Global Corruption Report 2009: Corruption and the Private Sector

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Bribery in business captures news headlines around the globe and leads to massive reputational and financial repercussions for the implicated companies. Bribery, though, represents only part of the picture when profit comes at the expense of integrity and sustainability. Other corrupt practices, such as corporate fraud, cartels and undue influence on public policy, work as destructive forces that undermine fair competition, stifle economic growth and ultimately undercut companies’ own existence.

Featuring analysis of more than 75 experts, Transparency International’s 2009 Global Corruption Report lays bare these and other corruption challenges that cut across countries and industries, exposes soft spots in existing corporate anti-corruption measures, and examines promising innovation in the sector.

With its roots in a lack of transparency and accountability, the global economic crisis brings into sharp focus the need for the business world to align its dynamism and innovation with a concerted stance against corruption. The business case is irrefutable: “Basing a company or fund’s future on personal relationships and unpredictable systems or simply operating in a dark space without oversight and accountability is a path to guaranteed failure,” said Huguette Labelle, TI Chair.

Hans-Christoph Hirt, Director, Hermes Equity Ownership Services
Hans-Christoph Hirt, Director, Hermes Equity Ownership Services, speaks on factors that contributed to the financial crisis, changing mindsets and key challenges (click image to listen)

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As a path to sustainable economic recovery is sought, governments must ensure that every step is grounded in transparency, accountability and integrity. Efforts cannot be limited to addressing past failures – leaders must also act on the growing challenges stemming from emerging economies and markets.

With €40 billion worth of carbon-dioxide-equivalent emissions traded globally in 2007, the global shift to a green economy is gaining momentum. However, the report illustrates how even well-intentioned initiatives are not immune to abuse, documenting the carbon market’s vulnerability to corruption in the form of market manipulation, fraudulent emissions reporting and corruption in forest governance among others.

Sovereign wealth funds have also seen rapid growth, with total investments estimated to be worth up to US $15 trillion by 2015. Many funds’ investment policies, governance structures and accountability mechanisms are shrouded in secrecy, despite being entrusted with the current and future wealth of their citizens. In the case of the Kuwait Investment Authority, disclosure to the public of the funds’ assets is prohibited by law. Furthermore, the often ad-hoc regulation of the funds raises questions about potential conflicts of interest between a government’s regulatory and supervisory duties and its ownership functions.

In developing and transition countries alone, companies colluding with corrupt politicians and government officials supply bribes estimated to be worth up to US $40 billion annually. When corruption allows reckless companies to disregard the law, the consequences can be devastating. Examples include exploitative work conditions in China, illegal logging in Indonesia and unsafe medicines in Nigeria.

Emerging economic powerhouses with international reach provide fresh impetus for the effective enforcement of anti-corruption conventions, such as the OECD Anti-Bribery Convention and UN Convention against Corruption (UNCAC). Of the so-called BRIC countries, India has not yet ratified either convention and China and Russia have only ratified the UNCAC. Although Brazil has ratified both the OECD convention and the UNCAC, TI’s latest OECD progress report shows that the country has made little to no effort to enforce them. Moreover, the report shows how all countries would benefit from the establishment of an effective UNCAC review mechanism, critical to tracking progress and accelerating the strengthening of legal frameworks at country level.

As the report details, lobbying walks a fine line between participatory democracy and undue influence on public policy. Corporate lobbying and financing of political activities are carried out by most large corporations, and can be a legitimate and positive force. Yet, the extensive funds at the disposal of businesses and the close relationship that exists between many companies and lawmakers can lead to undue, unfair influence in a country’s policies and politics. Inappropriate gifts, hospitality, company board positions and illegal bribes can all go to exert underhand influence.

Tighter regulation of and enhanced transparency in lobbying are needed to help to balance the interests of companies, parties and politicians. Commitments must involve full disclosure of political contributions by political parties, politicians and companies alike, and the creation of registries to track the activities, spending, contacts and targets of lobbyists.

One of the first steps for reform in the private sector is for companies to commit to integrating codes of conduct and anti-corruption systems into all aspects of their business. While many companies already trumpet high-level, strategic commitments to prevent corruption, the report highlights that many do not communicate sufficiently on how these aims are met, if at all. Almost 90 per cent of the top 200 businesses worldwide have adopted business codes, but less than half report that they monitor compliance. Disclosure is an essential link in the accountability chain and can be a strong indicator of the quality and comprehensiveness of a company’s efforts to address bribery and corruption, as well as sending a powerful signal of a company’s commitment to clean business.

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Regional highlights
Frequently Asked Questions:

• Business Principles for Countering Bribery
• Business Principles for Countering Bribery - Small and Medium Enterprise (SME) Edition
• Bribe Payers Index 2008
• OECD Progress report 2009
• Transparency in Reporting on Anti-Corruption (TRAC) – A Report of Corporate Practices
• Transparency International's Self-Evaluation Tool (SET)
• Resisting Extortions and Solicitations in International Transactions (RESIST)

Volkswagen labor corruption verdicts upheld by Court
Bloomberg, 17 September, 2009

The steel fist of government
The Economist, 16 July, 2009

Ikea, citing corruptions, halts investing in Russia
The New York Times, 24 June, 2009

Nine charged over Satyam fraud scandal
The Times, 8 April, 2009

Madoff sent straight to prison after pleading guilty to $65bn fraud
The Guardian, 12 March, 2009

KBR, Halliburton agree to $579 million fine for Nigeria bribes
Bloomberg, 12 February, 2009

Pfizer to pay record $2.3B penalty over promotions
Associated Press, 9 February, 2009

Samsung's chairman is indicted for tax evasion in corruption case
The New York Times, 17 April, 2008

The TI Global Corruption Report (GCR) 2009
Malaysia Today, 24 September, 2009

India News Digest: India, China Bribing Their Way to the Top
The Wall Street Journal, 24 September, 2009

Global corruption costs consumers billions, says report
Business & Leadership, 24 September, 2009

Corruption costs businesses billions of dollars(audio)
ABC Radio Australia, 24 September, 2009

Report: Colombian corruption levels drop; still a long way to go
Colombia Reports, 24 September, 2009

Scale of bribery 'staggering'
Sydney Morning Herald, 24 September, 2009

Denmark voted least corrupt
The Copenhagen Post, 24 September, 2009

Instability hit drive against graft: TI
Republica, 24 September, 2009

Corruption - taboo theme for business people
Makfax, 24 September, 2009

Bulgaria Most Corrupt in Central, SE Europe - TI Report
Novinite, 24 September, 2009

Be patient, says MACC advisory panel member
The Sun Daily, 24 September, 2009

Malaysia rated 47th least corrupt, Penang praised
The Malaysian Insider, 24 September, 2009

Procurement corruption 'stifling' global economic recovery
Supply Management, 24 September, 2009

Korea Urged to Enforce Anti-Corruption Law Strictly
Korea Times, 24 September, 2009

Corruption 'rife' in PNG private sector
ABC, 24 September, 2009

2009 Global Corruption Report out
Ghana News Agency, 24 September, 2009

Indians among most corrupt while doing business abroad
Silicon India, 24 September, 2009

The Continent's Most Corrupt Private Sector
Poder 360, 24 September, 2009

Transparency indicts Pakistan at critical time
The International News, 24 September, 2009

Credit crunch exposes anti-graft failings
The Financial Times, 23 September, 2009

Corruption helped cause financial crisis
The Times, 23 September, 2009

Corruption a catalyst in financial crisis-watchdog
Reuters, 23 September, 2009

This is how we are failing investors (Opinion)
The Daily Nation, 23 September, 2009

Corruption 'stifling economies'
BBC, 23 September, 2009

Under the cover: Global Corruption Report 2009
Policy Innovations, 21 September, 2009

Worse evils exist than corruption
The Financial Times, 17 September, 2009