Increasing global cooperation against corruption raises stakes for
companies - Ernst & Young
Corporate misconduct - individual consequences finds a worldwide
clamour for enhanced transparency at a time of increased geopolitical
tensions and heightened volatility in financial markets. The escalating
threats of cybercrime, terrorist financing and, more recently, the
revelations regarding widespread possible misuse of offshore
jurisdictions, have increased pressure on governments to act and
companies to identify and mitigate fraud, bribery and corruption issues.
Conducted between October 2015 and January 2016, the survey of nearly
3,000 senior business leaders from 62 countries and territories
highlights overwhelming corporate support for enhanced beneficial
ownership transparency, with 91% of executives recognising the
importance of establishing the ultimate beneficial ownership of entities
with which they do business. EY Global Leader of Fraud Investigation and
Dispute Services, David Stulb, says, "With the continuing
anti-corruption enforcement focus on third-party conduct, and the recent
revelations on the possible misuse of offshore financial structures,
business leaders are right to be focused on securing a deeper
understanding of their clients, partners and suppliers. Enhanced
transparency is clearly a focus of broad public interest."
Increased transparency is, however, only one facet of the solution to
a problem that shows no sign of abating. In total, 39% of respondents
believe that bribery and corrupt practices happen widely in their
country, little changed from 38% in 2014 and 38% in 2012. In a question
introduced in this year's survey, 32% of respondents report that they
have had personal concerns about bribery and corruption in their
workplace.
Coordinated efforts
Regulators recognise the threat that bribery and corruption pose to a
financial system already under stress and are increasingly cooperating
across borders to hold individuals accountable for illegal acts. Such
enforcement efforts appear to be heavily supported by survey
respondents, with 83% agreeing that prosecuting people will help deter
future fraud, bribery and corruption.
However, with 42% of respondents admitting that they could justify
unethical behaviour to meet financial targets, and 16% of finance team
members below the CFO ready to justify making a cash payment to win or
retain business, those executives responsible for ethics and compliance
appear to be facing a significant challenge if they are to keep their
organisations clear from the scrutiny of prosecutors.
The survey also identified a perception in emerging markets that
individuals responsible for corruption are not being held to account,
with 70% of respondents in Brazil and 56% in both Africa and Eastern
Europe believing that although governments are willing to prosecute,
they are not effective in securing convictions.
Stulb says, "Increased levels of global cooperation between law
enforcement agencies are making it harder for fraudsters and
bribe-payers to evade prosecution. However, with respondents indicating
that such misconduct is showing no sign of abating, companies continue
to be exposed to major risks driven by the illegal actions of a small
minority of employees.
|"Better use of technology is certainly part of the answer. More can
be done to leverage forensic data analytics to manage these risks and
improve compliance and investigative outcomes."
There are some positive indicators in markets where governments and
regulators have taken steps to crack down on impropriety. In India, for
example, where steps to increase transparency and crackdown on
corruption have been taken by the government, the proportion of
respondents from this country believe that bribery and corruption
happens widely in the country declined from 67% in 2014, to 58% this
year.
In China, 74% of local respondents report that enforcement is
effective, indicating the apparent effectiveness of the Chinese
Government's commitment to tackle corruption.
Robust compliance, robust growth?
Partner, fraud investigation and dispute services in EY Sri Lanka,
Averil Ludowyke says expanding into new markets is essential for most
companies, yet such expansion brings new and less familiar risks. The
research shows that companies are frequently failing to take appropriate
steps to respond and reduce their risk exposure:
* One in five do not identify third parties as part of their
anti-corruption due diligence
* One in three do not assess country or industry-specific corruption
risks before making investments
* Only half utilise technologies such as forensic data analytics to
identify and mitigate risks.
Innovation
Ludowyke re-affirms that "Whistle-blowers remain a critical source of
information on alleged misconduct."
According to this year's survey, 55% of companies have whistle-blower
hotlines in place. Regulators welcome such tips, and in some
jurisdictions, including the US, whistle-blowers are offered substantial
monetary rewards. Yet such mechanisms are not always effective.
Survey respondents report barriers to using such mechanisms:18% cite
that loyalty to colleagues would deter them from reporting an incident
of fraud, bribery and corruption and 19% cite loyalty to their company
as a deterrent.
Stulb says, "What we are seeing clearly is that some employees, with
widely varying motivations, are prepared to misappropriate - or enable
others outside the firm to have access to - the confidential data of
their companies.
"The balance between data privacy and security creates further
complications. Dealing with such cyber and insider threats should be a
top priority for management and boards. Yet 59% of CFOs view cybercrime
as a low risk- a perspective that deserves robust challenge."
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