China, Nigeria and the UK are all in different stages of addressing bribery and corruption as business practices.
A tragedy like the 2013 factory collapse in Bangladesh is something that no company wants to be associated with, and progressive, multinational firms are finding that the need for an accurate picture into complex webs of suppliers and distributors is growing.
The incident, which authorities ultimately linked to local corruption, led various fast-fashion companies to sign safety deals with the country’s garment factories. But more than just a trigger for government crackdowns, the events also served as a glimpse into the risks of opaque supply chains.
“They are as worried about reputation risk, of being caught, as they are regulatory enforcement,” says David Craig, president, financial and risk at Thomson Reuters.
One result of the Bangladesh tragedy was the Alliance for Bangladesh Worker Safety, according to Brian Dodge, executive vice-president of communications and strategic initiatives at the U.S. Retail Industry Leaders Association. His organization worked with trade organizations and retailers to find a way to “try to overcome the absence of enforcement in the country itself.”
“It had everything to do with consumers demanding that retailers have an understanding of what’s happening at the outer tentacles of the supply chain,” says Dodge.
Craig adds that evolving regulations around the world have spurred the need for Know Your Third Party tools, which has become “a growing business.”
“There’s a big trend of global corporations trying to understand a lot more about who they’re doing business with, particularly in emerging markets,” he says.
An uphill road to climb: China
In China, a much tougher stance on corruption and bribery in recent years is only just beginning to show glimmers of fruit.
The anti-corruption campaign launched by Chinese President Xi Jinping – including the 2013 pronouncement that his government plans to crack down on “tigers and flies” (which means both powerful leaders and low-ranking bureaucrats) – has since led to a handful of high-profile investigations and charges against people and companies.
After a chemical warehouse explosion that killed 173 people in Tianjin in August, company and government officials were investigated for corruption, and “it came to light that the person who owned that business had paid a bribe,” says Walid Hejazi, an International Business professor at the University of Toronto’s Rotman School of Management.
Hejazi said that more individuals and government people are being prosecuted for taking bribes now, but in his dealings with executives from China, “there’s a definitely sense that things are going in the right direction,” even though there still remains a sense there is a “group within the Chinese establishment that are untouchable.”
Craig of Thomson Reuters says he has also seen a “noticeable change” in how business is being done in China over the past year or so.
That includes how his company procures business, how they get into contracting and how they work. For example, he has seen independent entities run a bidding process for a large government contract, with strict rules – something that wouldn’t have happened even a couple of years ago.
According to reports released by the Supreme People’s Procuratorate (SPP), the top prosecuting office in China, there is a growing number of individuals being investigated and prosecuted for bribes over the past two years.
In a recent article, Jianwei Fang, a partner at Global Law Office in China, says the country’s anti-corruption drive “shows no sign of ending any time soon,” and has advised multinationals in China to “exercise more caution in their business dealings.”
Chinese bribery investigations could also have broader implications under both the U.S. Foreign Corrupt Practices Act (FCPA) and the U.K. Bribery Act, Fang says.
He cites the recent case with GlaxoSmithKline Plc, which last year was fined a record 3 billion yuan ($472-million U.S.) by the Chinese government for paying bribes to doctors to supply the drugs they use. GSK also faces investigations into its overseas practices by U.S. and British authorities, according to Reuters.
“Chinese anti-corruption investigators are forging close working relationships with their counterparts abroad and evidence of wrongdoing may be shared across jurisdictions,” Fang writes.
He says multinationals must ensure their business practices are in line with both Western and Chinese bribery laws and regulations.
But while there has been an increase in anti-corruption activity from the Chinese government, it’s clear that China still suffers from growing pains, and its efforts stand to be undermined by its reputation as a country without free press or transparency.
“I’m skeptical, even though I’d like to be optimistic,” says Robert Barrington, executive director, Transparency International, a London-based non-governmental organization that monitors and publicizes corruption in international development.
“Although we have seen cases put into the public domain by the Chinese authorities, it’s actually very difficult to defend whether the ‘tigers and flies’ campaign is very serious, whether it’s entirely politically motivated, how widespread it is, whether it’s effective and whether it’s fair.”
The pains of transition: Nigeria
Meanwhile, Nigeria’s efforts to curb corruption have appeared to begin with an auspicious start – the West African nation shook off its corrupt government by electing a strongly anti-corruption president earlier this year, and things are changing quickly, says Barrington.
The oil industry has created great wealth in the country — Nigeria is Africa’s biggest producer of oil — and yet large numbers of Nigerians live in poverty. According to Transparency International’s 2014 Corruption Perceptions Index, Nigeria ranked 136 out of 175 countries. For comparison, Canada was in 10th place, the U.K. ranked 14 and China was 100.
“The former petroleum minister was arrested here in London. That clearly would not have happened under the old regime, but there are grounds to suspect that it should have happened,” says Barrington, adding that there is optimism in the country now, with a greater possibility of changing now than they have any time in the recent past.
The recent firing of the country’s anti-corruption chief, Ibrahim Lamorde, also points to positive signs.
An official in the previous administration, he was “deeply compromised,” according to Darren Kew, executive director of the Center for Peace, Democracy, and Development at the University of Massachusetts Boston.
Replacing Lamorde with someone who has a good reputation “shows the possibility of trying to revive some of the anti-corruption machines,” he says. .
Kew suggests that the country has sufficient anti-corruption measures already in place, with the current ones even overlapping with competing mandates. “There could be some harmonization between anti-corruption units. Put some credible people in charge of them and let them compete, see who can bring in the most corrupt individuals,” he says.
The hope is that there will be real change that will lead to a changed perception of Nigeria on the world stage.
In using Thomson Reuters supply chain mapping tool to identify potential supply chain weaknesses, “as soon as certain countries come up as a supply from Nigeria or others it creates a red flag, because they just know that they now have to do more work, they have to look at it,” Craig of Thomson Reuters says, adding that the only way to create employment will be to reinstate confidence.
“If there’s corruption, that destroys confidence,” says Craig. “If there’s bribery, there’s a lack of confidence. International investors won’t go in, local investors won’t invest, the two are very related, but it’s more of an economic issue, where you have to build a sustainable economy, as much as a corruption issue.”
Next generation enforcement: The United Kingdom
In the United Kingdom, where regulators have attempted to address corruption and bribery concerns for years, it has been five years since updated laws were implemented – laws that are considered to be some of the toughest regulations today.
One of strictest measures in the UK Bribery Act, which took effect in July 2011, is a new liability offence for companies and their partners on failing to prevent bribery. That is alongside other key offences such as taking or receiving a bribe. The Act also includes all private sector transactions, whereas previous legislation in the U.K. only covered public officials and their agents.
The U.K. Act is also seen as taking things one step further than the U.S. Foreign Corrupt Practices Act from 1977. The FCPA doesn’t cover bribery between private sector companies.
“That is very important in the modern world where lots of public services are outsourced,” says Barrington.
The U.K. law has influenced other countries around the world to look at ways to toughen their regulation and enforcement, and it has also been a factor in the tightening web of global companies that are increasingly looking to be aware of the possibility of corruption or bribery in their supply chains.
Craig says U.K.-based multinational companies that fall under the Act, such as Royal Dutch Shell plc, BP plc and Vodafone Group plc, are helping to set the standards by “effectively transmitting that regulation around the world.”
The number of international businesses in the U.K. mean that companies are now pouring a lot more time and resources into ensuring that they not only remain compliant, but that their suppliers and other companies with which they conduct business are compliant as well.
For retailers, organizations such as the U.S. Retail Industry Leaders Association, and the British Independent Retailers Association can help companies navigate legal, best practices, and human rights issues while conducting business in foreign countries.
While the number of prosecutions have been limited under the law, Craig believes it will be “just a matter of time,” given the complexity of the charges.
“I think so far [the Act] has been successful,” Craig says, noting that strategic nature of the U.K. in the business landscape.
“It has also put a heightened awareness around the world as to how we must enforce the rules of doing good business, and not fall into the traps of bribes and other things,” he says.