combating global corruption (kroll-fcpa)

Corruption and anti-corruption: Raising the stakes

Insights & Reports > Kroll Global Fraud Report

In 2009, Transparency International's Global Corruption Barometer found that 69percent of worldwide respondents believed that their national political partieswere corrupt and 61 percent said the same for legislatures. Political parties andcivil servants were listed as the most corrupt institutions within society.

Across the globe, corruption paints a consistent picture. Corruptiondisproportionately impacts the least well off in all countries and afflicts worst inthe poorest states. In spite of multilateral efforts to tie aid to good governanceand rising awareness levels, corruption levels have barely altered in the last 10years, evidenced by the two maps here.

Two recent trends bode ill for the combat of corruption. The global financial crisisand the stimulus spending that emerged in dozens of countries around the worldimproved the conditions for fraud.

Even more significantly, the financial crisis has helped accelerate a decade longshift in the world's economic center of gravity from a "Western" economicomnipotence to a world whose growth is driven by emerging markets. With a fewnotable exceptions (e.g. Chile, Qatar, Uruguay), emerging markets are stillcharacterized by comparatively high levels of corruption. In many cases, effortsto reduce corruption in emerging markets is stymied by a lack of political will or aweak judicial system that is too easily manipulated by more powerful economicinterests. The generation of wealth in emerging markets, by and large, isoutpacing the speed at which these countries can reform the judicial and civilsociety infrastructure needed to combat corruption. In several resource richnations, the recent commodity bonanza that endured from 2003 to 2008 mayhave in fact undermined a lot of positive reforms undertaken in the 90's.Globally, the fight against corruption is as challenging as ever.

Meanwhile, though, Western countries are doing more to crack down oncorruption by their domestic companies, including their operations overseas inemerging markets. The best example of this trend is the rapid expansion of USenforcement of its Foreign Corrupt Practices Act (FCPA). American authorities arenot only increasing their number of prosecutions, they are going after a widervariety of companies – small and large, public and private. Moreover, they haveindicated that they will use links with the United States to pursue cases wherethey find evidence of corruption. This puts almost any sizeable non-US firmwithin their grasp. In late 2008, the German multinational, Siemens, agreed to

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pay a total of US$1.6 billion in fines to United States and German authorities tosettle an investigation. In February 2010, British defense supplier BAE Systemsagreed to pay nearly US$450 million to American and British authorities. The netresult is that, even as globalizing companies face increasing opportunities toengage in corruption, particularly in emerging markets, the risks and costs ofdoing so are rising dramatically.

This issue of the Global Fraud Report is designed to help readers betterunderstand the changing dynamic of global corruption. Of course, this is but onechallenge facing companies so we have dedicated content to addressing othertimely concerns including: the intellectual property fraud implications of the newChina-ASEAN Free Trade Agreement; and some of the ongoing implications ofthe economic downturn.

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