over the coming weeks.

Today’s entry summarizes a valuable contribution to this “lessons learned” literature by the Anticorruption Network for Eastern Europe and Central Asia, a regional outreach program of the OECD’s Working Group on Bribery whose members include the nations of Eastern Europe and Central Asia and OECD member states.  As part of the network’s activities eight countries – Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Tajikistan, Ukraine, and Uzbekistan – volunteered to have their anticorruption policies judged by their peers against the standards in the United Nations Convention Against Corruption, other international conventions, and international best practice.  Anticorruption Reforms in Eastern Europe and Central Asia: Progress and Challenges, 2009 -2013 sums up the lessons from the latest round of review of these eight countries efforts to combat corruption. Continue reading →

Why Do People Care So Much About the Proposed FCPA Compliance Defense?

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A while back I posted a commentary on the proposal to add a so-called “compliance defense” to liability under the Foreign Corrupt Practices Act (FCPA). My basic take was that despite all the attention and controversy surrounding this proposal, in fact it would not make very much difference in practice. Without rehashing all the arguments in detail, my reasoning was basically as follows: First, corporate defendants (the only ones who would benefit from a compliance defense) are so reluctant even to be indicted—independent of the likely outcome if a case were actually to go to trial—that the addition of a formal compliance defense to liability would not significantly alter the bargaining game between the government and the corporate defendant. Second, the government already takes compliance efforts into account at several other stages in the process (and believes it is doing so appropriately), so the addition of the formal defense wouldn’t have much of an effect on the government’s position in settlement negotiations (which, as Jordan emphasized in a post from a few months ago, is really where all the action is).

I recently had an opportunity to discuss my hypothesis that the compliance defense wouldn’t actually matter much at a Duke Law School conference, where a bunch of white collar crime and FCPA experts who know much more about this subject than I do—including Duke Law Professor Sam Buell and Richmond Law Professor (and occasional GAB contributor) Andrew Spalding—pushed back against my argument. Among their many cogent criticisms, I wanted to address one in particular: If an FCPA compliance defense would make as little practical difference as I suggest, then why do the interested parties seem to care so much about it? Why (Professor Buell asks) have the Chamber of Commerce and the defense bar made this such a high priority on their FCPA reform agenda? And why (Professor Spalding asks) is the DOJ so dead set against it?

These are fair questions. I don’t have good answers, but in the interest of moving the conversation forward, let me suggest a few possibilities—and maybe folks out there in the blogosphere can react or offer their own explanations. Continue reading →

Why Firms Contracting With Developing Nations Should be Required to Disclose Evidence of Corruption

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An earlier post urged developing states to require firms doing business with them to have procedures in place to prevent their employees and agents from bribing government officers, making false claims, or committing other corrupt or fraudulent acts during the execution of a government contract.  Mandating that government contractors institute anticorruption compliance programs is an American innovation that works reasonably well there and is spreading to other nations.  Here I advocate a second American effort to curb corruption in government contracting that has not worked well in the United States but can in developing states.

Continue reading →

Developing States Should Demand that Firms Doing Business with Them Have an Anticorruption Compliance Program

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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. Continue reading →