Corporate Bribery: What to Watch Out For and How to Stop It
When thinking about bribery — particularly that of a federal agent — offering a couple of cases of beer usually isn’t your first thought. However, over this past weekend a North Carolina judge was convicted of bribery for offering a law enforcement official just that to gain access to family cell phone records.
While it’s unlikely that any of your employees will engage in similar antics, bribery and corruption should still be a concern for your business. Back in 2010, an internal audit at Ralph Lauren Corporation revealed that one of its subsidiaries in Argentina had paid out roughly $568,000 in bribes to government officials.
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Upon learning of these illegal activities, the corporation took decisive action to put a stop to these practices. And its efforts could essentially be reviewed as a case study on effective corruption mitigation. Not only did Ralph Lauren notify the U.S. Securities and Exchange Commission (SEC) within two weeks of learning of the bribery, it also:
- Terminated the customs broker that funneled the illegal payments
- Updated its corporate anti-corruption policies
- Provided in-person anti-corruption training for key personnel
- Increased oversight of third parties
- Established more rigid gifting guidelines.
The business did have to pay out roughly $1.5 million in penalties, but the organization avoided any criminal charges (and potentially more severe penalties) related to a five-year bribery scheme.
What Should You Do to Protect Your Organization?
To avoid similar unpleasant surprises at your business, you should develop clear corporate guidelines that outline your workplace ethics. Provide regular anti-coruption training to your staff on how to spot and avoid bribery, and enact oversight programs that actively monitor for potential incidents of bribery or other ethical violations.
Monitor third-party agents
A common strategy used to obscure bribery is the use of third parties — distributors, brokers, resellers — to conduct the illegal activity. According to the Organization for Economic Cooperation and Development (OCED), 75 percent of bribery cases prosecuted in 2014 involved payments made through intermediaries.
As these companies operate outside of your direct control, you need to apply a healthy level of diligence to monitoring their operations, keeping a lookout for any potential red flags.
Follow the money
For a rogue employee or department to engage in bribery, they need to have access to the necessary funds. And if your corporate policy removes legitimate access, then the only option is through underhanded means.
As part of a 2016 study, the Association of Certified Fraud Examiners reported that 94.5 percent of the cases of fraud that it examined involved the perpetrators taking measures to conceal their actions — most frequently either creating false documents or altering legitimate records.
In the Ralph Lauren case mentioned earlier, the bribes were delivered through a customs broker who labeled the payments as “loading and delivery expenses” or “stamp/label taxes” on invoices.
To protect your business, employ strict controls that monitor any financial payments made by the company. Routinely evaluate invoices, keeping an eye out for inflated pricing or unnecessary services. Thoroughly vet any new vendors brought onboard.
You should also keep a close watch on any marketing funds that might be passed along to distributors. Demand detailed breakdowns of how the funds are used and perform regular audits.
Limit your generosity
Beyond the form of outright payments, bribes can also be given via extravagant gifts, meals, or entertainment expenses. After all, there’s a fine line between discussing business plans with a client over dinner and violating the Foreign Corrupt Practices Act (FCPA).
Part of the $568,000 in bribes paid by the Argentinean subsidiary included a number of physical gifts given to government officials, including perfume, dresses and luxury handbags (valued between $400 and $14,000 each) — all products that Ralph Lauren manufactures.
You should closely track employee expense accounts, particularly when “entertaining” is involved. For larger expenditures, require that these purchases be reviewed and approved in advance.
To strengthen your oversight efforts, record not only which employees are providing these meals or entertainment but also who is receiving.
The Next Step
There is no ultimate cure for bribery or corruption, but constant vigilance and a clear company policy can deliver a great deal of protection. With your staff properly trained and knowledgeable, you can empower them to help prevent corruption before it starts.
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