This article appears as the "Discussion of the month" topic in AML News and Updates Newsletter - March 2023 edition which can be found here.
According to the World Economic Forum, corruption costs developing countries 💲1.26 trillion every year, an astonishing figure that highlights the devastating impact of this illegal activity.
Unfortunately, the problem is not limited to developing countries, as, according to the above statistic half of EMEA (Europe, Middle East and Africa) believe that corruption is acceptable 😲.
This is a concerning trend that should be addressed by financial crime professionals and anyone else who wants to promote ethical and sustainable business practices.
In this section, we will discuss what is corruption and bribery, the effects. But we will also see how you - as a financial crime professional - can make a difference by taking measures to prevent these criminal activities.
What is corruption and bribery?
According to Transparency International, corruption is “the abuse of entrusted power for private gain”. Corruption can take many forms, including bribery, embezzlement, among others. Corruption is a big problem because it undermines the principles of fairness, justice, and equality in society. When public officials or private individuals use their power or influence to gain personal benefits, they do so at the expense of the public interest.
Bribery is the offering, giving, receiving, or soliciting of anything of value to influence the action of an official in the discharge of his or her public or legal duties.
In other words, bribery involves the exchange of something of value in order to gain an unfair advantage or influence over a decision-maker.
Bribery can occur in a variety of contexts, including government procurement, business contracts, international trade and others.
Corruption and bribery are serious financial crimes that can have far-reaching consequences for individuals, organizations, and entire economies. These illegal activities can result in significant financial losses, damage to reputations, and weakening of public confidence.
Moreover, corruption and bribery can have a ripple effect that impacts the social structure of a country, leading to poverty, inequality, and social unrest.
How serious is the problem?
Corruption and bribery are not just abstract concepts - they are real-life issues that affect individuals, organizations, and entire societies. Unfortunately, these illegal activities can be difficult to detect and prevent and can have far-reaching consequences.
Here are some real-life examples of corruption and bribery that have shaken the world and show the extent of the problem:
📌 Corrupt Moldovan judges were part of the Russian Laundromat scheme which enabled between $20-$80 billion of criminal funds to be laundered and transferred from Russia to the European Union and the rest of the world.
📌 1MDB fund was created for the benefit of the people of Malaysia. However, it is estimated that more than $4 billion were embezzled by politicians and other people with political influence. Some of the funds were used to fund the film “The Wolf of Wall Street.”
📌 The Panama papers revealed that Mossack Fonseca, a Panamanian law firm, created 214,000 shell companies for individuals who wanted to keep their identities hidden among which many politicians and public officials. Some of those individuals were sanctioned.
📌 Teodorin Obiang, the son of the ex-president and at the same time vice-president of Equatorial Guinea was found guilty for embezzlement of public funds. 24 of his supercars were seized along with other assets.
📌 The European Parliament was shaken in one of the biggest corruption scandals. Four persons were arrested and charged with “participation in a criminal organization, money laundering and corruption” in a case involving Qatar.
These examples show how these illegal activities can take many forms and affect different parts of the world, even countries or regions that are considered as having lower corruption risk.
Effects of corruption and bribery
Corruption and bribery can have a range of negative effects on individuals, organizations, and societies. Some of these effects include:
Legal and regulatory compliance
It's no secret that corruption and bribery are bad news for businesses. In fact, they're illegal in most countries and can lead to hefty fines, imprisonment, and damage to a company's reputation.
To avoid these risks, businesses need to take them seriously and put measures in place to protect themselves. By doing so, businesses can safeguard their reputation, finances, and relationships with customers, partners, and investors.
Reputational effects and brand image
When it comes to running a successful business, maintaining a good reputation is key. Corruption and bribery can seriously damage a company's reputation and relationships with stakeholders like customers, partners, and investors.
That's why it's so important for businesses to implement effective anti-corruption and anti-bribery measures. And, protecting a company's reputation is crucial to its long-term success.
Corruption and bribery pose significant financial risks for businesses. These unethical practices can lead to fraud, embezzlement, and extortion, all of which can result in serious financial losses.
By taking measures to combat corruption and bribery, businesses can protect their financial resources and assets, and avoid the negative impact of those crimes.
Corruption and bribery go against the values and principles that businesses stand for, which can erode trust among stakeholders. By prioritizing ethical behavior and integrity, businesses can create a culture of transparency and accountability that fosters trust and loyalty among their stakeholders.
Corruption and Bribery – Practical mitigation steps
Preventing corruption and bribery requires a comprehensive approach that encompasses a range of effective measures, including policies, procedures, and risk management tactics.
Below we provide with some practical steps that financial crime professionals may consider on how to prevent corruption and bribery in their organizations.
1️⃣ Develop a robust code of conduct
A code of conduct sets out the ethical principles and standards that an organization expects its employees and stakeholders to uphold. The code of conduct should include specific policies on corruption and bribery, outlining what is and is not acceptable behavior. By clearly articulating the organization's expectations for ethical behavior, a code of conduct can help prevent corrupt activities by creating a culture of transparency and accountability.
2️⃣ Provide regular training
Regular training sessions can help employees understand the risks of corruption and bribery and how to identify and prevent these crimes. Effective training and awareness-raising efforts can prevent corruption and bribery in an organization.
3️⃣ Due Diligence
Conduct due diligence on third-party partners, including suppliers, vendors, and agents, to ensure that they were not engaged in bribery or corruption in the past.
4️⃣ Whistleblower System
Implement a whistleblower system that allows employees to report any suspected bribery or corruption without fear of retaliation.
5️⃣ Segregation of Duties
This is one of the most effective controls to prevent corruption and bribery. Segregating duties ensures that no single employee has complete control over a particular process or transaction, reducing the risk of fraud or corruption.
6️⃣ Risk Assessment
Perform regular risk assessments to identify areas where the company is most vulnerable to bribery and corruption.
7️⃣ Monitoring and Oversight
Establish a system of monitoring and oversight to ensure that all employees are complying with the company's anti-bribery and anti-corruption policies.
8️⃣ Auditing and Reviews
Conduct periodic internal audits and reviews to identify potential weaknesses in the company's anti-bribery and anti-corruption controls and take necessary corrective actions.
Bribery and corruption pose significant threats to businesses, economies, and society as a whole.
It is crucial that we all take a firm stance against corruption and bribery and make a collective effort to create a more transparent and ethical business environment.
By doing so, we can work towards building a world that is fairer, more just, and free from unethical practices.
Let us take action today and contribute towards a better future for everyone.