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Bribery and corruption risk is real, and action is imperative
26 March 2015: Australian and New Zealand organisations – private and public sector and not-for-profit – continue to encounter bribery and corruption incidents and challenges. But many remain ill-equipped to identify, manage and, most importantly, prevent them.
Deloitte Forensic partner Frank O’Toole said that the results of the Deloitte Bribery and Corruption Survey 2015 report confirm that domestic and offshore corruption risk remains high.
“The risk is actually higher than ever and, for many organisations, it will only be a matter of time before a corrupt offer or demand is made and someone gives in to a temptation and takes advantage of a control gap,” he said.
“The work we are doing confirms this, and we have been involved with numerous investigations related to dozens of suspected bribery and corruption incidents over the last two years.”
Deloitte surveyed more than 250 Chief Financial Officers, Chief Risk Officers, other executives, directors and employees responsible for risk management, including those from ASX 200 and NZX 50 companies, Australian subsidiaries of foreign companies and public sector organisations.
Key findings of the second survey (the first was conducted in 2012) include:
- 23% of respondent organisations have experienced one or more known instances of domestic corruption in the last five years
- 40% have operations in high risk jurisdictions, and 35% of these have experienced a known bribery and corruption incident in the last five years
- 23% of respondent organisations with offshore operations are not concerned with risks arising from non-compliance with applicable legislation, and 77% of these have never undertaken a bribery and corruption risk assessment
- 40% of respondents with offshore operations don’t have (or don’t know if they have) a formal compliance program in place to manage corruption risk.
“Bribery and corruption risk and incidence is real and complex,” O’Toole said.
“And while organisations understand the reputational and even bottom line risks an incident can present, and take a robust approach to mitigating the risks, we haven’t seen any tangible decrease in levels of corruption in recent years, or any major shifts in attitudes towards it, especially in offshore jurisdictions.
Deloitte’s 2012 survey focused on risks related to overseas investments and operations but, given recent high profile domestic corruption incidents in both Australia and New Zealand since then, this has been expanded to also look at risks from a domestic perspective.
The survey is supported by, among others, the Australian Federal Police and Transparency International. They confirm that Australian anti-corruption and law enforcement agencies are busier than ever.
“Anyone who believes that domestic corruption – risk and repercussions – is not an important issue is seriously mistaken,” O’Toole said.
“The reality is that, while both Australia and New Zealand are first world economies that pride themselves on the highest standards of business ethics and governance, nearly 25% of organisations surveyed have experienced a domestic corruption incident in the last five years.
“And despite a fall from the 2012 results, many organisations don’t have a formal bribery and corruption compliance program in place.
“This raises the question: How can these organisations possibly determine whether or not they are at risk, and know whether a corruption event has occurred, is occurring, or is likely to occur?"
O’Toole said the risk of detection – and the potential for reputational damage, revenue and share price pain, loss of market opportunities, severe penalties and greater regulatory scrutiny was greater than ever.
“Regulators and enforcement agencies around the world are building momentum and getting real traction via global cooperation. Enhanced detection and more effective and efficient brief building will result, along with an increase in investigations and prosecutions.
“More events are also being reported by whistle blowers, and whistle blower activity will only increase, particularly as more progress is made in terms of protection for those reporting incidents of corruption.”
As Australian and New Zealand organisations explore offshore opportunities, they face the dual risk of operating in higher corruption risk jurisdictions and being captured by extra-territorial bribery laws that, historically, have been more rigorously enforced than local foreign bribery laws.
“Irrespective of the extraterritorial reach of the laws of certain western countries, it’s almost certain that any form of bribery and corruption committed in a foreign jurisdiction will be a breach of the local laws of that jurisdiction. The risk of organisations, their executives and directors, as well as the individuals directly involved being prosecuted within the country that the activity has occurred is therefore very real.
“Australian and New Zealand organisations are clearly pursuing opportunities in developing countries, with almost half of respondents having offshore operations, and 84% of these respondents have them in high risk jurisdictions.
“Some of Australia’s and New Zealand’s biggest trading partners are considered higher risk countries, and a number of these, particularly China, India and Indonesia, have begun to prioritise and increase their corruption enforcement efforts.
“Our 2015 results show a significant drop, from 49% in 2012 to 5%, in the number of organisations with offshore operations that don’t believe a risk assessment applies to their organisation. But at the same time, there has been an almost commensurate rise in the number that haven’t undertaken an assessment.
“That many organisations with offshore operations don’t regard foreign bribery and corruption as a serious future risk is a concern, and there are still too many not giving bribery and corruption the attention it deserves.”
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