Monthly Archives: March 2015

Does Robust Compliance Mean Understood Compliance?

Does Robust Compliance Mean Understood Compliance?


“We know we have a robust compliance program, one which would satisfy the regulators, but what keeps me up at night is the question as to whether it is taking hold at the field.”

If I had to summarize my experience of last week, where I participated in three compliance events, that statement from one of my lunch partners, would be it. First, an up front thank you to the organizers of the Inside Intelligence Oil and Gas for the Americas (Houston), the Houston Compliance Counsel Exchange, and the OECD Integrity Week (Paris via live video), for asking me to attend and present. Was it all a little overwhelming: yes. Did I learn a great deal: absolutely, and not while I was speaking (as my UVa M.A, mentor always proclaimed “Bistrong, when you are talking your not learning”). Rather, the teachable moments for me occurred during the presentations and panel discussions of compliance and regulatory professionals, as well as during breaks and breakout sessions. It was during that ‘down time’ when I really connected with others as to current compliance trends and challenges.

While most compliance professionals would consider my learning moments as “the basics,” this was one of my first experiences engaging with compliance practitioners in a live and interactive environment. Thus, at the risk of overstimulation, I tried to be the best ‘sponge’ of information as possible! Accordingly, I absorbed a great deal about the basics of multi-layered risk assessments, risk-based compliance, the structure of whistleblower hotlines (corporate and regulatory), travel and entertainment policies, debarment, ombudsmen, collective action, and supply chain management, for starters.

So, how does that all intertwine with the opening question? Well, as one compliance attorney stated, “Anti-Bribery compliance is a management challenge, which needs to become an internal part of the decision making process as to make compliance a positive part of the business.” Another compliance professional added, “Human nature is human nature, and when you say ‘figure it out’ to a manager in a high-risk area, that sends a message which trumps other messages.” Indeed, as another well-known practitioner amplified “You can make legal decisions which are still not ethical, and compliance needs to align positive business, legal and ethical outcomes.” He added, compliance succeeds when all stakeholders agree “we make more sustainable profit when we are ethical because anti-bribery compliance is an investment not a cost.” Agreed.

But a nod to the obvious here: anti-bribery laws have a unique characteristic among ‘white-collar’ laws, in that they are developed at the home-office, by legal, audit and compliance professionals, yet they meet reality, in what Barry Vitou (www.thebriberyact.com) calls the ‘sharp end’, at the furthest point from those very offices. It is at the front lines, often isolated and remote, with little support personnel yet manned by teams who are tasked with growing the business that anti-bribery compliance needs to “take hold.” And that is where I return again to my table partner, who reflected “does robust mean understood?” Or, as one person shared with me “it is the remote office concept that worries me most.”

Front-Lines Teams Are Not Compliance Professionals

But for those in the field, not being attorneys or auditors or compliance professionals, empowered with not only growing the business, but also in adhering to rules, policies and procedures which travel up, down and across the organizational chart, it can be confusing. They are the one’s who match the stated messages of compliance with the unstated messages of “how things get done around here,” and then chart a course of action. Are they thinking about risk matrixes, third party due diligence platforms and collective action initiatives? Probably not. Are they thinking, “I can do this, it makes sense, and delivers both compliance and success.” More likely, yes.

So, when I was asked during OECD Integrity Week by Patrick Moulette, Head Anti-Corruption Division, OECD, at a panel Bribery and Corruption –The Dark Side of International Business “what does a company executive weigh when engaging in bribery, or not bribing?” I replied with what I consider to be one of the more important considerations: compensation. And here lies another remote office dilemma, best reflected in a recent article in the Harvard Business Review titled “How to Really Motivate Sales People,” (link here) by Doug Chung. As Mr. Chung states, “Studies of personality type show that salespeople typically have a larger appetite for risk than other workers, so a pay plan that offers upside potential appeals to them.”

However, here is where ‘risk hits the road,’ as Mr. Chung calls attention to studies of compensation AND the uncertainties of a sales cycle. If anyone needs a 101 in sales cycle uncertainties, feel free to read my post on my own perfect storm of rationalizing bribery and the first cloud of “procurement instability.” Simply said, in high risk, frontier markets, sales cycles are anything but stable, populated by poorly trained and inadequately compensated procurement personnel, with often deliberately confusing procurement regulations. As an Oil and Gas compliance professional called it last week, “overburdened and inefficient.” Accordingly, in such an environment, as Mr. Chung reflects, “the more uncertain a firm’s sales cycle, the more a salesperson’s pay should be based on a fixed salary.”

Houston, We Have A Problem

Where you have risk-rich, low-integrity environment with sales cycle instability, and you index performance to individual measures (as opposed to corporate or group), along with public company quarterly targets, well, “Houston, we have a problem.” Corny, yes, but appropriate. I am not sure that compliance, in that context, will “take hold at the field.” In such cases, with quarterly pressure to “make the numbers” as the unspoken message of “win above all else,” it will likely be left to the field to ponder “what does management really want,” as they take compliance into their own hands to the peril of all.

Indeed, as William Below, OECD Directorate for Public Governance and Territorial Development, states in a piece The Policy Makers Guide to Graft  (link here) “ambitious targets could easily morph into an “ends-justify-the-means” approach by hitting year-end numbers,” where my only addition would be to multiply that danger by four when “hitting quarter end numbers.” In such situations, again, compliance decisions can end up in those remote offices where, as Mr. Below reflects, compensation might end up as the enabling “tipping point.”

I don’t mean to imply that all compliance is compensation, but it you layer on high-risk areas to the high-risk taking profiles of many successful business executives, as Mr. Below states, “the harsh reality may be that human nature isn’t about to change anytime soon.” Indeed, as V. Kumar, Sarang Sunder and Robert P. Leone states in as Harvard Business Review piece, (link hereWho’s Your Most Valuable Salesperson, sales people “respond quickly and enthusiastically to monetary rewards and recognition.” Combining that statement with Mr. Below’s ‘harsh reality,’ and therein lies a significant challenge of getting compliance to “take hold” at the front-lines, in those remote offices.

In sum, if you know that front-line personnel weigh inventive compensation in their ethical decision making,  then perhaps going back to my table partner,  you can think about aligning the complexities of a compliance program to what “takes hold at the field.” As Paul P. Jesep stated in a recent SCCE Blog Piece, Forgetting Ethics Has a Human Face (link here) “ethics are about people, not wordy guidelines.”

As a footnote, for those interested in continuing the conversation, reach out to Mary Crane-Charef [email protected] and/or Leah Ambler, [email protected], to find out more about the Trust and Business (TNB) Project. The goal of the TNB is to identify “how a company’s corporate governance framework can strengthen its ability to do business with integrity and prevent corporate misconduct.” The OECD is looking to engage with the business community in this initiative and seeks out contributions. So, why not, and the link is right here.

*Photograph by Alain Pirot (c) Richard Bistrong, not to be reprinted or distributed without permission, 

The Gathering Momentum of Anti-Bribery Enforcement  in Australia

The Gathering Momentum of Anti-Bribery Enforcement in Australia

Today’s interview is with Julian Fenwick and Jane Ellis, both Anti-Bribery Compliance Professionals in Australia. Given the recent reporting concerning anti-bribery, corruption, and compliance issues in Australia, I thought this would be a timely subject and to bring in two experts from the front-lines.

Hello Julian and Jane, thank you for joining me in today’s interview, as we try to share some of the issues relating to anti-bribery enforcement and compliance in Australia. Also, thank you again for inviting me to share my own perspectives with your clients in Sydney, Melbourne and Perth in our telecast conference on March 12th, 2015. I was really impressed not only with your sense of organisation, in pulling together a video conference across sixteen time zones, but the questions which your clients asked as I shared my own perspectives. Jane, you were a worthy interlocutor and I hope we can continue our dialog. So first, perhaps you and Julian can share some of your own backgrounds and experience for today’s readers.

Jane: Thank you, Richard. I was pleased to have the opportunity to interview you and to learn of your experience with the ‘dark side’ of international business. I am a senior lawyer, consultant and the Principal of Assertia Pty Ltd (see: www.assertia.com.au). However, I will shortly be winding up my business to move to London and assume the role of Director, Legal Projects at the International Bar Association. Prior to establishing Assertia, I was a partner at an international law firm in Sydney. I’ve been an active member of the Australian chapter of Transparency International since 1996 and have been a board member since 2001 (with a gap of around 3 years).

Julian: Thanks Richard. My background is in developing legal compliance training. Initially we started as part of an innovation team in a major Australian law firm. We began by producing competition law courses and we were one of the first organisations to do this using computer based training or what is now known as eLearning. Australia was one of the leading markets in the field due to the size of the country and the dispersed nature of organisations across the different cities. Since beginning in 1999, the business grew both in the number of courses we developed and the number of organisations we were working with. Today we are an independent and fast growing company providing a vast range of customized and off the shelf training courses specific to the Asia Pacific region (see: www.grcsolutions.com.au).

Over the past few years, bribery and corruption has been a very hot topic for our clients, particularly those with overseas operations and US or European affiliations. Our clients are seeking to ensure their staff members understand their risks and responsibilities in these areas by providing relevant, regionalized training. The conference on Friday was a great opportunity for our clients to move beyond the law and theory and gain a window into how bribery and corruption happens in the real world.

Q: Thank you, so, to start, what is the current enforcement environment in Australia with respect to anti-corruption laws, and has that changed in recent years? There seems to be a rising tide of news coming out of Australia with respect to anti-bribery enforcement and debate, so perhaps you can describe the environment.

Jane: It’s been an interesting to observe the changes in dialogue that have occurred over the past few years, Richard. Australia has had laws prohibiting the bribery of foreign public officials since 1999. However, it was the introduction of the UK Bribery Act in 2010, rather than any prosecution under Australia’s own law, that really generated much of the discussion and awareness that corporate Australia is experiencing today. In addition, it has attracted the attention of the media, which had little interest prior to 2010. Articles on bribery and corruption now appear regularly in the national press. So, we certainly see an increase in awareness and a lot more discussion about corruption by companies. However, although corporate Australia is now more aware of the potential risks around corruption, many companies remain reluctant to do much about it. This is because, and some senior executives have told me this, they do not believe they will be caught or prosecuted. This may change with the more recent charges brought by the Australian Federal Police.

Julian: We are also seeing that there is a push from organisations to ensure the supplier organisations they work with have solid compliance programs in place by having non-negotiable contract terms requiring that suppliers warrant that they are knowledgeable about Anti-Bribery Laws and that they have not made, offered or authorised any payment or gifts, including facilitation payments.

Further, those suppliers are then required to warrant that they have similar contract terms with their own suppliers. These sorts of contract terms, particularly on very large deals, often form part of the impetus for the development and enhancement of compliance programs in a way that is perhaps more pressing than legislation.

Q: Do you see a focus on individuals, corporations, or both?

Jane: From what I have observed, it has been both. With Securency and Note Printing Australia, both companies were charged as well as individuals who had been executives with each. The prosecutions of the individuals are ongoing. The allegations in the national press have focused on both the corporations and key individuals who were said to be involved in the alleged conduct. More recently charges have been brought against both a Sydney-based construction company – called Lifese – and the 2 directors of that company alleging they had attempted to bribe Iraqi government officials to secure contracts in Iraq.

Julian: The Sydney Morning Herald recently reported that “Some of corporate Australia’s top figures, including former executives from BHP Billiton and Leighton Holdings, are set to be called to a Senate inquiry and grilled about allegations the firms bribed foreign officials.”

In the article Senator Dastyari is quoted as saying:

“This will not be an inquiry simply into Leighton Holdings, but Leighton Holdings serves as a powerful case study for foreign corrupt practices and how the powerful can exploit the system,”

Q: Do you think that the investigatory and prosecutorial resources are sufficient to promote anti-bribery enforcement and compliance? In other words, are the laws “on-the-books” good enough, and if they are, will they be aggressively enforced?

Jane: That’s a good question, Richard. There have been concerns over the years that the law prohibiting the bribery of foreign public officials is inadequate and the elements of that law difficult to satisfy to a prosecution standard. Certainly there have been very few prosecutions under the law; the prosecutions currently before the courts are for aiding and abetting, not for breaching the foreign bribery law. And there also have been concerns as to whether sufficient resources were being dedicated to the Australian Federal Police to investigate foreign bribery crimes and whether the AFP is the appropriate organisation to have responsibility for investigating them.

While some members of the AFP have considerably more expertise and skills in these kinds of investigations now than previously, it is not an area that the AFP traditionally investigates. There has been some discussion as to whether the corporate regulator – the Australian Securities and Investment Commission – is more appropriate but it seems reluctant to get involved in foreign bribery investigations.

Julian: There has also been some criticism of Australian legislation, in particular the exemption of facilitation payments which can be seen as providing a grey area for defense. Elements of corporate Australia have been very vocal about the need to retain this exemption, however the majority of our clients are ignoring it in their training preferring to adhere to a blanket ban on all payments.

Q: Now, what of our video conference. I found it to be a compelling Q and A, not only with Jane, but also with respect to the questions asked by your clients. So pardon my curiosity, but as I shared my own confrontations with corruption, including how I so easily rationalized bribery, do you think those front-line perspectives were already in the “compliance model”,  or was there a reflection that perhaps the “rules and procedures” of compliance needed some more calibration as to what could be expected in the field, especially in high risk areas?

Jane: You describing your experience, Richard, gave our clients a ‘heads up’ on the personal cost of engaging in corruption and your personal experience brought home to everyone that there are very real consequences to engaging in corrupt conduct. While some of the clients are very aware of this in a theoretical sense, it is often difficult to grasp what that means in a practical sense. No, in my view, I do not think those “front-line perspectives” are included in most compliance frameworks found in corporate Australia. Those who believe it is important to have a compliance framework (and, as mentioned, there are many Australian companies who remain skeptical) often seek to implement one without giving much thought to the practical context. This can result in a rejection of the framework by those in the field who are most at risk.

Julian: The personalization you brought to the event really cut through. Our clients found your story to be very powerful and something that they will take back and share across their businesses.

Q: Thank you for your time today, is there anything else you would like to add?

Jane: Thank you too, Richard. There is just one thing I’d like to add. As mentioned, various investigations into and allegations of corruption have generated some sensational headlines. That has certainly captured the attention of the media and the public. And related to that is the role of social media. NGOs and others increasingly use social media to monitor and report on the conduct of companies operating overseas. I can only see that gathering momentum over the next few years. It is increasingly difficult for any company to have any secrets any more.

Julian: I was personally pleased that there was solid discussion around the conflict between corporate compliance messages and incentive-based remuneration strategies. This is a topic that I have had a long-held interest in and I was pleased to see legal and compliance people start to recognise that incentive-based remuneration schemes can incentivize inappropriate behaviors. The binary nature of many of these schemes can be difficult to align with wider governance and ethics aspirations. We have seen similar issues in other industries, such as financial planning, where commissions paid by financial institutions to planners have resulted in very unfortunate outcomes for customers.

Where there is a significant negative or positive effect for the employee, which is based on the outcome rather than effort, there will always be incentive to achieve sales to the detriment of other objectives.

Well, thank you again Jane and Julian and I look forward to continuing the conversation.

Can you Certify Anti-Corruption Compliance?

Can you Certify Anti-Corruption Compliance?

Today’s Q & A is with Philippe Montigny, CEO, Ethic-Intelligence

Q: Hello Philippe and thank you for participating in this Q and A. Having been invited to your own “Experts Corner,” it is a pleasure to engage with you as well on this side of the Atlantic! So, perhaps you can share with our readers some of your background and experience?

PM: Thank you Richard. I joined the OECD in 1987 and was later appointed to the OECD Private Office of the Secretary General. Thus, I was involved in ministerial negotiations, including those which eventually led to the Anti Bribery Convention of 1997. Later as Executive Director of a London-based consultancy in 1998, I advised companies on developing their business internationally. It was following these professional experiences that I came to understand the importance of anti-corruption compliance as an integral part of business strategy.

I started ETHIC Intelligence in 2001 to assist companies in their development using effective risk based anti-corruption compliance programs. In 2006, in order to transform the costs of anti-corruption compliance into strategic investment, ETHIC Intelligence became a certification agency. To avoid any conflict of interest we have then stopped consulting business to focus our work on our “terms of reference” in order to ensure that they always correspond to the highest standard and evolving best practices.

Q: Thank you Philippe. Can you share some of the history regarding certification?

PM: Anti-corruption compliance is one of the areas of corporate governance that has progressed the most over the past few years. Remarkable progress has been made since the day I remember well in the 1990s when, Alan Larson, then US Ambassador to the OECD, invited member states to condemn corruption of foreign public officials. Twenty years later, most multi-nationals have adopted anti-corruption compliance programs, ranging from rudimentary to sophisticated, risk-based systems reflecting international best practices standards.

Q: From your practice and perspective, how does an anti-corruption compliance program meet international best practices standards?

PM: In a nutshell, an anti-corruption compliance program needs to:

  • effectively prevent corruption regardless of the countries in which the company operates;
  • provide sufficient legal defense to the company in the event that a ‘rogue’ employee breaks the rules;
  • be business-oriented: administrative procedures are useful to prevent corruption while rewarding innovation and development.

Q: How would a company develop a compliance program that would reach these objectives?

PM: We at ETHIC Intelligence, together with our accredited inspection companies and committee of international lawyers, have identified three main sources of information that help companies build their programs: (1) The national anti-corruption legislations of Italy, the United States, the United Kingdom and Russia which have provided concrete guidance to companies on how to observe the law; (2) International organizations such as the OECD, the International Chamber of Commerce and Transparency International whose consultative processes have resulted in further guidance and recommendations on the subject, and (3) best practices developed by companies themselves in an effort to meet international standards in the most efficient way possible while ensuring business development. From our perspective, the third source is the most insightful because it takes into account the first two sources as well as experience of what works well in the field.

Since 2006, ETHIC Intelligence has integrated all three sources in its terms of reference to certify corporate anti-corruption compliance programs. We are particularly interested in integrating emerging best practices designed to maximize the efficacy of compliance programs. To this end, we organize a yearly Excellence in Compliance Day for our certified companies, auditors and committee members to discuss ways in which we can improve and update our terms of reference.

Q: What are the greatest challenges, or obstacles to success?

PM: Keeping a corporate anti-corruption compliance program up to date is a constant challenge for two reasons. First, because those who want to corrupt will find imaginative and innovative ways to bypass even the most sophisticated system. Second, because compliance must change and adapt to business imperatives; if it does not, employees will see it as yet another bureaucratic necessity which they will eventually ignore.

As a certification agency specialized entirely on anti-corruption compliance, we at ETHIC intelligence are in a unique position to monitor the evolution of best practices. We see the companies’ certification files as they pass from accredited auditors to committee members – who ultimately decide on the certification award and make concrete recommendations for improvement.

I have observed an evolution in how large companies organize their anti-corruption compliance. Fifteen years ago compliance was mainly in the hands of the Legal Department because, at that time, the primary objective was to mitigate the new legal risks resulting from the entry into force of the OECD Convention. Later, I occasionally saw anti-corruption compliance in the portfolio of CSR departments along with environmental and human right risks where the challenge is mainly to respond to the expectations of the community or NGOs or to mitigate reputational risks. Today it is striking to observe a trend toward the decentralization of anti-corruption compliance to the branch or subsidiary level as a way to empower local management with anti-corruption compliance.

In spite of over 20 years of work on anti-corruption I still would not presume to know what the best “theoretical” solution is – but I have learned that companies need processes which are lean and efficient. In other words, they need a program which i) has the greatest buy-in from employees and ii) is well integrated into the company’s business strategy. I believe that although compliance is based on clear and well-defined principles (risk assessment, due diligence….) companies recognize that there is no one compliance organization that fits all.

Q: Given these complexities, how is a company to best understand the internal (corporate) and external (market) challenges?

PM: This is the reason for which I have decided to write an anti-corruption compliance blog (link here), and as I share in my first post, it is  “Not Just Another Anti-Corruption Compliance Blog .”  I plan to share the lessons learned from companies considered best in class in terms of anti-corruption compliance. These lessons are important as they demonstrate repeatedly that the most successful companies in terms of business are those whose anti-corruption compliance programs are the most rigorous. I will expand on this fundamental and encouraging development in blogs to come.

Q: Congratulations on your Blog, Philippe, and what will your first post address?

In my first post I explain how 35 years of professional experience (French Ministry of Industry, the OECD, private sector international trade, Chairman of ETHIC Intelligence Certification Committee) has led me to look at anti-corruption issues from very different but complementary perspectives.

The second post addresses one issue which I consider crucial: “why is anti-corruption compliance a Board issue”…in other words why is it not just a legal issue!

Q; Recently I have been reading about the development of an ISO Standard. Is that relevant to this discussion?

In the mid-2000s I and a few experts including Mark Pieth, then Chair of the OECD working Group, had the conviction that certification of anti-corruption programs would be useful for companies. However, most people at that time were skeptical. I remember that the first draft of the UK Bribery Act guidance did not include any reference to certification. When we were consulted by the SFO we suggested adding certification as a way for companies to verify the quality of their compliance program… and it was added to the end of the last section. This prompted the BS 10500 standard on an “anti-bribery management system” which is, needless to say, included in our own certification process.

This British standard is at the origin of the ISO 37001 on anti-corruption compliance which is under discussion and for which a vote might take place in 2016. Before the vote it is difficult to know whether or not the standard will enter into force or not, and, as a member of these on-going negotiations, I must refrain from making any further comment on it. However, I participated in the negotiations of a similar standard on compliance, which is the ISO 19600. This standard was initiated by Standards Australia and was published in December 2014. I find this very positive.

Q: Finally, Philippe, let’s turn our attention to the OECD, where you spent many years of your own career. The Secretary General, Angel Gurria, leads the High-Level ‘Advisory Group on Integrity and Anti-Corruption’ of which I have recently been asked to join by the Secretary General, and which you are currently a member. In one of the first sections of “Purpose” the Secretary General states that the goal is to define “what are the most emerging corruption issues, and how can the OECD better address them?”

Thus, I was curious to hear your perspective, and as we are both participants in the “OECD Integrity Week,”  (link here) do you see that forum as a major opportunity to address those questions?

Angel Gurria addressed these emerging corruption issues in an interview for our website two months ago. In my opinion the most important issues are:

  • How to encourage majors players like China, India, Indonesia, etc. to join the OECD Convention.
  • How to address the demand side of corruption, in other words, we have extraterritorial laws to prosecute companies for transnational bribery, but a lot remains to be done to prosecute the foreign public officials who are often at the origin of transnational bribery.

I believe that the OECD has become the most efficient Forum to address these issues for different reasons. The OECD working group on the implementation of the Convention has performed, first under the leadership of Mark Pieth and now with Drago Kos, a remarkable job on the effective enforcement of the Convention. Second, over recent years, this intergovernmental organization has managed to involve both the private sector and civil society in the discussion. Integrity week is a perfect example of this success. Third, the OECD, with 34 member countries, maintains an ongoing dialogue with non-member countries seven of whom have signed the OECD Convention. Fourth, the OECD plays a central role in the G20/B20, which accounts for 85% of global trade.

In any event I look forward to sharing the panel discussion with you and learning from your experience in order to improve our Certification terms of reference to ensure they correspond to emerging best practices.

Thank you Philippe and I look forward to seeing you via video feed on the 26th.

Bribery, Beneficiaries and Guilty Feelings (or lack thereof)

Bribery, Beneficiaries and Guilty Feelings (or lack thereof)

Given the response to my recent Q and A with Jamie-Lee Campbell on “Culture Corrupts,” (post here) which from an analytics and engagement perspective, was one of my most read pieces on a global basis since I started blogging, I decided to continue my deep dive into the behavioral dynamics which from my perspective, intersect with those who work on the front lines of international business. I return to my Matt Ellis ‘go-to’ line that “corruption is a crime of opportunity” (How to Pay A Bribe, 2014: Wrage) which at some level involves the behavioral calculation that the benefits of receiving and giving bribes outweigh the risks and consequences of getting caught. While one would think from afar that such thinking would be one of the most frequent topics of discourse in the compliance field, it is actually one of the least. However, the good news is that there is a deep and rich field of writing and research that pertains to connections between business, psychology and ethical behavior.

As stated, while the fields of organizational psychology and business ethics present no shortage of incredibly relevant materials, I focus only on those works which produce a “hey, that was me” moment. Accordingly, today I call attention to a paper co-authored by Francesca Gino, Shahar Ayal and Dan Ariely titled “Self-Serving Altruism: When Unethical Actions That Benefit Others Do Not Trigger Guilt.” (Working Paper, Draft Form, Harvard Business School, 2012, HBS Link here). Let me also share that I wave Professor Gino’s book Sidetracked (Author site here) at every chance I get during my speaking engagements, as a must read for those who manage international field personnel, and who are tasked with helping them to manage corruption risk. But more on Sidetracked in another blog, and fingers crossed for a future Q and A with Professor Gino.

“Hey, That Was Me”

The context to my “that was me” moment pertains to my own ‘perfect storm’ of rationalizing bribery, and how I embraced the illusion that bribery has no victims, and worse, that from the front-lines, it was a win-win. While it was relatively simple for me to describe those emotions and rationalizations, “Self-Serving Altruism” elevates the dangers that such thinking presents to those who work in the field as well as to their managers. How? As the Authors state “when others can benefit from one’s dishonesty people consider larger dishonesty as morally acceptable,” and “simultaneously feel less guilty about it.” Furthermore, the Authors demonstrate how “the presence of others who may benefit from our dishonesty influences our willingness to cross ethical boundaries.”

First, a reminder to my readers that these posts are in no part an attempt to justify my own conduct. I knew what I was doing was illegal and ethically wrong when I did it, so my attempt here is to only “pull the curtain back” on the rationalizations, emotions, and calculations that front-line personnel face when deciding to “engage in or refrain from” corrupt conduct. So, with that said, how could someone possibly think of corruption as either victimless or a win-win where “others can benefit?” It makes no sense, right? Well, lets put together a checklist.

 If I Win This Deal…

Imagine the front lines of international business for a moment, specifically in a high-risk (low integrity) region. Is it inconceivable for someone in the field to ponder and reflect on the following ‘checklist’ about a corrupt transaction involving bribery?

  • If I win this deal my agent (third party) will be pleased and will continue to pursue continued business, albeit by intertwining corrupt and legitimate services.
  • If I win this deal I make my financial forecast, sales target and hence, bonus.
  • If I win this deal, the state official, who is poorly compensated and trained gets to make some “pocket money” from this bribe which will help him/her to make ends meet.
  • If I win this deal, my company is pleased by the transaction and hence, my performance.
  • If I win this deal, the end user still gets a high quality product at a reasonable cost. After all, I am not sacrificing quality to win.

If you think it impossible for your field personnel to “think such thoughts” about corruption, no need to continue to read. However, for those still interested, what could embracing these illusions possibly mean in terms of behaviors and outcomes?

Back to the Authors, who share early in their paper that “the potential benefits dishonesty may create for others not only help us justify our bad behavior but also serve as a (self-serving) motivator for it.” Such was my own “that was me moment,” further amplified when the Authors state “people feel less guilty about their dishonest behavior when others (in addition to themselves) can benefit from them.” And let us not underestimate the lure of Ms. Campbell’s “social cocoon” of corruption, where that eco-system elevates and strengthens the benefits of corruption to all who participante.

 “Cheating Won’t Hurt Anyone”

The Authors do a great service to the compliance community when they share how this dynamic can be a tipping point for those who struggle with ethical decisions. Indeed, “cheating won’t hurt anyone” serves to de-conflict emotions “through creative reassessment and self-serving rationalizations” where someone can “act dishonestly enough to profit from their unethicality, but honestly enough to maintain a positive self-concept.” In addition, as the Authors state “it appears that having the available justification that group members will benefit from one’s selfish behavior enables people to hide their self-serving motivation.”

For my compliance readers, look at the history of FCPA personal indictments: what we see are people well paid and educated, with a lack of criminal history, taking tremendous personal risk by engaging in bribery. What the Authors describe is the process by how one can so easily move to the dark side. If you review my “if win this deal” check list you can see how they all support the illusion that corruption brings financial benefit to others, and as the Authors reflect “people are more likely to engage in unethical behavior if they split the spoils of such behavior with another person than when they are the only ones benefiting from it.” As their research suggests, “people use the potential benefit for others as a way to justify their self-serving and often unethical actions.”

Again, return to the checklist and think of how someone at the front-lines might see corruption as benefiting others, including third parties, state officials, as well as their own employer. The fact that the corporation may not be a direct participant does not serve to remove it as beneficiary in an individual’s thinking, which from my perspective, makes it all the more dangerous. Indeed, from my perspective, to ignore “the presence of other beneficiaries” as a part of how “people easily justify their dishonesty,” is to disregard a significant element of how those who struggle with corruption in their work might “tip” toward engaging in unethical and illegal conduct. In fact, as the Authors state “the more people can benefit from an individual’s unethical actions, the greater the cheating,” and as the checklist elevates, there are no shortages of beneficiaries, real and/or imagined.

The research, methodologies and underlying experiments (three) that are used to support the Authors conclusions are extensive and impressive. It also makes regretful that I did not pay more attention to Applied Data Analysis when I was an undergraduate! Nonetheless, ‘correlation analysis’ aside, all three experiments “show that participants cheated the most in the condition that included the opportunity to favor another participant in addition to the self.” In addition, the research shows that “dishonest behavior further increases as the number of people benefitting from this dishonesty rises.” Where there is even greater peril is “when there are other beneficiaries for people’s dishonest actions in addition to themselves, they perceive their unethical behavior to be morally acceptable.”

 Going back to Ms. Campbell’s “Culture Corrupts” where corruption is the organizational norm, “Self-Serving Altruism” suggests that ethical conduct “should be studied not only at the individual level but also at the group level, where members can influence one another in their ethical as well as unethical behavior.” Let us remain mindful that in most regions, those touch points with those who can influence (ethically and unethically) are everywhere: among peers, competitors, third parties and state personnel. While my own Masters Degree is in Foreign Affairs and not Organizational Psychology, I hope that by connecting these two works of individual and organizational relevance, that compliance practitioners can see the behavioral dangers which front-line personnel face in their struggles with overseas corruption.

 To underestimate this behavioral research is to discount a psychological dynamic that has great influence on ethical business thinking. Indeed, and as Dr. Roger Miles, Behavioral Risk Lead, Thomson Reuters, states in a 2013 Thomson Reuters White Paper, Risk Culture and Conduct Control: Time for a More Enlightened Approach: “Shouldn’t the designers of financial controls spend some time looking at the dark side? Instead of regulating by defining and enforcing some formulated version of normal behavior, a better approach for supervisors seeking to regulate conduct might be to identify the pathologies of “bad behavior.” What are its warning signs, its leading indicators? Can these be found in financial reports? (Hint: No, they cannot). Where do we need to look?”

More importantly, to disregard this research is to forfeit a major weapon in the struggle against corruption, for when you understand the thinking, you can take down the illusions, some gently, some by smashing. But better to react like ‘bull in a china shop’ than an ‘ostrich with your head in the sand.’

Bribery and Compliance in India: Know the Challenge and Prepare for It

Bribery and Compliance in India: Know the Challenge and Prepare for It

Today I welcome Sherbir Panag, for another post in my series of  country discussions, where we will address Bribery and Anti-Bribery Compliance in India. As a forward, this was an interesting engagement, as it provided me with a opportunity  to ask questions pertaining to the procurement environment in India, as I experienced it during my own work in the field.

RB: Hello Sherbir, thank you for joining me in today’s interview, as we try to share some of the issues confronting employees and corporations who are either working in India or trying to enter the market. But first, perhaps you can share some of your background: 

SP: Hi Richard thank you for the opportunity to discuss compliance and procurement challenges in India. It is a pleasure to be here today.

I am an attorney with MZM Legal, with a focus on business crime, compliance and investigations. I lead my firm’s Criminal Compliance practice where our principal focus is on assisting companies with bribery and other criminal misconduct challenges of India. The scope of my practice besides Indian anti corruption laws, includes working with foreign lawyers on aspects of the U.S. FCPA, UK Bribery Act, German administrative law and other foreign legislation / mechanisms that prevent foreign bribery.

My firm is a member of the Roxin Alliance – an international association of white collar crime lawyers. I am intrinsically involved in all projects of the Roxin Alliance including their working group commitments to the World Bank GFLJD, and I co-head the Alliance’s Administrative Sanctions practice group.

RB: So, lets first address the internal market. What is the current enforcement environment in India with respect to anti-corruption laws, and has that changed in recent years?

SP: The enforcement environment has dynamically changed over the last 3-4 years in India as a powerful social coalition of proactive media houses and civil society has ensured that fighting corruption remains a mainstream issue. Law enforcement authorities and the political establishment see themselves being under greater scrutiny, which has impacted the perception against corruption and the enforcement numbers positively.

The higher judiciary in India has also played an important role in keeping law enforcement on track against corruption. The Supreme Court has resorted to day to day monitoring of certain high profile corruption cases, while also taking suo moto cognizance of matters and reprimanding the executive on its failure to prevent corruption or institute anti corruption initiatives.

Further, reports of foreign law enforcement action with respect to foreign bribery in India has forced the Indian authorities to take up these matters in India as well. The recent example being the AgustaWestland case where an Italian investigation,  reported by the Indian press resulted in India commencing an investigation and subsequently terminating a Euro 556 Million contract, while AgustaWestland’s corruption case is still ongoing.

While empirical data is far from being ideal at the moment, one can reasonably say that the enforcement climate of ‘no enforcement’ or ‘compromised enforcement’ has seen a positive dent.

RB: Do you see a focus on individuals, corporations, or both?

SP: The focus of law enforcement in India has been primarily on individuals. Even in cases involving corporations, the corporation being an accused aside – the authorities have seeked to determine the individuals behind the corporate veil. This slightly traditional prosecution approach stems from the fact that corporate criminal liability has only recently been recognized by the Supreme Court of India.

Legislative changes have been proposed to enhance the liability of companies in corruption related offences, which would bring companies into a potentially greater spotlight with law enforcement authorities. The Prevention of Corruption (Amendment) Bill, 2013 seeks to establish a substantive offence for bribery by a commercial organisation, and also provides that when a commercial organisation is found guilty of the offence of bribery, all such persons who at the time at which the offence was committed were responsible or in charge of conducting the business of the organisation will also be guilty of the offence. The Bill concurrently establishes a compliance defence, which would be a first in India.

RB: Do you think that the enforcement resources are sufficient to promote and enforce current regulations? In other words, are the laws “on-the-books” but unlikely to be aggressively enforced? Again, here I speak of internal bribery as well as enforcing corruption laws governing overseas conduct.

SP: Richard, when it comes to anti corruption enforcement India takes a beating owing to a multitude of factors chief among them being the lack of political will in my view. Appointments to anti corruption enforcement bodies have a high degree of political involvement, which is coupled with insufficient resources in the hands of our authorities in terms of both manpower and technology. Furthermore, enforcement is impacted by these very enforcement authorities being compromised by the same means, which they are to investigate and prevent. This problem is further compounded by inordinate delays in our justice dispensation mechanism which is widely taken advantage of, and the legislative hindrance that the Prevention of Corruption Act, 1988 poses in the form of requiring ‘sanction to prosecute’ high ranking officials.

Enforcement is not ideal but it is yet to be devoid of not having a deterrence impact all together. The Indian legal system is provisionally sound to deal with corruption when the need arises and the question for companies really is, whether in the cross winds of media trials, whistleblowers and enhanced public scrutiny – they would like to the object of this system working?

As for preventing foreign bribery – as of date it does not constitute an offence in India. As India has signed and ratified the UN Convention Against Corruption, in compliance of which a bill is pending in the Indian parliament since 2011 namely the Prevention of Bribery of Foreign Public Officials and Officials of Public International Organizations Bill, which seeks to criminalize foreign bribery.

RB: Sherbir, so here is where you can really provide some assistance to those who look to the Indian market for growth. What advice would you give them in terms of how to conduct business with respect to corruption risk? I ask this in two parts, first, what do they need to do before entering the market to steer clear of corruption, and for those already in the market, what do they need to do to maintain anti-bribery ethics and compliance?

SP: The corruption risk in India is very real and apparent, and businesses must attempt to constructively address this risk and not “just go with the flow”. I say this as many a times I have seen foreign companies resign themselves to the fact that bribery is a cost that they have to incorporate into their India operation, thereby making no genuine efforts to prevent it. This resignation at times accrues greater liability for business as it breeds a culture of using bribes as the easier way out. Let me emphatically state that business in India is possible without bribery. Easy – no, possible – yes; and this gap can be bridged by a determined organization.

Enforcement of laws preventing foreign bribery have helped create a certain degree of universality in compliance policy, the devil however is with the on ground challenge. Addressing the bribery issue outside a mere policy framework mandates that an anti corruption strategy for India focuses on ‘knowing the challenge and preparing for it’ and ‘avoiding avenues of bribery’.

Knowing the challenge and preparing for it: The bribery challenge in India is one that in the course of business you are likely to regularly encounter as opposed to as an exception. Therefore, understanding the challenge in the Indian context and accordingly responding to it is imperative.

  • Firstly, there are no good bribes or bad bribes. Once a reputation as a bribe payer is established, my experience has been that the company is regularly flocked to by public servants from diverse backgrounds demanding bribes for simple tasks or at times for no tasks at all, but just in case there is a future task. Word spreads fast and the scale of bribery multiples even faster, with the company then being required to provide lavish gifts during festivals, an increase in the bribe amount every year or even a bonus bribe for loyalty.

Companies which choose to believe that small bribes or facilitation money thus are acceptable should take a step back to determine its impact, and should also view it in the context of the organizational culture they are building. While operating in a country which has a cultural disposition to bribery due to the unfortunate ground reality, you would not want that culture to be given sanction in the organization as well.

  • Secondly, compliance policies and procedures need to address elements of Indian law and ground realties specifically. For example, under Indian law specific threshold limits are prescribed in Indian Rupees for the gifts, entertainment and hospitality that public servants may receive. Now if a company’s gift policy is listed in USD terms there could be a high possibility of violation due to currency rate fluctuations inadvertently if not more blatantly by getting the value wrong all together. Another example is third party agent due diligence forms which use the word ‘company’ for the third party; while majority of third parties / agents are organized as sole proprietorships and partnerships – thereby allowing them to make incorrect disclosure to the foreign company.

These are small examples of minor mistakes having greater repercussions for businesses operating in India, hence it being important to localize compliance.

  • Thirdly, is creating a response framework to when there is a bribery log jam. Merely communicating to employees to refuse bribe payments, does not necessarily solve the problem at hand. There is no easy way to address this issue and it varies from case to case, but companies – among others do have available to them the option of reporting the matter to the Anti Corruption Bureau of the concerned state or where they find an arbitrary decision being given by a public servant due to bribery or the lack thereof approach the concerned High Court via writ jurisdiction. Pros and cons aside, it is helpful to know and communicate to the rank and file, that options do exist.

Avoiding avenues of bribery: Businesses should plan out their operations by determining where and how they can limit interaction with government entities. This is no easy exercise and would not have a one size fits all, but is an effort worth undertaking. For example, if a procedure can be e-filed versus filing it physically at a government department; obtaining information through the Right to Information Act, 2005 versus exposure to bribery by sending an employee to a government department; using the right to service legislation / citizens charter in states where applicable versus engaging third parties who are likely to add to a company’s exposure; single window clearance while setting up operations in a special economic zone versus having to deal with a multitude of government departments and agencies. While these examples do not guarantee bribery free business, they considerably reduce the odds of it.

An exercise in bribery avoidance, will also help streamline interaction with government servants where it is unavoidable, thereby allowing them to also understand the company’s firm stand on business ethics. Companies would thus benefit by incorporating into their strategy creative mechanisms of avoiding bribery at an operational level as opposed to a mere policy framework of what to do when the big question is asked.

RB: From my own experience with Indian procurement, and let me share for those who have not experienced this first hand, it is a very complicated process. The Indian rules and regulations governing procurement on a National, Regional and Local level are somewhere between intricate and entirely confusing. The paperwork, for lack of a better word, is massive, and as stated, quite often puzzling. Sherbir, as we all know, this leads to great dependence on third parties to sort out such regulations, and also presents great peril with respect to requests for small bribes to “move things along.” So, what responsibility does India have to make this process as structurally sound as possible, as to reduce the risks for companies outside India to enter the market in a way which is fair and transparent? Also, my reflection here is from my experience up to 2009, so since then, do you think there has been progress?

SP: Richard, the red tape, paperwork and plethora of complex rules and regulations is still very much a reality when it comes to public procurement in India. Incidentally, India’s dismal ranking in the World Bank’s Ease of Doing Business Report took a hit by another two places in 2015. The responsibility for this squarely rests on India if it seeks to continue to attract foreign investment and remain an investment viable economy. The argument for us is not just social and moral, but economic. A major push towards e-governance and consolidating regulatory procedures is necessary and the Finance Minister – Mr Arun Jaitley, while introducing India’s budget on 28th February 2015 has made strong references to help ease doing business in India. But only time will as to how many of these initiatives actually are implemented effectively.

From an on ground perspective, when it comes to public procurement the use of mandatory integrity pacts has helped level the playing field slightly as action for breach of the pact has been swift. The Integrity Pact lays down mandatory no bribe giving / no bribe accepting provisions, the violation of which may result in blacklisting, forfeiture of bid deposits and bank guarantees among others. In January 2014 AgustaWestland had a Euro 550 Million contract with the Ministry of Defence cancelled for violation of the integrity pact, and earlier in 2012 six companies were blacklisted for 10 years in India by the very same Ministry.

Also pending in our Parliament since 2012 is the Public Procurement Bill, 2012 which endeavors to bring about reform in public procurement by mandating publication of all procurement related information at a central portal, establishment of a bidder grievance committee and establishing open competitive bidding as the preferred procurement method.

RB: Thank you for your time today, is there anything else you would like to add?

SP: Thank you for the opportunity to address your readers today Richard, it has truly been an honour.

On a parting note I would like to reiterate that business is no longer as usual in India, and companies that do not respond to these changing times are likely to be impacted adversely. With all our shortcomings and challenges, we remain a rule of law upholding democracy and if one is on the wrong side of the anti bribery law when it is being upheld, the consequences will follow.

Indian employees are also growing increasingly aware of laws that foreign companies are bound by internationally, not just in terms of foreign bribery prevention but whistle-blowing also. Questionable practices are therefore likely to face greater resistance from the workforce as well. The risk of disclosure of misconduct and scrutiny into company actions, stands considerably higher than what it was in the last decade – to which the compliance function must respond. The compliance function thus, needs to depart from a ‘tick the box’ liability reduction model to one that builds a dynamic and determined culture of integrity.

As a footnote Sherbir can be reached via e-mail at [email protected] on Linkedin here and Twitter here.