Thought bribery and corruption risks were subsiding? Think again.
Bad news for internal auditors, compliance executives, and risk managers who were hoping that bribery and corruption risks would start to subside after being on high alert for the last few years: they are actually increasing.
According to a new survey conducted by Kroll, a risk-management consulting firm, and Ethisphere, which promotes ethical business practices, 40 percent of all compliance officers surveyed believe their company's bribery and corruption risks will increase in 2016. These senior-level ethics and compliance professionals cited two primary factors as contributing to increased corruption risks: global expansion and an ever-increasing number of third-party business relationships.
Making matters worse, many of the compliance officers surveyed said they had big questions about their company's ability to detect corruption. One in four of those surveyed, for example, expressed no confidence in the ability of their company's current controls to detect third-party violations of anti-corruption laws. That's an alarmingly figure, considering the large percentage of enforcement actions rooted in payments facilitated through third parties.
Already, 2016 has brought a steady stream of Foreign Corrupt Practices Act enforcement actions from the Securities and Exchange Commission and Department of Justice, including a settlement of bribery charges against Dutch telecom services company, VimpleCom, for $835 million. "This year has already seen the second highest FCPA and corruption related fine of all time with the VimpelCom matter, but also other DOJ and SEC enforcement actions," says Thomas Fox, an attorney who specializes in the Foreign Corrupt Practices Act and who edits the FCPA Compliance and Ethics blog. "The month of February alone was one for the books," he says.
According to Fox, in addition to apparent increased enforcement action, there have been a few big trends in prosecution of the FCPA. "The first is the SEC's very aggressive enforcement actions for violations of the FCPA accounting provisions including books and records and internal controls," says Fox. "The second is the government's continued insistence that it will go after individuals per the Yates Memo. This has not yet come to pass, but in every speech the DOJ says that it wants to prosecute individuals going forward."
The so-called Yates Memo was a notice from U.S. Deputy Attorney General Sally Yates titled, "Individual Accountability for Corporate Wrongdoing," that signaled the Justice Department would put more emphasis on pursuing and punishing individual wrongdoers rather than just the companies they work for.
On a positive note, the degree of board and senior executive engagement regarding anti-bribery and corruption matters is increasing, with over half of respondents stating that their boards play an active role in program development. The ABC Report data reveals that companies with engaged leadership teams are more likely to expect their bribery and corruption risks will remain the same or decrease in the coming year.
"Companies are clearly better prepared to address risk proactively when senior leadership engages," said Erica Salmon Byrne, EVP of governance and compliance at Ethisphere. "It is heartening to see these numbers, which we believe reflect an understanding of the importance of this critical risk."
Another problem spot was corruption risks that emerge from merger activity. M&A activity in 2015 reached a record $3.8 trillion, yet more than a quarter of survey respondents said they do not have anti-corruption measures or programs in place for M&A or other corporate transaction targets.
"With global M&A – and in particular cross-border transactions – positioned to have another record year in 2016, it's concerning that compliance professionals do not yet have a full seat at the table early enough in the transaction process to be able to exert meaningful influence in these critical business decisions," said Lee Kirschbaum, president of Kroll Compliance.
The ABC Report also found that compliance officers are worried about the potential of becoming personally embroiled in a bribery or corruption enforcement action. One-third of respondents said that they are more concerned with personal liability than in prior years.
"After the release of the so-called 'Yates Memo' by the U.S. Department of Justice in September 2015, which expressed a renewed focus on holding individual corporate officers accountable, it is surprising that we are not seeing a higher level of executive-level concern in this area," said Joe Spinelli, senior managing director at Kroll.