It takes an inspector to catch an inspector – so staff working in China for SGS, the customs audit company, must themselves be monitored. It is a wise precaution, says Jean-Pierre Méan, the Geneva-based group’s general counsel, in an environment where staff are frequently offered a goodwill gesture of an envelope containing $10 or $20, either directly or tucked discreetly into piles of papers. Any cash taken inadvertently is returned to the giver with an explanation. Mr Méan says: “The instruction is that staff should never accept.”
The gifts – which people familiar with Chinese business say are not normal practice domestically – highlight the myriad and multiplying corruption problems facing multinational companies. As businesses expand internationally to take advantage of new financial and trade hot spots, chief legal officers such as Mr Méan face increasing difficulties in dealing with ever-growing variations in rules, customs and regulatory zeal.
As one lawyer puts it: “Everybody who is a compliance officer should have their head examined. Because of the incredible variety and scope of compliance regimes, it’s almost inconceivable that a company wouldn’t get into trouble somewhere in the world.”
The truth of that remark is highlighted by statistics and surveys suggesting that companies are both more afraid of foreign corruption and more likely to be brought to book for it now than they were in the past. The US Department of Justice – widely regarded as the most vigorous authority in pursuing bribery overseas – has launched more than 50 prosecutions under its Foreign Corrupt Practices Act since 2001, more than the total number in the 23 previous years of the law’s existence. Investigators in leading economies such as Germany and France have become more active under international pressure, leading to high-profile investigations into companies such as Siemens and Thales.
The probes are triggering a realisation among companies – slow and uneven as it may be – that they could be next. Lawyers and accountants report a dramatic rise in the work they do to make sure companies have the systems in place to prevent staff breaking laws relating to overseas fraud, bribery and money-laundering. One lawyer in the field notes the contrast between companies’ proclaimed anti-corruption credentials and what employees get up to on the ground, sometimes with the tacit knowledge of their superiors.
The corporate focus on corruption is reflected in a survey of more than 100 companies published this week by Integrity Interactive, the international consultancy. It says bribery has become the number one fear among compliance officers, many of whom are struggling to implement policies across dozens of countries, among thousands of employees, without sufficient boardroom support. Paul Basson, president of Integrity Interactive Europe, says: “They know the law; they know how to create the policy. They don’t know how to communicate it – but they are figuring it out.”
SGS – which has 50,000 employees in more than 1,000 workplaces worldwide – is a good example of a company that has learned the hard way what it needs to do. Mr Méan arrived in 1996, shortly after the company was engulfed in a scandal involving payments it and its former subsidiary, Cotecna, allegedly made to Benazir Bhutto, the late former Pakistani prime minister, and her husband, Asif Ali Zardari. The case never led to a prosecution against SGS or any of its staff, although the company paid $2m towards legal costs incurred by the Pakistani government and apologised for “breaches of its internal controls”. “We started to police these things much more closely,” says Mr Méan, “also realising the damage it can do to the company.”
One basic difficulty is making sure that corporate anti-corruption policies are put into practice rather than languishing unheeded on a piece of paper. SGS’s code of conduct is translated into 28 languages and all staff are supposed to sign a copy to say they have read it. But Mr Méan admits wryly that, when they sign the document, many probably haven’t looked at it.
A second problem facing multinationals is vetting agents and other intermediaries. Businesses do not want the same experience as BAE Systems, the British arms maker, which is still wrestling with multiple corruption investigations and reputational damage, much of it stemming from alleged relationships with agents. SGS screens its agents and sometimes carries out private investigations on them, as well as applying other tests such as making sure payments to them are not too large in absolute terms or as percentages of contracts. Mr Méan says: “[Agents] can provide a real service. But we really have to know who they are.”
Companies in notoriously corrupt industries such as energy and construction have an even wider vulnerability stemming from their relationships with third parties. Oil multinationals, for example, may have hundreds or even thousands of contracts with service suppliers, some of which may have links to public officials or other individuals who should be avoided.
A third pitfall is the variation between national corruption laws, which means behaviour permitted in one country is proscribed in another. One contentious example is the use of so-called “facilitation payments” to expedite decisions by public officials. There is no international consistency on how to deal with these: US law allows companies to make facilitation payments, unlike in the UK.
Many companies – such as SGS – have taken the uncomfortable and potentially risky decision to permit facilitation payments. Mr Méan says the policy may change: he wistfully says he has been told that Nigerian police do not ask for money from the staff of companies where there is a policy of not paying. Time is also wasted discussing facilitation payments, he adds, so it would “probably would be simpler to do away with them”. He agrees that abolishing them would also be “morally right”.
The overall message is that, in a world with no standard approach to anti-bribery law and its enforcement, companies need both to do much more work themselves and to face more outside pressure. An international “bribe payers’ index” of 30 countries, launched by Transparency International, the corruption watchdog, in 2006, named companies from China and India as the worst offenders, while the US barely made the top 10 in terms of cleanliness. The results – from a survey of 11,000 business people in 125 countries – prompted Transparency to draw a gloomy conclusion: “There may be variations here, but there are no real winners.”
The story of SGS in China shows how far big business still has to go. Mr Méan refuses to say how many people the company has dismissed annually over corruption: it’s not many, he says, but he’s nervous to be seen as admitting to problems that other businesses do not even acknowledge. “They probably have no single case,” he notes, “because they don’t see them.”
Corruption probes teach US oil services company a $44m lesson
The record $44m penalties imposed last year on Baker Hughes, a Texas-based oil services company, highlight how expensive, extensive and disruptive corruption probes can be for companies.
Baker Hughes agreed the payout in April to settle investigations by the US Department of Justice and the Securities and Exchange Commission into payments made in Kazakhstan, Russia, Uzbekistan, Indonesia, Nigeria and Angola.
The penalties – the largest over a US Foreign Corruption Practices Act probe – were the start of a long process of probation and remedial action to which the company has had to submit.
Baker Hughes has agreed to hire an independent monitor for three years to oversee a compliance programme and make a series of reports to the company and the justice department. The company must also continue to co-operate with the justice department in ongoing investigations into alleged corruption. Baker Hughes’ main admission was that it paid about $4.1m in bribes to an agent whom it believed would transfer all or part of the money to an official of Kazakhoil, the Kazakhstan state oil company.
According to the US authorities, a Baker Hughes official claimed the agent had said that, unless the company retained him, it could “say goodbye to this and future business”. Given what has happened since, the company may now feel that bidding farewell to the agent would have been a risk worth taking.
