The corruption risk for governance and business

The corruption risk for governance and business

I am often asked to count the cost of corruption. The answer is that while one cannot put an exact number on activities that take place off-books to avoid detection, some estimates of the scale of illegal activity show that corruption is thriving in today’s global economy.

If we take bribery, along with other corrupt activities such as tax evasion, counterfeiting and smuggling, we can say that illicit financial flows cost developing countries $1.3 trillion per year. This is equivalent to the economies of Switzerland, South Africa and Belgium combined. This thriving black economy undermines national economies and institutions, and makes life harder for honest businesses.

India is not spared the high cost of corruption: Global Financial Integrity says that it lost more than $100 billion to illicit flows between 2000 and 2008. Indians hold more money in Swiss banks than people from any other country. When people see this money not going to public services, to building roads and bridges, you begin to understand the public anger about corruption that we have seen boil over in 2011.

As more and more multinational corporations (MNCs) come to India and as more and more domestic firms grow and expand abroad, the more India needs to worry about the level of global governance to which these companies must live up to.

Authorities in the US initiated a record 82 foreign bribery cases in 2010, handing out more than $1 billion in fines. Behind every one of these cases lies a story of institutions undermined and honest competitor companies cheated.

The scale of this bribery, often involving vital public contracts such as telecom services, power plants or access to natural resources, can be seen from the fact that several companies have now paid nine-figure fines for foreign bribery. More governments need to put resources behind enforcing anti-bribery rules, which is creating a strong incentive to business integrity. Published on 2 November, our latest study on foreign bribery confirms that the problem is widespread. The study asks senior businessmen from 30 countries whether they think companies from exporting countries are likely to pay bribes. They told us that companies from all countries pay bribes, those from emerging giants Russia and China most of all.

They also told us that bribes are almost as likely to be paid to companies as to public officials. This means that companies that mainly do business with other companies as part of complex supply chains—and compete with other suppliers for business—are also at risk.

Many companies have learnt the lesson that clean business is good business. They have created internal anti-bribery programmes that train their staff to resist extortion and avoid the slow procedures, unpredictable costs, legal sanctions and reputation damage that can spell disaster for a company trying to establish itself in a new country.

In future, corruption will also challenge Indian companies venturing abroad.

As the battle for new markets and natural resources needed to support fast economic growth intensifies, more and more Indian companies will face the challenge of operating in a country where public sector corruption is a problem, where they compete with companies that may use foul means as well as fair to get ahead.

The corruption challenges that businesses can face in foreign countries can start right at the border, such as requests for bribes from officials to move their goods through customs. It is up to governments to ensure that corruption does not hinder the effective delivery of services to businesses, but it is in the interests of the private sector that they succeed in eliminating petty bribery.

In a global economy, governments must make sure that the legal incentives to good business behaviour do not stop at national borders. That is why the Group of Twenty (G-20) leading economies adopted an ambitious anti-corruption plan in November 2010 as part of an effort to reform the global economy after the financial crisis. The plan includes many of the measures needed to combat the corruption challenges that come with globalization: foreign bribery, money laundering, the illicit flight of capital and its recovery.

The work of G-20 goes well beyond the countries involved. It is to be hoped that encouraging the leading economies to take strong anti-corruption and pro-transparency measures will affect other countries. G-20 is, therefore, one of our best hopes for creating a positive contagion effect to counteract the negative contagion created by the financial crisis.

If India and other G-20 countries embrace transparency as a way of doing business, then we will have a chance of making bribery a thing of the past.

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