"How can a company successfully pursue commercial activities in countries with a history of corruption, whilst at the same time ensuring it does not compromise its own anti-corruption or human rights commitments?"

Challenges posed by entry into new markets

The very nature of many of the world's emerging economies, where judicial effectiveness is impaired, rule of law is poor, poverty is endemic and cost of living increases are volatile, means that corruption is generally more pervasive than in established Western markets (although it has been shown by Transparency International in its Annual Report 2011 to be a challenge everywhere).1

Most MNCs will already have a range of anti-corruption principles and standards in place to help ensure legal compliance in their longstanding countries of operation, in respect of both home and host governments. As MNCs expand into new and unfamiliar markets characterised by high levels of public and private corruption, these standards are likely to become more difficult to apply in practice, especially in respect of supply chain and other business partners, and may need to be enhanced in order to adapt to local circumstances.

Similarly, MNCs need to make sure these standards address the fact that ‘corruption' can take many different forms that are in constant evolution as operating environments change – particularly in locations that MNCs are not always familiar with or where the practices in question are considered acceptable ways to do business.

Short-term pressure to establish emerging market footholds

Given the strong competition amongst MNCs trying to gain a foothold in such markets, it is likely that some companies – or at least individuals within those companies – will at some point come under strong pressure to participate in corrupt activities. This may range from high-level corruption (e.g. government level bribery, complicity in the embezzlement of national resource revenues by senior officials, signature payments related to facilitate new foreign direct investment etc.) or lower level but potentially widespread and socially erosive practices (like facilitation payments or petty bribery at an operational level – for example along transportation routes and with respect to public authorisations and permissions etc.).

The challenge for business is that on the one hand, emerging economies are likely to deliver long-term growth potential, whilst on the other, companies may face a range of risk exposures that may include legal, reputational and financial consequences if there are allegations associated with corruption (whether proven or not).

Responsible businesses will seek to manage such risks with policies and programmes, including in-house training, whilst continuing to pursue a successful commercial strategy. Nonetheless, they may have to compete for business in countries where corruption is a problem alongside other companies that do not uphold the same standards.

Defining corruption

By its very nature, corruption can take a wide variety of forms, some of which will be obvious, whilst others will be subtle, hidden and in many cases arguable. This is particularly the case as individuals and/or companies involved in corrupt activity become more advanced in how they operate in order to counter detection. As a result, it is difficult to provide a precise and detailed definition.

Transparency International (TI) defines corruption, for example, as: "the abuse of entrusted power for private gain". TI further differentiates between ‘according to rule' corruption (e.g. facilitation payments) and ‘against the rule' corruption (e.g. bribes to obtain services to which the receiver is prohibited from providing). The International Chamber of Commerce breaks down corruption into three components:

• Bribery ("an offer or the receipt of any gift, loan, fee, reward or other advantage to or from any person as an inducement to do something which is dishonest or illegal")
• Bribe solicitation ("the act of asking or enticing another to commit bribery")
• Extortion ("when bribe solicitation is accompanied by threats it becomes extortion")2

The UN Global Compact notes that the UN Convention against Corruption (see below) has taken the approach that a comprehensive definition of corruption was neither necessary nor feasible. It instead treats corruption as an evolving concept. As a result, it covers various forms of corruption that existed at the time of drafting, but also enables states to deal with other forms that may emerge.3

In an effort to promote a "common understanding and language for the anti-corruption movement", Transparency International has prepared The Anti-Corruption Plain Language Guide, which identifies and defines 45 key terms (ranging from ‘Access to Information' to ‘Whistle Blowing') that are integral to its anti-corruption work.4 The relationship between corruption and human rights

There is growing recognition of the relationship between corruption and the violation of human rights. Where there is corruption, people are denied the possibility of benefiting fairly from the benefits of business investment. Where there is corruption, business cannot flourish as it has to expend valuable resources paying bribes, rather than investing in expanding business activity and employing people productively. Indeed, in recognition of this, a new 10th principle to the UN Global Compact entered into force in 2005: "Businesses should work against corruption in all its forms, including extortion and bribery."5

Specific relationship

Although the relationship between corruption and the violation of human rights is not immediately obvious, a report by the International Council on Human Rights Policy and Transparency International, Corruption and Human Rights: Making the Connection, identifies three different linkages:

• Direct violations: This is where a corrupt act is deliberately used as a means to violate a right. This might include, for example, the bribing of a judge to ensure an individual is unable to enjoy his right to a fair trial. Corruption may also directly violate a human right when a state (or its officials) acts or fails to act in a way that prevents individuals accessing that right. This might include, for example, situations where a citizen must bribe a doctor to access medical treatment, undermining the right to health.
• Indirect violations: Corruption can be an essential factor contributing to a chain of events that eventually leads to the violation of a right (i.e. violation of a right by an act that derives from a corrupt act and the act of corruption is a necessary condition for the violation). An example includes the bribery of public officials to secure permission for a project that subsequently gives rise to human rights violations (e.g. forced relocation of community members without prior consultation).
• Remote violations: Corruption can be one of several factors that result in the violation of human rights. Violent political protests that result in a loss of life may take place where an election is considered to be unfair. This may be due to corruption of the political process – or for a range of other reasons including media bias, disparities in party funding and other factors. Whilst corruption will have played a role in this scenario, it may be only one of several causes of unfair election processes.6

For example, Transparency International notes in its Global Corruption Report 2009 that amongst other things, corruption allows reckless companies or individual executives and employees to disregard legal frameworks relating to health and safety at work, working hours, remuneration and pollution.7

In a separate report, Business and Corruption: The Human Rights Dimension, Transparency International (UK) notes that in many cases, "various forms of corruption provide the grease by which deals are completed, the consequences of which have a direct or indirect effect on human rights". Cited examples include:

• A bribe to officials to secure a contract which is premised on exploitative and unsafe working conditions
• An illicit payment to the custodian of a major national resource (such as forests) to obtain logging rights that deplete the resource base without renewing it
• An illicit payment to secure the import of faulty drugs that have a negative or no beneficial medical impact
• A bribe to secure a privatisation contract for the provision of a basic service (such as water) that will raise its cost to a level beyond the reach of low-income groups8

General relationship

Likewise, the United Nations Development Programme (UNDP) has drawn explicit links between corruption and a human rights based approach to development. In its 2004 paper, The Impact of Corruption on the Human Rights Based Approach to Development9, the UNDP asserts that "A corrupt state creates a vicious circle in which the state quickly loses its authority and ability to govern for the common good. Corruption makes it possible for critics to be silenced, for justice to be subverted and for human rights abuses to go unpunished. When corruption reigns, basic human rights and liberties come under threat and social and economic contracts become unpredictable." This, says the UNDP, results in the undermining of a wide range of civil, political, economic, social and cultural rights – and poses a real threat to development based on the promotion and protection of human rights.

The UNDP further notes that corruption can:

• Directly affect rights at a macro or micro level
• Reduce the accountability of development actors
• Disempower the poor and vulnerable during the development process
• Undermine ‘active, free and meaningful' participation in the development process

Result in discrimination against the poor and vulnerable, with development benefits instead being diverted to those with the relationships, willingness or ability to pay.10 Furthermore, it is worth noting the particularly corrosive influence of organised crime with respect to politics – and so a wide range of human rights. In certain parts of the world, influential criminal groups (for example, relating to the highly lucrative illegal drugs trade) are believed to play a key role in the illegitimate manipulation of the democratic political process, through the direction of large sums of money towards sympathetic politicians or their parties. In many cases, these sums are believed to be channelled through legitimate businesses. The nature of such activities does not always fall within the traditional anti-corruption focus (for example focused on ‘narrow' incidents of bribery) and highlights the need to also focus in issues such as money laundering and political donations (in order to deal with more ‘systemic' corruption issues).

According to the Corruption Statistics section of Transparency International UK's website (which, as indicated, cites a variety of data sources):

Illicit financial flows cost developing countries US$1.26 trillion per year; an amount that could lift 1.4 billion people worldwide above the extreme poverty threshold of $1.25 per day. (Global Financial Integrity, 2011; World Bank, 2011; and Oxfam)

Over the course of a year, a quarter of people worldwide paid a bribe when in contact with one of nine institutions and services, including healthcare, education and tax authorities. (Transparency International, 2010 Global Corruption Report)

On Transparency International's Corruptions Perceptions Index, nearly three quarters of the 178 countries listed scored below five on a scale from 0 (high corrupt) to 10 (highly clean). (Transparency International, 2010 Corruption Perceptions Index)

Widespread corruption can cause a 0.5-1% reduction in economic growth. (World Bank)11

In addition, Transparency International UK cites research from the UN, which says that, 15% of all companies in industrialised countries have to pay bribes to win or retain business. In Asia, this figure is 40%. In the countries of the former Soviet Union, 60% of all companies must pay bribes to do business.12 Whilst this report is not necessarily conclusive and is more than 10 years old, it provides an indication of the scale of the challenge.

Growing recognition of the general relationship between corruption and development can be found in initiatives to promote transparency around natural resource revenues. These include, for example, the Extractive Industries Transparency Initiative (EITI), which is aimed at promoting sustainable growth and poverty reduction through the promotion of transparency and accountability in the extractive sector (see below). In part, this is because transparency around tax payments will empower citizens and civil society to hold their governments to account – and to assess the revenue contribution of the extractive sector. It works through the cross-disclosure of natural resource tax payments by both extractive companies and host governments, which are then independently verified. This can help identify evidence of corruption, including opaque payments and illicit transfers of illegal signature payments.

Likewise, Publish What You Pay – an international civil society coalition – seeks to help citizens in resource-rich developing countries to "hold their governments accountable for the management of revenues from the oil, gas and mining industries." It campaigns for the disclosure of company payments and government revenues from the extractive sector – and calls for the disclosure of licensing arrangements and extractive industry contracts.

As a result, there will likely be cases where MNCs involved in – or perceived to be involved in – corrupt activities, may also face allegations that their behaviour is negatively affecting human rights within a country, given these inter-relationships.

Dilemma focus

In light of this, the Dilemma is written on the basis that the realisation of a wide range of human rights is likely to be undermined to a greater or lesser degree by the presence of public and private corruption. By extension, corrupt activities carried out by MNCs or their employees are likely to contribute to this process by acting as the ‘supply-side' in the corruption equation.

Real-world examples

Chemicals company Innospec agrees to pay US$40.2m to settle bribery allegations relating to the prolonged use of a toxic petrol additive in Indonesia and sales in Iraq

In March 2010, US-owned chemicals company Innospec agreed to pay US$40.2 million in a controversial transatlantic plea bargain relating to allegations that the company bribed Indonesian and Iraqi officials to maintain sales of the harmful petroleum additive Tetraethyl Lead. Innospec also admitted to selling chemicals to power plants in Cuba, in violation of US sanctions on the country. Innospec is thought to be the only remaining manufacturer of the petrol additive, which was removed from mainstream use in the United States and Europe by 2000 due to concerns over its toxicity.

Following an investigation by the UK's Serious Fraud Office, Innospec's UK arm was found to have prolonged the use of the chemical in Indonesia, which was considering banning the chemical at the time. It was alleged to have done so by paying a total of US$8.5 million in bribes – reportedly gaining US$770 million in benefits as a result. At the same time, Innospec's US operations settled related charges in the US relating to bribes paid between 2000 and 2003 to secure contracts for the sale of Tetraethyl Lead under the UN Oil for Food Programme in Iraq.13

In both cases, Innospec's alleged actions clearly had the potentially to undermine the right to health of a large number of individuals within both Indonesia and Iraq. In particular, this is due to the neurotoxic effects of the additive (including low IQ and antisocial behaviour) and its particularly harmful effects on children.

Global Witness accuses leading global banks of complicity with corrupt regimes

A March 2009 report released by Global Witness, Undue Diligence, alleges that many of the world's largest banks are complicit in facilitating the movement of illegally acquired funds from corrupt regimes.14 According to the report, this is "facilitating corruption and state looting, which deny these countries the chance to lift themselves out of poverty and leave them dependent on aid." The report found that despite extensive anti-money laundering laws that oblige banks to undertake due diligence, this due diligence is not always being undertaken.

It accuses, for example, Deutsche Bank of allowing President Niyazov of Turkmenistan to maintain personal control over the country's central bank accounts. Furthermore, the report claims that HSBC, Santander and Abbey's Spanish bank used banking secrecy laws to avoid cooperation with the US Department of Justice in efforts to investigate the laundering of oil money by the president of Equatorial Guinea. The report makes a number of recommendations, including a tightening of anti-money laundering laws backed up by pro-active government enforcement.

The impact of such alleged activities can have a severe impact on both the legitimate political process within a country, as well as national development. In both cases, this can in turn impact on a wide range of human rights, ranging from the right to participate in public life to (in extreme examples) the right to life (for example where the illicit diversion of public funds has undermined public health provision).

Chevron agrees to pay US$30m in settlement of bribery charges relating to the UN oil-for-food programmes

In November 2007, the US Securities and Exchange Commission (SEC) announced in a press release (‘Chevron to Pay $30 Million to Settle Charges For Improper Payments to Iraq Under U.N. Oil For Food Program') that US energy firm Chevron agreed to pay US$30 million to settle complaints under the US Foreign Corrupt Practices Act that it had paid bribes in exchange for oil purchased under the UN oil-for-food programme in Iraq in 2001 and 2002. The SEC had claimed that third parties under contract with Chevron made some US$20 million in illicit payments that bypassed the oil-for-food escrow account and were paid directly into Iraqi-held bank accounts in Jordan and Lebanon.

The SEC alleged that Chevron knew or should have known about the transactions, and that it "failed to devise and maintain a system of internal accounting controls to detect and prevent such illicit payments, and [that] Chevron's accounting for its Oil for Food transactions failed to properly record the true nature of the company's payments to third parties". While the company agreed to pay the amount, it neither admitted nor denied the SEC's allegations. This demonstrates the potential difficulty companies may face when trying to identify illegitimate (and thus corrupt) transactions.

The alleged activity again had the potential to undermine a range of human rights through the diversion of monies intended for humanitarian aid. Not least, these rights included the right to food (particularly with respect to child malnutrition) and the right to health (due to the impact of such activities on the availability of medicines within the country).

GlaxoSmithKline pleads guilty and agrees to pay US$3bn in the largest healthcare fraud case in US history

In July 2012, British pharmaceutical company GlaxoSmithKline pleaded guilty to three charges of criminal misdemeanour before a US federal court, regarding the marketing of two of its drugs and the disclosure of safety information for a third. One count involved the company's targeting of under-18 patients with the anti-depressant drug Paxil, despite the drug having only been approved for adults. The second related to the pushing of the drug Wellbutin for unapproved uses, including weight loss and sexual dysfunction treatment, while the third involved a failure to provide the US Food and Drug Administration with safety data about the diabetes drug Avandia.

In order to promote the drugs concerned, the company distributed a misleading medical journal article, and bribed doctors with holidays, event tickets and high-paid job opportunities. According to the US Justice Department, the settlement of the case is "unprecedented in both size and scope," and represents "a clear warning to any company that chooses to break the law."15

While such cases are most commonly associated with emerging economies, corruption continues to be a problem all over the world, even, as in this instance, in the comparatively well-developed United States. Human rights at risk from corruption of this sort include the right to life and the right to health, given the potentially harmful effects for consumers of medicines that are not properly approved for their advertised use.

• For examples of how multi-national companies such as Siemens, BAE Systems, ABB, Alcatel-Lucent, BASF, BHP Billiton, Fluor, Merck, Norsk Hydro and others have addressed such dilemmas through, for example the commissioning of independent and comprehensive business ethics reviews, global anti-corruption programmes, risk assessment initiatives, payment disclosure, participation in multi-stakeholder programmes, as well as other methods, see:
  Business integrity and corruption case studies

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Acts of corruption

When managing this Dilemma, it is important that MNCs are aware of the many forms in which corruption can manifest itself in order to identify the risk of it occurring, and to tailor its responses accordingly.

The World Economic Forum's Partnering Against Corruption Initiative - Principles for Countering Bribery cites, for example, five different acts of corruption, including:

• Bribes: This includes bribery carried out directly or through third parties, including subsidiaries, joint ventures, agents, brokers, suppliers or any other intermediary under a company's effective control
• Political contributions: This includes any direct or indirect contributions to political parties, party officials, candidates, or organisations/individuals involved in politics, as a subterfuge for bribery
• Charitable contributions and sponsorships: This is again aimed at restricting opportunities for such payments to be made as a subterfuge for bribery
• Facilitation payments: These include small payments made to secure or expedite the performance of routine actions to which a company is already entitled
• Gifts, hospitality and expenses: This includes the offer and receipt of gifts, hospitality or expenses whenever such arrangements could improperly affect, or might be perceived to improperly affect, the outcome of business transactions16

Corruption risks

When entering new markets and relationships, MNCs should be aware of the drivers behind corruption in order to better identify high-risk locations/sectors. According to the World Bank Institute, principle sources of corruption include:

• Lack of transparency and accountability in the public sector
• Lack of transparency and accountability in the private sector
• Poor regulation of political contributions
• Low public sector wages
• Weak enforcement of laws and regulations
• Lack of free and independent media
• Excessive discretionary authority of public officials17

According to a report carried out by PriceWaterHouseCoopers, Confronting Corruption, procurement is the business operation most vulnerable to corruption.18 This is followed by bids and sales, and the establishment of a presence in an unfamiliar market. Although corruption manifests itself in a wide range of business sectors, certain industries present particular risks. For example, Transparency International's Bribe Payers Index 2011 suggests that the following sectors are particularly prone to corruption:

Figure 1: High risk business sectors (Transparency International Bribe Payers Index 2011)19

Sector	Average CPI score (0-10, where zero is worse)
Public works contracts & construction	5.3
Utilities	6.1
Real estate, property, legal and business services	6.1
Oil and gas	6.2
Mining	6.3
Power generation and transmission	6.4
Pharmaceutical and healthcare	6.4
Heavy manufacturing	6.5
Fisheries	6.6
Arms, defence and military	6.6

It appears that these sectors are particularly vulnerable due to the strong role played by official decision-making, public regulation and political cooperation. The nature of many of these sectors (e.g. reliance on public tenders, resource licences, regulatory approval, poor rates of pay, etc.) means that they are more likely to be associated with the bribery of public officials. In contrast, the lowest risk sectors were identified as agriculture, light manufacturing, civilian aerospace and information technology.

The same report distinguishes between ‘private', ‘petty' and ‘grand' bribery, the latter of which is carried out within some sectors in order to exert a disproportionate influence on public policy, using both legal and illegal means. This can result in situations in which "the very framework governing a sector, or even the economy, is guided by a particular interest, rather than by the public interest."20 Clearly, this can have serious and long-term human rights implications. The 2011 Bribe Payers Survey indicates that public works contracts/construction, oil and gas, mining, and real estate and property development were the sectors most likely to become involved in ‘grand bribery', while it was also seen to be highly relevant to the power generation and transmission sector.21

Corruption dilemmas

In theory, the payment of bribes should not of themselves present a dilemma per se to business, due to the fact that these are clearly illegal in most jurisdictions. As a result, most MNCs will have a clear stance against corruption, supported by relevant policies and management systems.

Nonetheless, there will still be situations where employees – and in rare cases companies – will nonetheless feel that they face difficult choices when presented with potentially corrupt situations. This may be due to short-term commercial pressures that are felt to potentially override longer-term risks of potential legal liability and/or reputational damage. This is a particular risk where:

• It is believed that a company's operations in a given country will simply not be viable if a ‘zero-tolerance' approach is taken towards questionable business activities (e.g. non-payment of facilitation payments would make day to day operational friction too serious contemplate)
• Peer companies gain significant competitive advantage by participating in corrupt activity (e.g. preferential official treatment)
• There is ambiguity around whether certain practices amount to corruption or not (e.g., political contributions, facilitation payments, corporate gifts, consultants' commissions, etc.)
• Employees and managers operate in environments where corruption is pervasive and where certain practices are simply seen as the ‘normal' way of doing things (e.g. kickbacks, employment of influential persons' relatives, the securing of licences through bribery etc.)
• Employers and managers are under particularly strong pressure to promote the commercial success of the company (e.g. by increasing sales, securing contracts, obtaining licences, etc.)

Whilst none of these considerations justify corrupt behaviour, they are likely to increase the risk that individuals within a company make decisions that feel justifiable or ‘normal' at the time, but which may have serious and long-term consequences for their employers – and the communities in which they operate.

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Examples of scenarios companies might face when operating in emerging economies, include:

Bangladesh: According to the US Department of State's 2011 Human Rights Report: Bangladesh, government officials frequently engage in corrupt practices with impunity.22 In 2009, Human Rights Watch (HRW) stated that corruption has had a severely negative impact on the Bangladeshi people's enjoyment of economic and social rights.23 HRW further notes in its World Report 2011 that the supposed ‘strong commitment' of the ruling Awami League party has been tempered by Prime Minister Sheikh Hasina's recommendation that the courts and the Anti-Corruption Commission withdraw hundreds of cases brought against her party, claiming that they were ‘politically motivated'. The same approach has not been taken to similar cases initiated against the political opposition.24

Transparency International's Global Corruption Report 2009 notes that the private sector has been affected by widespread corruption.25 It cites data from the Planning Commission's Implementation, Monitoring and Evaluation Division, indicating that 85 companies were excluded from public bidding processes due to "fraudulent practices and collusive activities".26 An example can be found in the 2008 award of a container handling contract in Dhaka and Chittagong to a company favoured by politically powerful individuals but which lacked the skills and experience to fulfil the contract. In another case, Transparency International says an operational contract for the Barapukuria coal mine was awarded to a Chinese company that "allegedly engaged in collusive bidding with politically powerful individuals, involving a financial loss of Tk1.58 billion [US$22.7 million] to the public exchequer".

The country ranks joint-144th out of 176 countries in Transparency International's 2011 Corruption Perceptions Index and scores 16.1% for ‘control of corruption' in the World Bank's 2011 World Governance Indicators.

Bangladesh ranks as the 34th highest risk country out of 173 in Maplecroft’s Legal and Regulatory Environment Index 2013 (high risk). It is rated as the 27th highest risk country out of 197 in Maplecroft’s Corruption Risk Index 2013 (extreme risk).27

Brazil: According to the US Department of State's 2011 Human Rights Report: Brazil, officials frequently engage in corrupt practices, often with impunity.28 Getúlio Vargas Foundation economist Marcos Gonçalves Silva estimates that the direct and indirect cost of corruption is US$5 billion per year (equivalent to 0.5% of GDP). In its Countries at the Crossroads 2012: Brazil report, human rights NGO Freedom House stated that excessive government regulations, requirements and controls provide opportunities for corruption, and "bureaucratic procedures at the local level are frequently used by officials to solicit bribes and kickbacks from citizens".29 In August 2009, a Senate commission initiated investigations into allegations of tax and procurement fraud and embezzlement involving state-controlled oil company Petrobras.

The Business Anti-Corruption Portal's Brazil Country Profile indicates that companies may face bribery demands from public officials, due to the need to engage with a "wide range of regulatory agencies due to the federal structure of the political system".30 Although the Portal notes the "well-developed" nature of Brazil's public procurement laws, this is still an area in which bribery demands are likely to be made – whilst the country's "complex" tax system is also reportedly prone to corruption. However, since becoming President in January 2011, Dilma Rousseff has imposed a zero tolerance approach to corruption within government, leading to the resignation of several ministers in the wake of corruption allegations.31

The country ranks joint-69th out of 176 in Transparency International's 2012 Corruption Perceptions Index. It scores 63% for ‘control of corruption' in the World Bank's 2011 World Governance Indicators.

Brazil ranks as the 93rd highest risk country out of 173 in Maplecroft's Legal and Regulatory Environment Index 2013 (high risk). It is rated as the 90th highest risk country out of 197 in Maplecroft's Corruption Risk Index 2013 (high risk).32

China: The US Department of State's 2011 Human Rights Report: China notes that corruption is endemic and officials frequently engage in corrupt practices with impunity.33 Many cases reportedly involve areas in which the government is heavily involved – including land rights, real estate, and infrastructure development. Public procurement and the financial services are also thought to be susceptible. The Carnegie Endowment for International Peace claimed in an October 2007 Policy Brief (‘Corruption Threatens China's Future') that around 10% of government spending, contracts, and transactions is estimated to be used as kickbacks and bribes, or simply stolen.34

Transparency International's Global Corruption Report 2009 describes private sector corruption as "severe" and "one of the most commonly found forms of corruption" – albeit one that the state is increasingly attempting to tackle.35 Although recent amendments to the law have improved the government's scope to combat illegal financial activity, significant flaws in the judicial system, including its own instances of corruption, currently make it difficult for the country to realise major change.36

A number of business leaders were investigated in 2009, with affected companies including China National Nuclear Corporation, China Development Bank, China Mobile, Sinopec, and Gome Electrical Appliance Holding.37 In March 2009, an article in the New York Times (‘China Sentences Rio Tinto Employees in Bribe Case') reported that four employees of Anglo-Australian mining company Rio Tinto were found guilty of accepting around US$13.5 million in bribes and stealing commercial secrets. The employees, who faced between seven and 14 years in prison, were also dismissed by Rio Tinto, which reportedly accepted court evidence that the employees had accepted the bribes.38 In 2012, the US Securities and Exchange Commission (SEC) began investigating major US movie studios in China, including 20th Century Fox, Disney and DreamWorks Animation, over potentially inappropriate payments made to government officials controlling which foreign films are shown in the country.39

The country ranks joint-80th out of 176 countries in Transparency International’s 2012 Corruption Perceptions Index. It scores 28.9% for ‘control of corruption’ in the World Bank’s 2011 World Governance Indicators.

China ranks as the 54th highest risk country out of 173 in Maplecroft's Legal and Regulatory Environment Index 2013 (high risk). It is rated as the 88th highest risk country out of 197 in Maplecroft’s Corruption Risk Index 2013 (high risk).40

Egypt: According to Transparency International's article ‘Focus on Egypt', corruption in Egypt is pervasive and the use of wasta (‘influence') and facilitation payments are essential to get most things done.41 The government does not consistently or effectively implement anti-corruption laws. There are no financial disclosure laws for public officials or legal provisions for public access to government information. A lack of independence and access to information, as well as poor protection of whistle blowers and lack of clear mandate amongst anti-corruption agencies has severely impeded the impact of the fight against corruption.42 The Business Anti-Corruption Portal's Egypt Country Profile notes that "companies are likely to encounter corruption in meetings with public officials" – with particular risks posed by public procurement processes.43

The country ranks joint-118th out of 176 countries in Transparency International's 2012 Corruption Perceptions Index. It scores 28% for ‘control of corruption' in the World Bank's 2011 World Governance Indicators.

Egypt ranks as the 45th highest risk country out of 173 in Maplecroft's Legal and Regulatory Environment Index 2013 (high risk). It is rated as the 60th highest risk country out of 197 in Maplecroft's Business Integrity and Corruption Index 2013 (high risk).44

India: Despite having relevant anti-corruption law, officials frequently engage in corrupt activity with high levels of impunity.45 Freedom House notes that "[t]hough politicians and civil servants are regularly caught accepting bribes or engaging in other corrupt behaviour, a great deal of corruption goes unnoticed and unpunished."46 According to the Business Anti-Corruption Portal's India Country Profile, particular corruption risks faced by companies operating in the country include the extortion of "undue payments" by public servants with "wide discretionary powers", as well as the "notoriously corrupted" awarding of public contracts "especially at state level". The Portal highlights scandals involving high level politicians in the healthcare, information technology and defence sectors.47 According to a January 2009 survey from Trace International (which helps companies combat bribery), 91% of bribe demands came from government officials.48

In August 2010, for example, an article in The Daily Telegraph newspaper (‘Commonwealth Games Backhanders and Wild Allegations Continue Apace in Delhi') claimed that the country's preparations for hosting the Commonwealth Games (an international athletic event) in Delhi had been severely affected by improper business behaviour – including fake building compliance, inflated procurement payments and bribery.49 This has included the reported "corralling of highly respected international companies into the vortex of corruption". According to an August 2010 article from the Wall Street Journal (‘India Suspends Two Top Games Officials'), sponsors of the games include Coca-Cola and Reebok.50

The country ranks joint-94th out of 176 countries in Transparency International’s 2012 Corruption Perceptions Index. It scores 35.1% for ‘control of corruption’ in the World Bank’s 2011 World Governance Indicators.

India ranks as the 66th highest risk country out of 173 in Maplecroft’s Legal and Regulatory Environment Index 2013 (high risk). It is rated as the 71st highest risk country out of 197 in Maplecroft’s Business Integrity and Corruption Index 2013 (extreme risk).51

Indonesia: According to Freedom House's Country at the Crossroads 2012 report on Indonesia, corruption remains "endemic" despite progressive anti-corruption efforts by the government.52 Key causes reportedly include government ownership of around 139 companies and the weak enforcement of anti-corruption rules.53 A 2009 law banning state officials from simultaneously serving as state-owned enterprise board members is laudable. However, the actual number of such double postings is small, meaning that the rule will have little effect on the levels of ending corruption in the country. In May 2009, the director of state oil company Pertamina pledged to join the Extractive Industries Transparency Initiative and introduce codes of conduct, vendor blacklists and whistleblower programmes.54

According to the Business Anti-Corruption Portal's Indonesia Country Profile, bribery typically occurs during licensing procedures.55 Nonetheless, SMEs tend to be relatively more affected by corruption (e.g. facilitation payments) than larger companies due to their more limited capacity and market power. The Portal also notes that many in the business community perceive the tax and customs administrations to be corrupt.

The country ranks joint-118th out of 176 countries in Transparency International's 2012 Corruption Perceptions Index. It scores 27.5% for ‘control of corruption' in the World Bank's 2011 World Governance Indicators.

Indonesia ranks as the 63rd highest risk country out of 173 in Maplecroft's Legal and Regulatory Environment Index 2013 (high risk). It is rated as the 48th highest risk country out of 197 in Maplecroft’s Corruption Risk Index 2013 (high risk).56

Iran: Corruption is reported to be a serious problem in all branches of government. According to Freedom House's 2012 Freedom in the World 2012 report on Iran, tax-exempt foundations (or ‘Bonyads') are designed for charitable activity but enjoy a high level of control in certain industries including cement and sugar production – resulting in significant profits for the clerical establishment.57

The Revolutionary Guards also have significant economic interests. In September 2010, an AFP article (‘Iranian Politician Says Military Group is Corrupt') reported Mehdi Karroubi as claiming the Revolutionary Guards actually supported international sanctions against the country, due to the "astronomical profits" they can make as a result of taking on projects eschewed by Western companies.58 The US Department of State's 2009 Human Rights Report: Iran says that in November 2009, a special parliamentary commission criticised the management of the government's recent privatisation process, including the sale of the Telecommunication Company of Iran– claiming the company had effectively been given to the Revolutionary Guards via a front company.59

According to an article in Norwegian energy company Statoil's Annual Report 2009 (‘Horton Case Closed'), US officials dropped criminal charges against the company relating to bribery allegations in Iran. These related to a US$15 million consulting contract between Statoil and an intermediary company, Horton Investments, with the aim of obtaining an operating interest in the South Pars Gas Field. The individual behind Horton Investments was the son of a former Iranian president and also a Director of the National Iranian Oil Company.60 According to Reuters (‘Statoil says U.S. drops bribery probe into Iran case'), the dropping of the charges came four years after the company reached a ‘deferred prosecution agreement' with the Securities and Exchanges Commission and the US Department of Justice, and agreed to pay a US$10.5 million penalty.61

In 2011, financial scandal continued in the oil sector, with Grand Ayatollah Khamenei announcing that all oil and gas contracts wold be awarded by Petro Nahad, a newly established entity within his own office and thus not subject to parliamentary or regulatory oversight. In addition, on 18 March 2011, reformist publications reported an alleged disappearance of oil revenues from government foreign exchange reserves totalling IRR150tn (US$124m).62

The country ranks joint-133rd out of 176 countries in Transparency International’s 2012 Corruption Perceptions Index. It scores 19% for ‘control of corruption’ in the World Bank’s 2011 World Governance Indicators.

Iran ranks as the 19th highest risk country out of 173 in Maplecroft's Legal and Regulatory Environment Index 2013 (extreme risk). It is rated as the 19th highest risk country out of 197 in Maplecroft’s Corruption Risk Index 2013 (extreme risk).63

Mexico: Corruption persists at all levels of government and public services. Corruption has infiltrated a wide range of public service institutions, including the police, financial service authority and civil service.64 In December 2006, the government announced a new anti-corruption and transparency drive. In December 2008, President Calderon announced that networks of corruption had been broken up in state-owned oil company Pemex, customs and areas linked to public works.65 Despite constitutional reforms regarding the access to information in 2007, their implementation has remained partial in some states.66

The Business Anti-Corruption Portal's Mexico Country Profile notes that companies face wide variations in the level and type of corruption they are likely to face in Mexico, depending on the state they are operating in. It cites findings from a 2005 survey by CEESP, which found for example, that bribes are used by companies as follows:

• Aguascalientes: To obtain federal licences, to access public utilities, to ignore environmental legislation and to ease state regulations
• Distrito Federal. To access public utilities, win federal and municipal contracts, to ignore labour violations and ease state regulations
• Jalisco: To access public utilities, ignore labour regulations and to avoid police harassment
• Nuevo Leon: To obtain federal financial privileges, obtain reductions in regulatory fees, ignore labour violations and ease state regulations
• Baja California: To win government contracts, access public utilities and ease state regulations
• Quintana Roo: Obtain federal licences, reduce federal regulatory fees, access public utilities and ease state regulations67

The country ranks joint-105th out of 176 countries in Transparency International's 2011 Corruption Perceptions Index. It scores 45.5% for ‘control of corruption' in the World Bank's 2011 World Governance Indicators.

Mexico ranks as the 80th highest risk country out of 173 in Maplecroft's Legal and Regulatory Environment Index 2013 (high risk). It is rated as the 63rd highest risk country out of 197 in Maplecroft's Corruption Risk Index 2013 (extreme risk).68

Nigeria: According to the US Department of State's 2009 Human Rights Report: Nigeria, corruption is "massive, widespread, and pervasive" and affects "all levels of government and the security forces."69 Oil revenues account for the majority of government revenue, offering politicians significant resources for patronage and influence. On the basis of interviews with local diplomats, HRW estimates that between 1999 and 2007, Nigeria lost a minimum average of US$4-8 billion a year to corruption.70

According to the Business Anti-Corruption Portal's Nigeria Country Profile, it is very hard to do business in Nigeria without making facilitation payments to public officials. Other challenges include difficulties in enforcing legal rights and settling disputes due to corruption, as well as improper taxation practices.71

A high profile example of the risks posed by corruption in Nigeria came in February 2009, when the US Department of Justice issued a statement (‘Kellogg Brown & Root LLC Pleads Guilty to Foreign Bribery Charges and Agrees to Pay $402 Million Criminal Fine') stating that US engineering company Kellogg Brown and Root (KBR) and former parent company Halliburton had pleaded guilty to charges under the US Foreign Corrupt Practices Act and agreed to pay a total of US$579 million in fines and forfeited profits.72 The charges related to the bribery of Nigerian officials in order to win US$6 billion in contracts. These contracts related to the construction and expansion of a gas liquefication plant at Bonny Island in Rivers State, as well as other projects that date back 20 years.

The country ranks 139th out of 176 countries in Transparency International’s 2012 Corruption Perceptions Index. It scores 10% for ‘control of corruption’ in the World Bank’s 2011 World Governance Indicators.

Nigeria ranks as the 39th highest risk country out of 173 in Maplecroft’s Legal and Regulatory Environment Index 2013 (high risk). It is rated as the 27th highest risk country out of 197 in Maplecroft’s Corruption Risk Index 2013 (extreme risk).73

Pakistan: According to Freedom House's 2012 Country Report on Pakistan, corruption is pervasive throughout all levels of politics and bureaucracy.74 The military is reported to play a very significant role in virtually all economic sectors, thus often rendering the awarding of public contracts unfair.75 The Business Anti-Corruption Portal's Pakistan Country Profile reports companies as saying that endemic government corruption is the second most serious challenge to doing business, after instability.76 Other specific challenges include judicial corruption, improper taxation practices and wide discretionary powers amongst civil servants that provide opportunities for extortion and bribery.

The country ranks joint-139th out of 183 countries in Transparency International’s 2012 Corruption Perceptions Index. It scores 15.6% for ‘control of corruption’ in the World Bank’s 2011 World Governance Indicators.

Pakistan ranks as the 27th highest risk country out of 173 in Maplecroft’s Legal and Regulatory Environment Index 2013 (high risk). It is rated as the 22nd highest risk country out of 197 in Maplecroft’s Business Integrity and Corruption Index 2013 (extreme risk).77

Philippines: According to the US Department of State, the government's implementation of anti-corruption law is ineffective and officials reportedly engage in corruption with impunity.78 A number of anti-corruption bodies have been set up in recent years, including an ombudsman's office and an anti-corruption court. During 2011, 54 officials were convicted in 171 corruption cases.

In December 2011, the Office of the Ombudsman filed graft and corruption charges against former president Gloria Macapagal-Arroyo following the cancellation of the US$329m National Broadband Network project agreement with China's ZTE Corporation. Macapagal-Arroyo's husband, the former transportation and communication secretary, and the former chairman of the Commission on Elections (COMELEC) were also charged.79 The country ranks joint-105th out of 176 countries in Transparency International’s 2012 Corruption Perceptions Index. It scores 22.7% for ‘control of corruption’ in the World Bank’s 2011 World Governance Indicators.

The Philippines ranks as the 74th highest risk country out of 173 in Maplecroft’s Legal and Regulatory Environment Index 2013 (high risk). It is rated as the 64th highest risk country out of 197 in Maplecroft’s Corruption Index 2013 (extreme risk).80

Russia: Corruption is widespread throughout the executive, legislative, and judicial institutions. Corrupt practices include bribery of officials, misuse of budgetary resources, theft of government property, kickbacks in the procurement process, improper use of official positions to secure personal profits and extortion.81 According to a statement issued in July 2011 by the Ministry of Internal Affairs, the average amount for a commercial bribe in Russia is over RUB61,000 (US$1,951). The top three categories of corrupt officials are traffic police officers, higher educational institution representatives and health workers.82 The NGO Information Science for Democracy (INDEM) estimates that bribes and corruption cost Russia the equivalent of 33% of its GDP. Allegations of bribery and corruption are investigated by the Ministry of Internal Affairs and the Federal Security Service, both of which are also perceived to be corrupt.83

In June 2009, Der Spiegel published an article (‘Ikea Turns Sour on Russia') in which it reported that Swedish furniture company IKEA was temporarily suspending all investment into Russia due to "the unpredictable character of administrative procedures in some regions." This was perceived to be related to allegations by the company that local utilities had failed to provide electricity at agreed prices, forcing the company to build its own generators – as well as challenges surrounding the opening of new stores. In January 2010, The St. Petersburg Times reported (‘Ikea Fires Two Top Managers Over Bribes') that two IKEA executives linked to the company's St Petersburg store had been fired for the apparent payment of bribes to a Russian contractor.84

In October 2012, Russian investigators raided the offices of Oboronservis, a defence firm catering for all military needs, after RUB3bn was allegedly found to be missing from the company's budget. Oboronservis has blamed the discrepancy on the selling of property to commercial firms by officials at prices below the market rate. In 2010, chief military prosecutor Sergei Fridinsky claimed that a fifth of the state's defense budget was misappropriated each year by corrupt officials and contractors, an estimated loss of around US$10bn.85 The country ranks joint-133rd out of 176 countries in Transparency International’s 2012 Corruption Perceptions Index. It scores 13.3% for ‘control of corruption’ in the World Bank’s 2011 World Governance Indicators.

Russia ranks as the 25th highest risk country out of 173 in Maplecroft's Legal and Regulatory Environment Index 2013 (extreme risk). It is rated as the 25th highest risk country out of 197 in Maplecroft’s Corruption Risk Index 2013 (extreme risk).86

Turkey: The US Department of State's 2011 Human Rights Report notes that the government does not implement anti-corruption legislation effectively, allowing some officials to act with impunity.87 In its Turkey 2011 Progress Report, the EU states that there is too much immunity for members of parliament in cases of corruption and that transparency in areas such as political party financing and election campaigns was subverted due to incomplete regulatory measures.88

The country ranks joint-54th out of 176 countries in Transparency International’s 2012 Corruption Perceptions Index. It scores 61.1% for ‘control of corruption’ in the World Bank’s 2011 World Governance Indicators.

Turkey ranks as the 118th highest risk country out of 173 in Maplecroft's Legal and Regulatory Environment Index 2013 (medium risk). It is rated as the 118th highest risk country out of 197 in Maplecroft's Corruption Risk Index 2013 (high risk).89

Viet Nam: Freedom House's Countries at the Crossroads 2012 report on Viet Nam notes that excessively powerful officials without effective monitoring mechanisms has led the party-state to "…[dominate] society to an extent unmatched by any other political systems". Corruption is particularly commonplace in the construction industry, including the dividing of projects into sections that do not require competitive bidding, and collusion in order to raise the cost of a project.90 For example, in November 2008, Tokyo-based Pacific Consultants International (and four of its executives) pleaded guilty to paying more than US$800,000 in bribes to a Vietnamese official.91 In January 2009, a Tokyo court fined Pacific Consultants International US$780,000. Prosecutors suspected that the bribe was aimed at securing consulting contracts on the major ‘East-West Highway Project' in Ho Chi Minh City, which was backed by official Japanese aid money.92 Following the scandal, Japan temporarily suspended all low-interest aid to Viet Nam, which AFP notes it subsequently resumed in February 2009 (via The Straits Times – ‘Japan to Resume Vietnam Aid'). A further criminal investigation saw two former officials imprisoned.93

Freedom House further notes that state-owned enterprises account for around 35% of GDP and that the government grants such businesses with a large share of public investment and greatly discounted access to land and bank loans in order to maintain the socialist character of the economy.94

The country ranks 123rd out of 176 countries in Transparency International’s 2012 Corruption Perceptions Index. It scores 29.9% for ‘control of corruption’ in the World Bank’s 2011 World Governance Indicators.

Viet Nam ranks as the 52nd highest risk country out of 173 in Maplecroft’s Legal and Regulatory Environment Index 2013 (high risk). It is rated as the 59th highest risk country out of 197 in Maplecroft’s Corruption Index Risk 2013 (extreme risk).95

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Legal risks – international legal instruments

Avoidance of corruption is primarily an issue of legal compliance – and so should not constitute a dilemma per se. Nonetheless, there will be a range of situations where it is not necessarily clear to a company (or its employees) whether the actions they are carrying out amount to corrupt activity. As a result, they may still face significant legal risks.

It is important to note that where a company is accused of complicity in human rights violations as a result of corrupt activity – the legal risks posed by anti-corruption legislation are likely to be the most serious. In part, this is due to the fact that it is often easier to establish direct liability for corrupt actions than it is to establish complicity for human rights abuses that result from such actions.

The main international instruments pertaining to corruption at the global level (and which are implemented or in process of implementation via national law) include:

OECD Convention

The OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the OECD Convention)96 focuses on the ‘supply side' of the bribery transaction – i.e. companies and individuals. It establishes legally binding standards to criminalise the bribery of foreign public officials in international business transactions – or complicity in such bribery. It also requires parties to take measures to address related money laundering, mutual legal assistance and extradition.

The Convention has been adopted by all members of the OECD, as well as Argentina, Brazil, Bulgaria, Estonia, Israel, and South Africa. As a result, the terms of the Convention will generally be reflected in the national law of each of these countries – presenting significant legal risks to those involved in corrupt behaviour.

For example, at the end of 2009, 148 individuals and 77 entities had been sanctioned under criminal proceedings for foreign bribery in 13 states that are party to the Convention since it entered into force in 1999. At least 40 of the individuals involved were sentenced to prison and a total of 280 investigations were ongoing in 21 different countries.97

UN Convention against Corruption

The UN Convention against Corruption (UN Convention), to which 140 members are party, entered into force in December 2005. Amongst other things, it requires signatories to implement national measures to achieve the following:

• The prevention of corruption before it occurs (e.g. anti-corruption bodies, enhanced transparency etc.)
• Mandatory criminalisation of basic forms of corruption (e.g. active bribery of national, international or foreign officials, passive bribery of national officials, the embezzlement of public funds, obstruction of justice and money laundering). It also encourages the criminalisation of less obvious forms of corruption, including the passive bribery of officials, trading in influence, abuse of function, illicit enrichment, private sector bribery and embezzlement, and the concealment of illicit assets.
• Obligatory cooperation between parties in the fight against corruption (e.g. prevention, investigation and prosecution – including legal assistance)
• Establishment of asset recovery as a ‘fundamental principle', as well as civil and criminal legal framework for tracing, freezing, forfeiting and returning assets obtained through corrupt activities

Other relevant international legal instruments include, for example, the Inter-American Convention Against Corruption, the Council of Europe's civil and criminal Conventions on Corruption, and the African Union Convention on Preventing and Combating Corruption.

Legal risks - national legal instruments

The terms of these international legal instruments are likely to be reflected in the national legal systems of those states that are party to them. This includes a wide range of the emerging markets in which MNCs operate. For example:

• Brazil: Corruption is addressed through the Penal Code and a number of specific federal laws. The Penal Code establishes penalties for a range of misconduct, including acceptance of bribes, offering bribes and bribery in international business transactions.98 The OECD Convention is implemented through Law No. 10,467 (amending the Penal Code) and Law No. 9,61399
• Russia: A new package of anti-corruption legislation (aimed at implementing the terms of the UN Convention and other international requirements) entered into force in January 2009. This established a broad definition of corruption (including active and passive bribery, commercial bribery and trading in influence)100
• India: The Prevention of Corruption Act 1988 (plus 2008 amendment) criminalises public and private corruption – including active and passive bribery, extortion, bribery of foreign public officials and abuse of office101
• China: Private sector corruption is regulated under the Unfair Competition Law 1993.102 Article 8 of the Law stipulates that bribery by private companies and managers to obtain undue advantages is illegal.

Despite the presence of such laws in a wide range of emerging markets, these will not necessarily pose the primary legal threat to MNCs that find themselves implicated in corrupt behaviour. In part, this is because legislation will not always be as well developed as in a number of better established anti-corruption jurisdictions. Perhaps more significantly, enforcement can be relatively sporadic due to a lack of political will and/or limited enforcement capabilities.

It is worth noting, however, that in extreme cases, certain governments may seek to use local anti-corruption legislation as a form of leverage over MNCs whilst pursuing their own political or commercial goals (see below).

Legal risks - extraterritorial national legal instruments

Given the nature of the issue, most forms of corruption will not only be likely to be illegal where they occur, but will also be illegal in MNC's home countries.

This ‘extraterritoriality' means that it will be increasingly difficult for irresponsible companies to evade strong domestic legislation in their home jurisdictions by taking advantage of instances where emerging markets have ‘weaker' legal frameworks and enforcement mechanisms.

Foreign Corrupt Practices Act (US)

A key example of this can be found in the United States, where the Foreign Corrupt Practices Act 1977 (FCPA) provides a strong disincentive for companies to participate in corrupt activity abroad. The Act, which is actively enforced by the Department of Justice and the Securities and Exchanges Commission, applies to companies listed on US exchanges or with significant operations in the US, regardless of where corruption occurs geographically.103 Its far-reaching scope (which can include non-US companies accused of corrupt activities in non-US jurisdictions) – as well as the proactive stance of the US authorities – means it poses a serious potential risk to a significant number of MNCs. The financial consequences can be significant:

• In December 2008, for example, German industrial conglomerate Siemens AG and its Argentine, Venezuelan and Bangladeshi subsidiaries pleaded guilty to violations of the FCPA and agreed to pay US$1.6 billion to settle related charges in both the US and Germany. This included US$800 million in US criminal and civil penalties, as well as a total of US$814 million in German penalties (including a 2007 fine of €201 million). According to US court documents, between 2001 and 2007 Siemens made payments totalling US$1.36 billion – of which US$554.5 million was paid for unknown purposes and the remaining US$805.5 million was "intended in whole or in part as corrupt payments to foreign officials through the payment mechanisms, which included cash desks and slush funds". According to the December 2008 Complaint from the SEC, payments allegedly related to: metro train projects in Venezuela and China; power generation in Israel; electricity transmission in China; telecommunications in Bangladesh, Nigeria and Vietnam; identity cards in Argentina; medical devices in Vietnam, China and Russia; traffic control systems in Russia; and refineries in Mexico. Gerhard Cromme, Chairman of Siemens' Supervisory Board, said: "Today marks the end of an unprecedented two-year effort to resolve extremely serious matters for the company. Based on robust leadership processes, Siemens has established a sustainable culture of compliance."104
• According to a February 2009 press release from the US Department of Justice (‘Kellogg Brown & Root LLC Pleads Guilty to Foreign Bribery Charges and Agrees to Pay $402 Million Criminal Fine'), US engineering company Kellogg Brown and Root (KBR) and former parent company Halliburton pleaded guilty to charges under the FCPA and agreed to pay a total of US$579 million in fines and forfeited profits. The charges related to the bribery of Nigerian officials in order to win US$6 billion in contracts. These contracts related to the construction and expansion of a gas liquefication plant at Bonny Island in Rivers State, as well as other projects that date back 20 years. According to court documents, KBR was part of a four-company joint venture that was awarded four engineering, procurement and construction contracts by Nigeria LNG Ltd. (NLNG) (itself 49% owned by Nigerian national oil company NNPC) between 1995 and 2004 to build liquid natural gas facilities. KBR pleaded guilty to conspiring with its joint-venture partners and others to authorise, promise and pay bribes to a range of officials, including those in the executive branch of the Nigerian government, NNPC officials and NLNG officials. KBR also pleaded guilty to charges relating to the joint venture's payment of ‘tens of millions' of dollars in ‘consulting fees' to two agents used for conducting bribery.105

UK Bribery Act (UK)

Likewise, in the UK, the new Bribery Act 2010 received Royal Assent in April 2010. When it comes into force in April 2011, the Act will replace the previous anti-bribery regime (perceived by many as inadequate) with a comprehensive anti-bribery framework. Offences under the Act include, for example:

• Paying and receiving bribes
• The bribery of foreign officials
• The failure of commercial organisations to prevent bribery (i.e. where a bribe has been paid by an individual within a company, and the company cannot show it had adequate procedures in place to prevent bribes being paid. This represents a significant departure from the previous legal regime, by placing the onus on the company to demonstrate that its anti-corruption systems are sound)

Penalties include unlimited fines and up to 10 years imprisonment. As with the FCPA, the offences will have extraterritorial application, so that British companies or individuals (or those ordinarily resident in the United Kingdom) can be prosecuted even if the relevant act or omission took place abroad. Furthermore, the Act will also apply to companies that have a business presence in the United Kingdom – whether the relevant act or omission is made in relation to that business or not.

As a result, both MNCs and their executives may be exposed to civil and/or criminal prosecutions in a number of jurisdictions, depending on the specific nature of allegations. In extreme cases, there is scope for company executives to face imprisonment, in addition to criminal fines.

The UK's Serious Fraud Office (SFO) is responsible for enforcing current anti-corruption legislation, as well as the Bribery Act when it is in force. In July 2009, the SFO published a paper (‘Approach of the Serious Fraud Office to Dealing with Overseas Corruption') setting out its concept of ‘self-reporting'. In return for volunteering information about overseas corruption, the SFO offers the prospect of "a civil rather than a criminal outcome" as well as the "opportunity to manage, with us, the issues and any publicity proactively".106 Outside the self-reporting framework, the SFO has indicated its intention to "conduct more criminal investigations and prosecutions in the future".

Reputational risks

General

Even where allegations of corruption or complicity in corruption (or related human rights violations) do not result in legal action, the reputational risks can be serious. Even if unfounded, allegations – or even suspicions – of corruption can have a range of ‘hard to measure' impacts on a company, including:

• Reluctance by other business actors and/or governments to engage in partnerships, joint ventures or other commercial relationships, if for no other reason that they too may become tainted by such allegations or suspicions
• Reduced ability to attract/hold on to conscientious, honest and responsible employees whose personal values may be at odds with the reputation of the company
• Poor investor perceptions, either from an ‘ethical' point of view (e.g. responsible investment funds etc.) or from a ‘business' point of view (e.g. concern regarding governance systems, future legal liabilities, underlying business model etc.)

In a 2008 survey carried out by PriceWaterhouseCoopers, Confronting Corruption, 55% of respondents said reputational damage would be the most severe impact in the event that corruption was discovered in their companies. Participants included a range of major companies, such as Anglo American, Fluor, CH2M Hill, Rio Tinto, SASOL, StatoilHydro, Thales, Newmont Mining and Shell.107

As noted above, where MNCs face relatively ‘abstract' accusations of corruption abroad, this does not necessarily prompt a strong consumer reaction. In part, this appears to be due to a lack of an immediately identifiable ‘victim' –as well as the sometimes unclear boundaries of acceptable and unacceptable business behaviour. In situations where corruption results in a concrete human impact (e.g. through the clear and visible undermining of people's human rights) that is easy to communicate (for example via video footage, photos, journalism etc.), the damage can be far more severe. In extreme cases, this might result in – for example – public campaigns by activists and NGOs, as well as consumer boycotts.

Revenue transparency

Reputational risk may also arise from growing efforts to promote revenue transparency within the extractive industries. This not only includes voluntary initiatives such as the EITI (see above) but also a trend towards more mandatory measures.

For example, in July 2010, the US Congress adopted a measure (within the Dodd-Frank Wall Street Reform and Consumer Protection Act) requiring all companies registered with the Security and Exchange Commission (SEC) – including non-US as well as US firms – to report the amounts they pay foreign government s for access to oil, gas and minerals on a country by country basis. In a July 2010 article (‘Q&A: U.S. Financial Reform and Transparency in Oil, Gas and Mining'), the Revenue Watch Institute reported that of the 32 largest internationally active oil companies, 29 are registered with the SEC or have SEC reporting requirements and would be covered by the new law. Likewise, it notes that eight of the world's 10 largest mining companies could also be covered.

In situations where there is a clear disparity between the sums paid by corporations and the revenues reported by host governments, this may raise concerns amongst stakeholders about:

• The nature of companies' relationships with their host governments
• The degree to which MNCs may contribute to conditions that sustain local corruption and undermine broad-based development

As a result, increased revenue transparency may result in higher degrees of scrutiny of MNCs in the extractive sector – exacerbating both the legal and reputational risks that they face.

In April 2008, for example, Transparency International (TI) published the findings of its 2008 Promoting Revenue Transparency Project in partnership with the Revenue Watch Institute. This assessed the reporting practices of 42 of the world's largest international and national oil and gas companies (IOCs & NOCs) – including efforts to tackle corruption and their transparency about revenue payments made the governments of oil-rich less developed countries.

The TI report assessed companies according to three categories: revenue payments made to governments, the nature of their operations and their anti-corruption programmes. IOCs and NOCs that ranked as 'high' for revenue transparency in foreign countries included BG Group, BHP Billiton, Nexen, Petro-Canada, Shell, StatoilHydro, Talisman Energy and Petrobras. Those ranked as 'low' included China National Offshore Oil Corporation (CNOOC), China National Petroleum Corporation (CNPC), Devon Energy, Exxon-Mobil, INPEX, Kuwait Petroleum Corporation, Lukoil, Oil and Natural Gas Corporation Ltd. (ONGC) and Petronas.

Undermining of the long-term business environment

MNCs have a direct long-term interest in promoting the economic, social and political development of the emerging economies. Such development ensures the growth of demand for MNC's products and services – as well as the maintenance of a stable and productive operating environment in which MNCs can operate safely, predictably and profitably.

TI's Global Corruption Report 2009 notes that although bribery may deliver short term advantages to some companies, in the broader market environment, corruption undermines fair competition, leads to lost business opportunities and fosters corrupt bureaucracies.108

In a 2008 survey carried out by PriceWaterhouseCoopers (see above), almost 45% of respondents said they avoided certain markets or opportunities because of corruption risks and almost 40% said they had lost bids because of corrupt officials. According to certain estimates, more than US$1 billion is paid in bribes each year. Likewise, corruption adds up to 10% to the total cost of doing business globally – and up to 25% to the cost of procurement contracts in developing countries.109

TI's Global Corruption Report 2009 states that "nearly two in five polled business executives have been asked to pay a bribe when dealing with public institutions. Half estimated that corruption raised project costs by at least 10 per cent. One in five claimed to have lost business because of bribes by a competitor."110

As a result, whilst companies may be able to gain short-term advantages through unethical business practices, they are ultimately contributing to the undermining of their own long-term commercial interests and growth environment.

Risks to long-term commercial interests

In addition to the risks outlined above, MNCs face a range of additional commercial risks if they participate in – or are complicit in – corrupt behaviour. For example:

• A company is less likely to be pressurised to pay bribes if it has not done so in the past – or is known to have a zero-tolerance stance towards bribery. As noted in Business Against Corruption – a framework for the implementation of the 10th Principle of the UN Global Compact – once companies have taken the step of paying bribes, they are likely to face repeat demands for further bribes of potentially increasing amounts.111
• Companies and their employees potentially expose themselves to blackmail by indulging in corrupt practices.112 This can result in commercially negative outcomes for companies (for example undesirable contracts) or can put the security of staff, plant and other assets at risk.
• Companies that are involved in corrupt behaviour can face heightened political risks. Host governments can potentially use evidence of corrupt activity (even if it was aware of such activity, did little to stop it or is corrupt itself) as a form of leverage over MNCs. For example, it has been legal instruments related to corruption that have in some cases given host governments the ability to exercise greater leverage in their relations with MNCs. As a result, it is in the interest of MNCs to ensure that they are demonstrably ‘beyond reproach' in terms of their anti-corruption credentials, in order to avoid political risk of this nature. In July 2009, for example, Time Magazine reported (‘China's Rio Tinto Case Gets Uglier') Australian Prime Minister Kevin Rudd warned that the detention of an executive from Anglo-Australian mining group Rio Tinto by Chinese authorities on suspicion of industrial spying and stealing state secrets. The arrests came during difficult ore-price negotiations between China's steel producers and global mining companies.113 Nonetheless, although Rio Tinto had defended the executive (and other employees linked to the allegedly corrupt behaviour), the New York Times reported (‘China Sentences Rio Tinto Employees in Bribe Case') that the company eventually accepted the evidence against them.
• Should commercial relationships formed on the basis of corruption sour or fall into dispute, companies will be unable to seek legitimate legal recourse without exposing their own misdeeds. This has been characterised as "casino risk".
• If a company is perceived to engage in or tolerate corrupt practices externally, this can equally erode internal ethical standards as employees adopt a lax ethical attitude.114
• TI's Global Corruption Report 2009 also notes that corrupt practices can invalidate companies' social licence to operate, damaging the legitimacy and trust that businesses rely on.115
• Corrupt behaviour can result in the blacklisting of companies – for example by international financial institutions. In July 2009, for example, Reuters reported (‘Siemens loses World Bank business for 2 years') that Siemens (see above) was being barred from World Bank projects for a period of two years (backdated to January 2009) – and was paying US$100 million over 15 years to support global anti-corruption efforts.116 In some cases, the implications of such actions can be far-reaching. In April 2010, for example, the World Bank, Asian Development Bank, the European Bank for Reconstruction and Development and the Inter-American Development Bank were reported to sign an agreement for the ‘cross debarment' of project bidders who have received public debarment decisions.117

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Business has a responsibility, according to the UN's "Protect, Respect and Remedy"118 policy framework ("the framework"), to respect all human rights. To meet its responsibility to respect human rights, the framework states that a responsible company should engage in human rights due diligence119 to the level commensurate with the risk of infringements posed by the country context in which a company operates, its own business activities and the relationships associated with those activities.120

The framework also specifies the four main components of the human rights due diligence, which are: a statement of policy articulating the company's commitment to respect human rights and guiding as to the specific actions to be taken to give this commitment meaning; periodic assessment of actual and potential human rights impacts of company activities and relationships; integration of these commitments into internal control and oversight systems; and tracking and reporting performance.

There is a significant body of pre-existing guidance for companies seeking to responsible address dilemmas relating to corruption, including how to resist paying bribes.

Key guidance materials include:

• Transparency International's Business Principles for Countering Bribery: These provide a framework for companies to develop comprehensive anti-bribery programmes
• Transparency International's The 2010 UK Bribery Act - Adequate Procedures: This publication offers guidance on good practice procedures for corporate anti-bribery programmes. Although focused on meeting the requirements of the UK's Bribery Act, many of its elements are cross-applicable in a wide range of jurisdictions
• Transparency International (UK)'s Integrity Pact: This tool aims at preventing corruption in public contracting, through an agreement between the public authorities and all bidders for a public contract
• The World Economic Forum's Partnering Against Corruption Initiative: This is a business-driven initiative that aims to "develop multi-industry principles and practices that will result in a competitive level playing field, based on integrity, fairness and ethical conduct"121
• The International Chamber of Commerce's Combating Extortion and Bribery: ICC Rules of Conduct and Recommendations: These include substantive anti-corruption rules and implementation procedures for voluntary implementation by business
• The International Chamber of Commerce's Fighting Corruption: International Corporate Integrity Handbook: The Handbook sets out a series of anti-corruption challenges and offers practical solutions on how to address commercial dishonesty at its source. It also includes relevant material on facilitation payments, the UN Convention Against Corruption and the prevention of extortion
• The Extractive Industries Transparency Initiative's Rules and Validation Guide: The Guide sets out the requirements for the implementation of the Extractive Industries Transparency Initiative (EITI), including the EITI Principles, Criteria, Articles of Association, Validation Guide and Policy Notes – all of which aims to assist in the successful implementation of this revenue transparency initiative
• The UN Global Compact/International Chamber of Commerce/Transparency International/World Economic Forum's Resisting Extortion and Solicitation in International Transactions II (RESIST II): This is a scenario-based training tool that aims to provide "practical guidance for company employees on how to prevent and/or respond to an inappropriate demand by a client, business partner or public authority in the most efficient and ethical way, recognizing that such a demand may be accompanied by a threat"122
• PriceWaterhouseCoopers' Confronting Corruption - The business case for an effective anti-corruption programme: This report examines what companies are doing to manage corruption risks and what steps they should take to better protect themselves in the future. It features analysis and commentary based on a global online survey of senior executives and anti-corruption specialists (including interviews)
• The OECD's Weak Governance Zones - Risk Awareness Tool for Multinational Enterprises: The Tool aims to help companies that invest in countries where governments are unwilling or unable to assume their responsibilities- i.e. ‘weak governance zones'. It sets out a range of questions around risks and ethical dilemmas in such countries – including those around corruption – and complements the OECD Guidelines for Multinational Enterprises (below)
• The OECD's Guidelines for Multinational Enterprises: The Guidelines are based on recommendations addressed by governments to MNCs operating in or from the 31 OECD countries (plus Argentina, Brazil, Chile, Egypt, Estonia, Israel, Latvia, Lithuania, Morocco, Peru, Romania and Slovenia). They set out voluntary principles and standards for responsible business conduct, in a variety of areas, including combating bribery.

Whilst the above documents can provide detailed guidance in specific areas, key elements include the following (please note that the following list is not intended to be exhaustive):

1. Establish an anti-corruption policy and programme

Transparency International's Business Principles for Countering Bribery recommends that company anti-corruption programmes should, at a minimum:

• Prohibit all forms of bribery – whether direct or through third parties
• Prohibit employees from "soliciting, arranging or accepting bribes intended for the employee's benefit or that of the employee's family, friends, associates or acquaintances"
• Prohibit the making of direct and indirect contributions to political parties, organisations or individuals engaged in politics "as a way of obtaining advantage in business transactions"
• Require disclosure of all political contributions
• Ensure charitable contributions/sponsorships are "not used as a subterfuge for bribery"
• Require disclosure of all charitable contributions
• Commit to identifying and eliminating facilitation payments
• Prohibit the offer or receipt of gifts, hospitality or expenses "whenever they could affect or be perceived to affect the outcome of business transactions and are not reasonable and bona fide"123

Transparency International's and the World Economic Forum's Partnering Against Corruption Initiative (PACI) notes that these policy requirements should be implemented through a comprehensive anti-corruption programme that includes the following (general) elements:

• Board-level oversight and CEO-level responsibility for implementation (including visible leadership)
• Application of the programme to controlled subsidiaries (and, if appropriate, joint venture partners through contract protections etc.)
• Due diligence prior to entry into joint ventures (and, if necessary, on an ongoing basis) and into relationships with agents, advisors and other intermediaries) – as well as due diligence of contractors, subcontractors and suppliers. This should include monitoring and – where appropriate – termination on the basis of anti-corruption contract conditions
• Fair and transparent procurement procedures
• Communication that no employee will face any adverse consequences for refusing to pay bribes, even if it means a loss of business
• Sanctions for corrupt conduct by employees – including potential termination
• Tailored training programmes for managers, employees and agents (and, where appropriate, contractors and suppliers)
• Provision of a secure and accessible facility for whistle blowing – as well as the provision of guidance
• Effective internal communication of anti-corruption policy, as well its public disclosure
• Maintenance of accurate records for all financial transactions
• Implementation of internal controls to ensure an effective system of checks and balances over accounting and record-keeping. This should be subject to regular audit to ensure its continued efficacy
• Period review of the programme by the Board, Audit Committee or equivalent body124

Ideally, anti-corruption programmes should be subject to external verification and assurance, in order to ensure the company is performing at the highest level.

• Swiss-based global power and automation group ABB has a set of business ethics standards based on the principles of ‘zero tolerance', full and fair recording of transactions, continuous employee training and awareness-raising, and regular monitoring and reporting. It includes provisions relating to conflicts of interest, bribery and corruption, agents and intermediaries, and political contributions. See:
  ABB (Global)
• In 2009, French-based technology company Alcatel-Lucent instituted a ‘zero tolerance' compliance policy. Under this policy, the company reduced its corruption risks by phasing out the use of agents and consultants. As part of their ‘zero tolerance approach', Alcatel-Lucent takes a transparent approach to past ‘controversies', which are analysed on the company website. See:
  Alcatel-Lucent (Global)
• German-based chemicals company BASF has an extensive compliance programme in place, headed by a Chief Compliance Officer (CCO) supported by a global network of 100 compliance officers. The CCO reports directly to the Board. The Compliance Programme is supported by extensive employee training and auditing. See:
  BASF (Global)
• Pharmaceutical company Merck takes a fully transparency approach to the online disclosure of its grants to medical, scientific and patient organisations (both within the US and beyond), payments to US-based healthcare professionals, philanthropic grants, political contributions and clinical trial disclosures. See:
  Merck (US/Global)

2. Conduct risk assessments

Although risk assessments can take place at any time, it is particularly important that companies conduct them at the outset of business activities, for example when:

• Entering into new relationships
• Entering into new markets
• Establishing new operations

The coverage of any risk assessment would necessarily be dictated by the company's specific circumstances and follow best practice for impact assessment. This includes undertaking a baseline assessment, predicting corruption risks and specific likely circumstances surrounding exposures, mitigating risks wherever possible (corporate code, guidance, strategies to resist bribes, training etc.), managing those risks not mitigated, and measurement of continuous improvement (including setting targets on an annual basis).

According to the UN's Protect, Respect and Remedy: a Framework for Business and Human Rights, risk assessments should ideally cover the following broad categories125:

External environment

First, companies should analyse the risks posed by the external environment. This includes, for example, questions around the latent risks posed by the operating environment. For example:

• Levels of corruption in a country/sub-region/specific location (e.g. the latent risks posed by the geographical location of operations)
• Levels of corruption in a particular sector (e.g. the relative risks posed by the specific sector the company is operating in)
• The relationship between corruption and human rights (e.g. identification of how external corruption risks relate to human rights risks)

There are a wide range of tools available to help in this process. This includes resources such as the World Bank's Doing Business indicators, Transparency International's Corruption Perceptions Index, the World Bank Institute's Worldwide Governance Indicators and Maplecroft's Business Integrity and Corruption Index. In addition, there are numerous reports examining corruption, including the US Department of State's Human Rights Reports, Transparency International's Global Corruption Reports, the Business Anti-Corruption Portal's country profiles, Amnesty International's country reports and Human Rights Watch's World Report.

Internal environment

Second, companies should analyse the risks posed by the nature and circumstances of their own operations. This includes questions around, for example:

• The size of operations (e.g. are procurement budgets significant enough to increase the risk of corrupt activity?)
• The efficacy of internal anti-corruption measures and systems (e.g. does the company have a comprehensive anti-corruption policy in place, and is it effectively implemented through rigorous management systems?)
• Past performance (e.g. has the company faced allegations of corruption in the past?)

This is essentially an issue of internal review, in order to examine whether the company itself poses corruption risks and whether its own risk mitigation systems are sufficient given the external environment it is operating in and the business relationships it holds. Specific issues to examine include those listed above (e.g. see Anti-corruption policy and programme) in order to establish, for example, the efficacy and comprehensiveness of the company's:

• Anti-corruption policy (e.g. gap analysis against best practice)
• System of employee sanctions
• Anti-corruption training
• Whistle blowing mechanisms
• Internal controls and record keeping
• Monitoring and reporting mechanisms

Business relationships

Thirdly, companies need to analyse the risks posed by their business relationships (including business partners, suppliers, agents, officials, government bodies etc). Issue to address might include (where relevant and appropriate):

• Ownership structures (e.g. conflicts of interest, control, etc)
• Business relationships (e.g. personal, political, etc)
• Past evidence of corruption (e.g. media reports, criminal records, court judgements, etc)
• References (e.g. from pre-existing, trusted business contacts, etc)

The Business Anti-Corruption Portal , for example, provides a number of due diligence tools covering agents, consultants, joint ventures, contractors and public procurement. Likewise, the International Association of Oil & Gas Producers' Guidelines on Reputational Due Diligence provides a range of guidance on the opportunities and risks of engaging with third parties.126

• Norwegian aluminium and energy company Norsk Hydro outlines the company's risk assessment approach to entering into new activities or relationships. This includes a review of socio-economic conditions, due diligence of potential partners and consultants and continuous project assessment. See:
  Norsk Hydro (Global)

3. Promote Integrity Pacts in public contracting

The Integrity Pact is a tool developed during the 1990s by Transparency International to help governments, businesses and civil society discourage corruption in the public contracting process – and similar processes.127 Collectively, MNCs can promote the use of such agreements, particularly when competing against other MNCs who have a shared interest in promoting a ‘level playing field'.

It is based on the establishment of an agreement between a government and all companies competing for a public contract. The terms of this agreement requires that neither side will "pay, offer, demand or accept bribes, or collude with competitors to obtain the contract, or while carrying it out". Furthermore, bidders are required to disclose all commissions (and similar expenses) paid to anyone in connection with the contract. Importantly, the agreement needs to specify those sanctions that will apply in the event that bribery does take place – including, for example, loss of the contract to blacklisting for future tenders. By committing to a common set of rules, competitors can pursue the relevant tender without feeling they are being disadvantaged by competitors' corrupt behaviour.

According to Transparency International, Integrity Pacts can be applied to:

• Government construction and supply contracts
• The purchase of privatised state assets by companies
• Engineering, architectural or other consultants
• The granting of state licences or concessions (e.g. oil, gas, minerals, fishing etc.)
• Contracts relating to government regulated services such as telecommunications, utilities, etc.

According to Transparency International, Integrity Pacts have been used in Argentina, Colombia, Ecuador, Germany, Mexico, Indonesia and Pakistan. They are also reported to serve as a general model in entire sectors (e.g. construction in China), groups of public institutions (e.g. public undertakings in India) or local governments (e.g. Milan, Italy).128

In 2005, for example, eight companies took part in a US$600 million suburban railway project in Mexico (Cuautitlan- Buenavista route). They did so under an Integrity Pact overseen by an independent monitor assigned by Transparency International Mexico. This monitor was present at all events related to the bidding.129

In the same year, India's Oil and Natural Gas Corporation (ONGC) adopted the Integrity Pact concept in order to help regulate a contracting process of around US$5 billion a year. As of March 2007, more than 500 vendors had signed the pact, which was implemented with the assistance of Transparency International India. All complaints made to the independent monitors were satisfactorily and expeditiously resolved.130

4. Provide employees with training and guidance

Internal initiatives

Clear guidance is essential in order to help employees identify, avoid and manage potentially corrupt situations/relationships – particularly given the sometimes ambiguous circumstances in which corruption can take place. In many cases, MNCs will choose to establish their own internal guidance that is well tailored to their own individual circumstances, as well as the specific corruption risks that these pose to their operations.

For example, Shell has published a comprehensive Code of Conduct, addressing issues such as personal and business integrity (including bribery and corruption, conflicts of interest, gifts and hospitality, insider dealing, and political activities and payments), as well as financial and asset protection (including public disclosure, financial reporting and money laundering).131 In addition to setting out the principles by which the company expects employees to act (e.g. "Shell employees must never accept or give a bribe, facilitation payment, kickback or other improper payment for any reason."), it is supported by extensive online learning resources, including a Management Primer and relevant case studies.132

According to AT&T's Corporate Citizenship website more than 99 percent of their employees have taken Code of Conduct Business training, including topics on human rights and corruption.133 Furthermore, more than 99 percent of managers completed courses on Ethical Leadership in 2009. This emphasises the importance of ethical leadership.

Likewise, Hewlett Packard's Ethics and Compliance website notes that the company provides extensive communications and training on business ethics and compliance.134 This includes, for example, a mandatory 90 minute annual refresher course using video training. The training includes lessons learned from actual incidents, as well as a resource guide. This course is supplemented by a series of online videos called ‘Integrity Minutes', which depict ethics and compliance issues as they might appear in actual workplace situations. Meanwhile, the company's ‘Ethics Bulletin' presents two ethics and compliance issues that actually occurred within the company (with personal details removed), and how these were resolved.

External initiatives

In addition to developing their own guidance, companies may choose to participate in external education and training programmes. For example, the Resisting Extortion and Solicitation in International Transactions (RESIST II)135 tool has been jointly developed by the International Chamber of Commerce, Transparency International, the UN Global Compact and the World Economic Forum. RESIST II is aimed at assisting those companies whose employees face regular demands for bribes and/or extortion. It provides 22 scenarios – based on real experience of contributing stakeholders – to help guide employees on how to prevent or respond to an inappropriate demand by a client, business partner or official in the most efficient or ethical way possible.

Companies that have participated scenarios to RESIST II include, for example, Alcan, The Coca-Cola Company, EADS, Fluor Corp., Philips, Siemens and Thales. Seven of the scenarios deal with solicitation in the procurement process. These include, for example, situations where:

• A bribe is solicited for confidential information during pre-bidding or bidding rounds
• A host country imposes a partnership with a designated local company that may present high corruption risks

The remaining scenarios examine solicitation in the context of project implementation and day-to-day operations. In each case, the scenario focuses on 1) demand prevention and 2) response to a bribery demand. Scenarios include, for example,

• The holding of essential equipment in customs for clearance, with its release contingent on payment of a ‘special' fee
• The offer of a bribe to a contract manager by a supplier in order to overlook ‘out of spec' or inferior goods or services

• German-based chemicals company BASF provides mandatory compliance training to all employees in their first year of employment – supplemented by refresher courses (including interactive learning programmes). In 2009, more than 25,000 employees took part in compliance training. See:
  BASF (Global)
• US-based engineering company Fluor works with the American Society of Civil Engineers on anti-corruption and CEO Alan Boeckmann is chair of its Anti-Corruption Education and Training Project. The centrepiece of ACET is the ‘Ethicana' movie, which dramatises bribery situations, as well as discussion topics, train-the-trainer instructions and takeaway materials. See:
  Fluor (Global/US)

5. Establish confidential advice and whistle-blowing mechanisms

Employee training should ideally be complimented by the implementation of mechanisms to allow employees to seek advice about potentially corrupt situations – or to report suspicious business behaviour. In many cases, the best way in which employees should seek advice or raise concerns will be through their immediate supervisors or managers (i.e. through normal corporate structures).

Nonetheless, in some cases (for example where supervisors or managers are also implicated, or where an employee fears that raising concerns will result in self-incrimination or punishment ), alternative arrangements – such as confidential advice and whistle-blowing hotlines – will be more appropriate.

Ideally, particular focus should be placed on providing easily accessible, pragmatic and astute advice to employees, thus stopping corruption from occurring in the first place (i.e. a ‘preventative' approach). Depending on circumstances, advice might be provided by internal experts (e.g. in-house counsel) or by external legal advisors. Provision of such advice will pre-empt many potentially corrupt situations, and stop employees from inadvertently becoming involved in corrupt activity.

Where such mechanisms do not prevent corrupt activities taking place (for example, where it is a matter of intention rather than inadvertent error), mechanisms need to be put in place to ensure employees can report on corrupt activity a) confident that such reports will be properly investigated and b) without fear of retribution (i.e. a ‘reactive' approach).

In July 2008, the International Chamber of Commerce published its Guidelines on Whistleblowing. Recommendations include the following:

• Handle reports quickly and confidentially
• Assign responsibility for whistle blowing to a senior executive
• Communicate it in a range of languages
• Abide by external legal restrictions
• Allow reporting to be anonymous or disclosed, compulsory or voluntary
• Acknowledge, record and screen all reports
• Enable employees to report incidents without fear of retaliation, discrimination, or disciplinary action136

According to a 2007 study by KPMG, 25% of incidents of fraud among 360 incidents analysed came to light due to company whistle blowing systems.137

Examples of the many MNCs that maintain advice and whistle-blowing mechanisms include the following:

• Shell has a Global Helpline to allow employees and other stakeholders to "to raise concerns or dilemmas, or to seek advice on a matter related to compliance with the law and our business principles (SGBP) and Code of Conduct, in full confidence and without fear of retaliation. Reports, which can be anonymous, will be allocated to a case manager who will, if appropriate, assign an investigation team.
• Toyota contracts an external law firm to "establish a Compliance Hotline that allows employees to consult in private in the event they have any questions or doubts concerning issues of legal compliance"
• Volkswagen maintains an ombudsman system by which two independent lawyers are available on an international hotline to any employee. The lawyers are bound to maintain confidentiality and can only pass on information regarding corruption issues to internal investigators with "the express permission of the person providing the information".
• Wal Mart maintains a Global Ethics Office, which includes a confidential online submission form to allow users to request advice, submit ethics concerns and check the status of previously submitted reports.

• Anglo-Australian mining group BHP Billiton has established a confidential Business Conduct Advisory Service for employees, contractors and external parties to ask business conduct questions or to raise a business conduct concern from any country in which the company has an operation or major office. See:
  BHP Billiton (Global)

6. Participate in a multi-stakeholder anti-corruption and transparency initiatives

In a presentation entitled Fighting Corruption Through Collective Action, the World Bank Institute notes that collective anti-corruption initiatives can:

• Strengthen anti-corruption commitments amongst different stakeholders
• Create incentives for stakeholders to avoid bribery and corruption and eliminate violations by individual companies
• Create incentives to avoid corruption by individuals within companies and governments138

Cross-sectoral initiatives

For example, the Partnering Against Corruption Initiative (PACI) of the World Economic Forum has seen a wide range of companies commit to: "A zero-tolerance policy towards bribery" and "development of a practical and effective implementation programme".139 The PACI has been signed up to by 145 companies, including a significant number of major MNCs including Alcatel-Lucent, Arup Group, BASF, Bechtel Group, BHP Billiton, Eskom, Fluor Corp., Petrobras, Schindler Holding and Siemens AG.140

Likewise, Trace International is a non-profit membership organisation that provides practical anti-corruption guidance to MNCs and their commercial intermediaries. Member services include due diligence reports, best practice benchmarking surveys and research, anti-corruption resources and training workshops.

Sectoral initiatives

Another important global initiative aimed at tackling ‘macro-level' corruption is the Extractive Industries Transparency Initiative (EITI). The EITI aims to improve governance in resource-rich countries through the "verification and full publication of company payments and government revenues from oil, gas and mining". It is made up of a coalition of governments, companies and civil society groups, investors and international organisations. It works by having extractive companies disclose their payments to host governments, whilst at the same time having host governments disclose their receipt of payments. These are then subject to independent verification – a process that is overseen by a multi-stakeholder group.

Around 50 extractive companies participate in the EITI (through their operations in implementing countries,

international-level commitments and/or industry associations). These include the members of the International Council on Mining and Metals, Alcoa, Arcelor Mittal, BP, Chevron Corp., ConocoPhilips, Hess Corp., Shell, Statoil and Total. Azerbaijan, Liberia and Timor-Leste, are rated as ‘EITI Compliant Countries', whilst a total of 28 other countries (ranging from Afghanistan to Zambia) are rated as ‘EITI Candidates'.

Other examples of sectoral anti-corruption initiatives include:

• The Aerospace and Defense Industries Association of Europe (ASD) Common Industry Standard (which asserts principles for gifts, hospitality and political contributions – including rules around transparency and accountability). ASD members include Airbus, BAE Systems, Dassault Aviation, EADS, Rheinmetall Defence, Saab and Thales.141
• The Defence Industry Initiative on Business Ethics and Conduct has published a set of principles aimed at ensuring honesty in business dealings, protection of taxpayers' money and the provision of high quality products and services to the US military. Members of the initiative include Boeing, General Electric, Honeywell International, IBM and Lockheed Martin.142
• The International Federation of Pharmaceutical Manufacturers & Associations International Federation of Pharmaceutical Manufacturers & Associations Marketing Practices Code (which sets out standards for the ethical promotion of pharmaceutical products to healthcare professionals)143

• US-based engineering company Fluor is a founding member of the World Economic Forum's Partnering Against Corruption Initiative (PACI), which is led by the company's chairman and CEO, Alan Boeckmann. Fluor also works with the American Society of Civil Engineers on anti-corruption and Boeckmann is chair of its Anti-Corruption Education and Training Project. See:
  Fluor (Global/US)

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Country contexts

According to Transparency International's 2009 Corruption Perceptions Index, those countries seen as least corrupt include:

Figure 2: Countries perceived as least corrupt

New Zealand	Finland
Denmark	Netherlands
Singapore	Australia
Sweden	Canada
Switzerland	Iceland

Those countries perceived as being the most corrupt include:

Figure 3: Countries perceived as most corrupt

Haiti	Iraq
Iran	Sudan
Turkmenistan	Myanmar
Uzbekistan	Afghanistan
Chad	Somalia

Corruption and human rights contexts

As a general rule, those countries that pose a serious corruption risk will often demonstrate a relatively poor human rights record. For example, out of the 10 most extreme risk countries in Maplecroft's Human Rights Risk Index 2012, four of them also rank amongst the 10 most extreme risk countries in Maplecroft's Corruption Index 2012 (see Figure 4).144

Figure 4: Corruption and human rights overlap145

Top 10 extreme risk countries in Maplecroft's Human Rights Risk Index 2012	Top 10 extreme risk countries in Maplecroft's Corruption Index 2012
Sudan	DR Congo
DR Congo	Equatorial Guinea
Somalia	Myanmar
Afganistan	Somalia
Myanmar	Sudan
Pakistan	Zimbabwe
North Korea	Burundi
Yemen	Cambodia
Iraq	Haiti
Iran	Togo

As a result, MNCs operating in areas where they are conscious of a significant corruption risk should be aware that human rights are also likely to pose a serious issue – and vice versa. Although there is little empirical evidence to fully explain this apparent relationship, this partly appears to be because corruption often serves to undermine the very institutions, political processes and civic culture needed for human rights to flourish. Similarly, poor human rights conditions can often result in higher levels of corruption due to a disregard for individuals' legitimate rights and the lack of checks and balances on the actions of those in whom economic or political power is concentrated.

Human rights impact

The cross-cutting nature of corruption means it has the potential to affect a very wide range of human rights, depending on circumstances. As a result, it is difficult to identify a comprehensive list of those human rights it can impact on. Nonetheless, there are a number of human rights that corruption can pose a particular risk to. In most cases, this is as a result of official corruption, rather than as a direct consequence of business corruption.

• Right to an effective remedy for acts violating fundamental rights (UDHR, Article 8) and Right to a fair trial (UDHR, Article 10): In circumstances where corruption has affected judicial and/or official decision-making, individuals are likely to find their ability to seek redress for the abuse of their other fundamental human rights severely undermined. As a result, this is in some ways the most fundamental ways in which corruption can impact on all human rights. Whilst it is unlikely that MNCs will themselves come into direct contact with this issue, they may be operating in circumstances in which their partners (whether business or government) are willing to undermine individual rights of redress in order to provide what they believe is a more attractive business environment, or to smooth the way for specific projects.
• Right to participate in public life (ICCPR, Article 25): In societies characterised by serious corruption, it is highly unlikely that citizens will fully achieve this right. For example, corruption is likely to undermine their ability to be represented by their freely chosen representatives, result in elections that do not express the will of electors or deny equal access to public service. Where corrupt business activities or arrangements (e.g. illicit payments to political parties, the opaque disposal of natural resource revenues etc. in order to secure and maintain lucrative extractive licences) help support corrupt governments in such a way that undermines democracy in a country – they are potentially complicit in the violation of this right.
• Right to equality before the law, equal protection of the law, and rights of non-discrimination (ICCPR, Article 26): As with the right to effective remedy, this right is at significant risk from corruption. By its very nature, corruption often has the very purpose of achieving inequality before the law, the unequal protection of the law and the achievement of an illegitimate advantage over other stakeholders. By the very fact that a bribe is being made to induce a specific official decision in the favour of the payee, it is inducing discrimination against those other competing parties who have not resorted to bribery.
• Right to an adequate standard of living (including access to adequate food, clothing, housing and water) (ICESCR, Article 11): The negative economic impact of corruption, as well as the tendency for serious corruption to disadvantage more vulnerable sections of society by channelling public revenues in the interests of powerful or influential elites means that large sections of society are potentially having this right undermined. This is particularly the case in resource rich countries in which only a small proportion of natural resource revenues is used in the promotion of national development – with sums instead being channelled into the accounts of – or used for the benefit of – political leaders, officials or other influential figures. The result can be unnecessary poverty and a severe lack of human development – particularly as there is little incentive amongst elites to promote growth in other economic sectors.

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