Anti-corruption Private sector Conronting corruption* The business case or an eective anti-corruption programme
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Anti-corruption Private sector
*connectedthinking
Conronting corruption*
The business case or an eectiveanti-corruption programme
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The report
The quantitative ndings presented in this report are based on a survey conducted by theEconomist Intelligence Unit (EIU) in November 2007. The survey garnered 390 responses rom
senior executives. In addition, 36 senior executives and specialists were interviewed. The reportwas written in co-operation with the Economist Intelligence Unit; Kim Andreasson was theproject manager and Nigel Holloway the project supervisor.
We would like to thank Keizai Doyukai, the Japan Association o Corporate Executives, orarranging interviews with ve Japanese CEOs.
The interviewees
The ollowing report is global in scope. It eatures analysis and commentary based onan online survey that was supplemented by in-depth interviews with senior executivesand specialists in anti-corruption.
Ronald BerenbeimPrincipal Researcher Business EthicsThe Conerence Board
Edward BickhamExecutive Vice President External Aairs
Anglo American
Alan BoeckmannChairman and Chie Executive OcerFluor Corporation
Alexander BoreykoInternational and Investor Relations DirectorVimpelCom
Jermyn BrooksDirector o Private-Sector ProgrammesTransparency International
Ricky Chu Man-Kin Acting Director o Corruption PreventionIndependent Commission Against Corruption,Hong Kong
Sir Brian FallSenior Diplomatic AdviserRio Tinto
Susan Côté-FreemanProgramme ManagerTransparency International
John Githongo
Senior Associate MemberSt. Antony’s College, Oxord University
Dr Jamshed J IraniMember o the BoardTata Sons Ltd.
Dr Nereus JoubertGroup General Manager and Company SecretarySASOL
Chandu KashiramRisk ManagerSASOL
James KlotzVice Chairman Bar Issues CommissionInternational Bar Association
Anders KullerudSenior Vice PresidentIntegrity and Social ResponsibilityStatoilHydro
Proessor Dr Johann Gra LambsdorChair in Economic TheoryUniversity o Passau, Germany
Dominique LamoureuxVice President Ethics and Corporate Responsibility
Thales Group
Karina LitvackHead o Governance and Sustainable InvestmentF&C Investments
Jerey McGhieChie Legal OcerVimpelCom
Jean-Pierre MéanGroup General Counsel andChie Compliance OcerSGS Group
Wayne MurdyChairmanNewmont Mining
Elin Myrmel-JohansenVice President Corporate ResponsibilityStorebrand
Lou NaumovskiFormer Vice President Commercial andGeneral Director, RussiaVisa International
Ralph PetersonChairman and Chie Executive OcerCH2M HILL
Proessor Dr Mark PiethChairman o the Working Group on BriberyOrganisation or Economic Co-operationand Development
Samuel PorteousManaging Director Asian Disputes andInvestigations PracticeNavigant Consulting
Blake RhodesVice President and Chie CounselNewmont Mining
Tony RosatoSenior Vice President Latin AmericaSNC-Lavalin International
Radhika Sarin
International CoordinatorPublish What You Pay
Egil ThompsonExecutive Vice President Corporate CommunicationsStorebrand
Paul VolckerChairman Independent Inquiry Committee into the UNOil-or-Food ProgrammeFormer Chairman US Federal Reserve
Albert WongHead o Policy and External RelationsShell International
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IV PricewaterhouseCoopersPricewaterhouseCoopers
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Table o contents
Executive summary 2
Why conronting corruption makes sense—the business case
5
Anti-corruption programmes—rom headquarters to the ront lines
12
Looking to others or support 25
Conclusion 29
Endnotes 31
Appendix
Survey methodologyResults o the survey
About us AcknowledgementsContacts
3233454647
Conronting corruption V
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PricewaterhouseCoopers2
Almost every company, regardless o size,industry or country o operation, is exposedto some degree o corruption risk. Somesectors, such as deence, construction andthe extractive industries, identied the dangerearly and began developing managementstrategies. Others are just waking up to therisk, oten because high-prole enorcementpenalties have caught their attention, orbecause they are seeking opportunities inunamiliar markets. Companies are alsoocusing on corruption risk to protect theirmost vital asset—their reputation—and aredeveloping socially responsible businessmodels expected by investors and otherstakeholders. Until recently, however, many
did not understand the business case orlacked the practical tools and programmesnecessary to implement an eective anti-corruption strategy. The potential o corruptionmay always be present; however, companiescan learn rom others and set up a robustand proactive anti-corruption programme tomitigate their risk.
This report examines what companiesare currently doing to manage the risk ocorruption and what steps they should taketo better protect themselves in the uture. Theresearch is based on two types o inormation.First, a global online survey was conducted inNovember 2007 o 390 senior executives, owhom more than hal were C-suite or board-level executives. Second, the survey wassupplemented with in-depth interviews with36 senior executives and specialists in anti-corruption eorts rom 14 countries.
An increasing number o companies recognisetheir vulnerability to corruption:
Among survey respondents, 63% indicate that•they have experienced some orm o actual or
attempted corruption.Enorcement is rising, with 56% saying it•has increased in the last ve years, and 71%anticipating it will strengthen urther in the nextve years.
There is a strong business case or havingan anti-corruption strategy that goes beyondavoiding potential enorcement penalties:
Almost 45% o respondents say they have•
not entered a specic market or pursued aparticular opportunity because o corruptionrisks, 39% say their company has lost a bidbecause o corrupt ocials, and 42% say theircompetitors pay bribes.
I corruption was discovered, 55% say the•most severe impact would be to corporatereputation. This is greater than the combinedtotal o those who say legal, nancial andregulatory impacts would be the most severe.
More than 70% believe that a better•understanding o corruption will helpthem compete more eectively, makebetter decisions, improve corporate socialresponsibility and enter new markets.
Sixty-ve percent o respondents believe a•level playing eld is crucial to their company’suture business activities.
Executive summary
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3Conronting corruption
Among survey respondents, only 22% are verycondent that their company’s anti-corruptionprogramme identies and mitigates the risko corruption.
While companies are generally respondingto the risk o corruption, many o theirunderlying policies and controls do littleto identiy and mitigate risk due to poordesign or implementation.
Almost 80% o respondents say their•company has some orm o programme inplace to prevent and detect corruption, butonly 22% are very condent that it identiesand mitigates the risk o corruption.
Slightly less than hal say their programme•is clearly communicated and enorced, while28% say there are problems with either thecommunication or the enorcement o theiranti-corruption programme.
Rigorous risk assessment, a crucial step•in programme design, is overlooked bymore than hal o those surveyed, and only25% perorm proactive risk assessmentsor monitoring.
Only 40% o respondents believe•their current controls are eective atidentiying high-risk business partners orsuspect disbursements.
Eective anti-corruption programmes not onlymitigate risk but can also enhance corporatereputation and establish credibility:
Having an anti-corruption programme in•place and publicising it is seen as valuable orvery valuable to a company’s brand by 86%o respondents.
Having a public report by an independent•auditor stating that an anti-corruptionprogramme is in place and operating
eectively is considered valuable or veryvaluable to external stakeholders by 76%o respondents.
Overall, the survey indicates that business ismore keenly aware than ever o the dangerso corruption. Yet, more work is neededby companies to produce anti-corruptionprogrammes that are well-designed,comprehensive, clearly communicated andenorced. There is certainly a compellingbusiness case or establishing suchprogrammes. Eorts by business, governmentsand non-governmental organisations in the lastdecade have given the ght against corruptionconsiderable momentum. But signicantchallenges lie ahead. Government and businessboth have vital roles to play: governmentsto implement and enorce anti-corruptionmeasures, business to implement and
vigorously enorce anti-corruption programmes.Each must assume their responsibility tocreate and sustain an environment thatdelivers the best resources at the best value totheir stakeholders.
A denition o corruption
There are many ways to dene corruption.
Robert B. Zoellick, president o theWorld Bank, says it is “a cancer thatsteals rom the poor, eats away atgovernance and moral ber, and destroystrust.”1 For the purposes o this report,corruption is dened as the misuse oentrusted power or private gain andencompasses a variety o issues, includingbribery, conficts o interest, extortion,embezzlement and raud.
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Conronting corruption 5
It is the rare CEO who sees the mounting globaltally o corporations hit with multi-million-dollar penalties or corruption and does notwonder: Could this happen to my company?In recent years, companies caught breakinganti-corruption laws have individually paid intothe hundreds o millions o dollars in nes andseveral CEOs have stepped down in disgrace.
Steep as they are, these amounts do not beginto refect the real price paid by a companyaccused o corruption. “A company just has toget into a serious situation and not address itproperly, and their reputation can be irreparablyharmed,” says Alan Boeckmann, who aschairman and chie executive ocer o Fluor
Corporation was instrumental in the creation othe World Economic Forum Partnering AgainstCorruption Initiative. “It’s hard to measure thebenet you get rom a good reputation, andsometimes it’s hard to imagine the danger orthe disaster that can beall you i you run aoulo that.”
In addition to the external allout, as customersand partners distance themselves rom atroubled company, there are daunting internalcosts. Failing to actively prevent corruption
allows employees and third parties to rationalisestealing rom the company. Companies withanti-corruption programmes that enablebribe payments are also highly susceptibleto thet and nancial statement manipulation.Management and sta become distracted anddemoralised as they investigate what wentwrong and respond to legal, regulatory andenorcement actions. In some recent cases,costs have soared into the billions, signicantlyaecting earnings. The prime preventative
measure a CEO can take is to implement aneective anti-corruption strategy. Throughsurvey results and interviews conducted withsenior executives rom around the world,this report examines existing anti-corruptionprogrammes, pinpoints weaknesses and
Why conronting corruptionmakes sense—the business case
oers solutions. The enormous social cost ocorruption on the poorest countries o the worldis widely acknowledged, as is its corrosiveimpact on democracy and good governanceor rich and poor alike. Less understood is theprice paid by business. The search or newopportunities is increasingly taking companiesinto emerging markets, including the ast-growing economies o Brazil, Russia, India andChina, where they conront unamiliar businesspractices. Being able to manage risk in newenvironments is a necessity as businessescompete globally. Companies must be ableto condently seek new opportunities withoutexposing themselves to undue risk.
Companies that do not take steps to assess andmanage corruption risk stand a greater chanceo being caught in the anti-corruption net. Withthe passing o the Foreign Corrupt Practices Act(FCPA) in 1977, the US took the early initiative inenorcement. Under the act, any company listedon a US exchange or with signicant operationsin the US is subject to the rules and regulationso the US Department o Justice, regardless owhere corruption occurs geographically. Morerecently, enorcement has become a moreglobal aair, with the US working closely withauthorities in other countries. In the last year,at least 20 o the 37 government signatoriesto the 1997 OECD Convention on CombatingBribery o Foreign Public Ocials began one ormore investigations into corruption, up rom 12in 2006.
“You need the governments on one sidebecause they provide the teeth,” says WayneMurdy, chairman o Newmont Mining and aco-ounder o the World Economic Forum
Partnering Against Corruption Initiative. “Butto me it’s very important that the privatesector drive the initiatives because they knowtheir business. They know the hot buttons orthe risky areas or issues. So they can ocuson those.”
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The most important question a CEO shouldask, thereore, is not whether their companywill be the next enorcement target but ratherwhat they can do now to reduce the probabilityo corruption occurring on their watch. Somehesitate to put a programme in place because oconcerns raised by their legal department thatit will expose the company to more liability, orbecause they believe that the expense involveddoes not justiy the potential benets.
Mr Boeckmann o Fluor says the legal argumentdoes not stand up. “When we put the principlestogether or the Partnering Against CorruptionInitiative, we had a number o legal rmsinvolved and got written opinions,” he says.
“This does not expose any company to anymore liability than they currently own throughthe laws that are on the books o each countryor what may be in their contractual documents.I anything, it is insurance against having tocome up against those laws and contracts.”
It takes time and resources to conduct arigorous risk assessment, tailor a programmeto the company’s areas o operation, clearlycommunicate it to sta and then monitorand enorce its provisions. Still, when asked
about the greatest barriers to implementing asuccessul anti-corruption programme at theircompany, survey respondents place the costo a programme well below other barriers,such as country-specic cultural and businesspractices, competitive pressures, corporateculture and conficts between competitive andethical interests. Respondents rom the largestcompanies, with more than US $10 billion inannual revenues, are even less inclined to viewcost as a barrier.
There is also strong evidence contradictingthe conventional wisdom that a company’soperations may suer unless bribes are paidin countries where corruption is perceived tobe endemic. Dr Jamshed J Irani, a member othe board o Tata Sons in India, says that i acompany establishes a reputation or not payingbribes, the demand or them will dry up andthe service will still be rendered. “Very otenwe nd that the person at the other end o thetable wants to complete our business as quicklyas possible because he knows that we are notgoing to give anyway,” he says. “There has beena realisation that you don’t have to be corruptto get your things done and that it is possibleto maintain your values even in an environment
which might suggest that you can only getahead through taking short cuts.” JereyMcGhie, chie legal ocer or VimpelCom,a Russian telecoms rm, says companieshave to stop using the excuse that corruptioncannot be avoided when doing business inemerging markets. “That attitude is one o thebiggest obstacles to real improvement in anti-corruption,” he says.
Looked at logically, bribes do not make goodbusiness sense. They may not alter the situationin any way and there is no contract to enorcei the services paid or are not rendered. Havingpaid once, a company also opens the doorto uture and perhaps larger demands andbecomes susceptible to blackmail. “I you paysomeone $1,000 or a service, do you thinkthe next time they will only ask or $1,000?”says Albert Wong, head o policy and externalrelations at Shell International. He tells hissta to avoid this slippery slope by reusing therst demand.
“ A company just has to get into a serious situationand not address it properly, and their reputationcan be irreparably harmed.”
Alan Boeckmann
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7Conronting corruption
Corruption itsel is a moving target. Suitcaseso cash have been replaced by requests ordonations or other payments that soundinnocent but turn out to be corruption indisguise. “You should never underestimatethe resourceulness o corrupt people,”says Ronald Berenbeim, principal researcher,business ethics, at The Conerence Board.“This is a mutating virus that is very hard tokeep up with.” Without a programme in place, acompany may not even be aware that they arevulnerable until it is too late.
A great deal o work is being done to helpcompanies ght corruption and make inormeddecisions. Help and advice are available rom
business groups such as the World EconomicForum and the International Chamber oCommerce, rom joint initiatives with groupssuch as Transparency International and romrms that specialise in anti-corruption strategies.
While companies cannot control howgovernments and competitors behave, thereare tools available to help level the playingeld. One example is the so-called “integritypact,” where all parties sign an enorceableagreement not to engage in corruption. Our
survey highlights the importance o gettingeveryone to play by the same rules. Almost 45%o respondents say they currently avoid certainmarkets or opportunities because o corruptionrisks and almost 40% say they have lost bidsbecause o corrupt ocials.
Companies must be ableto condently seek new
opportunities withoutexposing themselvesto undue risk.
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Ralph Peterson
Chairman and Chie Executive OcerCH2M Hill
The occurrence o an incident to a particularcompany has an immediate and prooundimpact on that company’s bottom linebecause many clients, which in ourcase are governments or multinationalcorporations, will simply not want to dobusiness with you because you may attractcontroversy vicariously to their potentiallyhonorable activities.
Related to that point, there is in act asubstantial economic loss—by someestimates or our sector as much as US$400 billion—associated with the thet oresources that then cannot be deployed ineducation or healthcare or lie-improving civil
inrastructure. So there’s an economic loss.
Then perhaps ourth on the list is the issueo what we sometimes reer to as the race ortalent. Engineering talent is in short supply.We need to make engineering andconstruction an attractive career option oryoung people entering the workorce. When,as is oten the case, the engineering andconstruction industry nishes dead last,dead last behind the deense industry and
behind oil and gas as an area o perceivedcorruption, that can’t make young peoplewant to fock into this arena and it’s going tomake them want to go somewhere else.
Q. How do you describe the business case orghting corruption to your ellow CEOs?
A. There are our compelling elements thatcircumscribe the business case: (1) the
ethics penalty; (2) the reputation, credibilityand social license dimension; (3) the sheereconomic loss, which is pretty staggering;and then (4) the attractiveness o theproession to new recruits.
There is an ethical penalty or honorablecompanies that occurs when the playingeld is not level and corruption is present.That’s a pretty signicant issue becausethere are lots o interesting projects that we
steer clear o because they’re in locations orcircumstances where we’re not convincedthat we can walk the talk.
A very close second is the issue o reputationand its eect on credibility and hence onsocial license to get things done. That ismore than just an embarrassment issue.It’s also a bottom-line issue because theability o a company to actually get thingsdone is dependent on a social license. Thatsocial license is granted by civil societyand governments based on credibility.Projects and activities are stalled or don’t getimplemented because o mistrust.
A view rom the business world
CH2M Hill is a global engineering and construction rm based in the US,
with 23,000 employees and operations in 31 countries.
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Conronting corruption 9
Above and beyond the solid business case or having an anti-corruption programme, there areother signicant benets to having a strategy in place. In our survey, 86% o respondents say aprogramme is either very or somewhat valuable to the company’s brand, i the public knows aboutit. Looking just at respondents rom the largest companies, almost 96% agree with this point oview. The existence o an eective anti-corruption programme also appears to be viewed avourablyby enorcement authorities.
What is the value to your company’s reputation and/or brand in having a publicly disclosed anti-corruption
programme and controls?
Companies with revenue over US $10 billion All companies
8%
5%
41%
45%
Very valuable
Somewhat valuable
Not at all valuable
Don’t know
40%
56%
Very valuable
Somewhat valuable
Not at all valuable
Don’t know
3%
1%
Creating a level playing feld is crucial to my
company’s uture business activities.
32%
4%4%
6%
21%
33%
Don’t know
Accurate
Inaccurate
I corruption was discovered at your company, in
which o the ollowing areas would the impact bemost severe?
8%
8%
10%
11%
55%
3%
2% 2%
Corporate reputation
Legal/enforcement action
Regulatory action
Loss of human capital (recruiting, morale, turnover)
Financial loss
Operational interruption
Don’t know
Enforcement costs
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It is not enough or a company to have a“paper programme” without any real substanceto it, says Alice S Fisher, assistant US attorneygeneral. By setting up an eective, proactiveprogramme with real substance, companiesmay also receive more avourable treatmentrom enorcement authorities should corruptionbe discovered. “It may not mean that you oryour client will get a complete pass, but you willget a real, tangible benet.”2
Investors and other stakeholders areincreasingly watching how companies handlecorporate social responsibility (CSR), o whichanti-corruption eorts are an important element.Stock exchanges have responded to these
changing conditions. The creation in 2001o the FTSE4GOOD Index Series, which arebenchmark and tradable indices or sociallyresponsible investors, is one notable example.In 2006 the series included countering briberyas a criterion or remaining in the index,signalling that countering corruption hadbecome an important part o the corporatesocial responsibility agenda. The Dow JonesSustainability Indices, established in 1999,now include corruption and bribery in theirassessment criteria.
Trillions o dollars are now specically investedin the socially responsible marketplace.
Accordingly, credible and robust publicreporting o anti-corruption initiatives shouldbe important considerations or companies.
“There has been arealisation that you
don’t have to be corruptto get your things doneand that it is possibleto maintain your valueseven in an environmentwhich might suggestthat you can only get
ahead through takingshort cuts.”
Dr Jamshed J Irani
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Anti-corruption programmes—rom headquarters to theront lines
The survey indicates broad understanding thata successul anti-corruption programme mustbegin with a clear commitment rom seniormanagement. “I you don’t get the CEO to signalsupport or the anti-corruption programme,you might as well not do it,” agrees Dr NereusJoubert, group general manager and companysecretary at the South Arican chemical andliquid uels company SASOL.
Survey respondents agree and rank a strongsignal rom senior management as the mosteective way to minimise corruption at theircompanies. Yet it is only a starting pointthat must be accompanied by a substantiveprogramme which targets the people and
processes most at risk and is tailored to teach company’s unique prole and areas ooperation. The urther an operating unit isaway rom head oce, the more the messageseems to ade.
“I you don’t get theCEO to signal support
or the anti-corruptionprogramme, you mightas well not do it.”
Dr Nereus Joubert
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13Conronting corruption
Almost 80% o respondents indicate that theircompany has some type o anti-corruptionprogramme. Yet is it troubling that only 22% saythey are very condent it identies and mitigatesthe risk o corruption. A urther 52% say theyare somewhat condent. However, when thesetwo groups are examined closely, the lattergroup’s level o condence does not appear
justied. While almost hal o respondents in the“very condent” group believe their companyconsiders the risk o corruption when makingsignicant business decisions, only 18% o the“somewhat condent” respondents believe theircompanies do so. Among the very condent,45% describe the risk assessment processat their company as rigorous, compared with
only 11% in the somewhat condent group.When it comes to inorming employeesabout a programme, 83% o very condentrespondents say their corporate programme isclearly communicated and enorced, comparedwith 54% in the somewhat condent group.The data suggest that while some companieshave made progress, the majority still havegood reasons or doubting the eectiveness otheir programmes.
How confdent are you that your controls/
programmes identiy and mitigate corruption risk?
Comparing the 22% very confdent and 52%
somewhat confdent respondents identifes
signifcant gaps
Very condentSomewhat condent
My company has a specic global programme thatincludes policies and controls designed to preventand detect corruption, and it is clearly communicatedand enorced
It is accurate that the corruption risk assessmentprocess at my company is rigorous
It is accurate that the risk o corruption is alwaysconsidered when making signicant business decisions
83%
54%
45%
11%
46%
18%
79%
39%
Our current controls are eective at identiying high-riskbusiness partners and suspect disbursements
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Risk assessment
In the survey, 57% o respondents say theircompany always considers the risk o corruptionwhen making signicant business decisions.Dig deeper into the ndings and problemsemerge. Among respondents, only 47%describe the corruption risk assessment at theircompany as rigorous, which means that 53%o companies limit the eectiveness o theirprogrammes. Thoroughly customised properrisk assessment allows companies to ocusresources on key risks instead o chasing thehot topic o the day. Only 25% o respondentssay their company perorms proactive riskassessments or monitoring. Little wonder then
that only 40% o respondents believe theircontrols are eective at identiying high-riskbusiness partners or suspicious disbursements.
Implementing a programme is much morecomplex than a simple one-liner that says “donot bribe,” says Jermyn Brooks, director oprivate sector programmes at TransparencyInternational. “What each company needs to dois to look through its business, both domesticand international, particularly which countriesit’s in, the type o businesses it’s conducting,and based on the specics o the business todo a risk analysis” says Mr Brooks. “And then tosay our main risks or being involved in briberyand corruption lie in these, let’s say, ten points.It might be types o transactions; it might be inparticular countries. And then to design youranti-corruption policy specically to cover thoseneuralgic points.”
At Newmont Mining, Mr Murdy asked twosenior executives with experience in Central
Asia and Latin America to help fesh outthe guiding principles or the company’santi-corruption programme. “They hadreal experience on the ground and knewwhat the issues were,” he says. “Then the
law department really ran with that.” Theinvolvement o the senior executives at anearly stage in the process helped win broaderacceptance later on because employees didnot see the new programme as something thatwas being imposed by the legal department.
A comprehensive corruption risk analysis maypersuade a company to avoid certain markets orpartners altogether because the possibilities obecoming involved in corruption are judged toohigh. But it can also equip a company to stridewith condence into a challenging environment,where cultural and business practices areunamiliar, knowing that it has identied keyrisks and can design processes to manage
corruption risk.
Programme design
Only ater assessing potential risk can acompany start to design its anti-corruptionstrategy. Each programme must be tailored tot dierent processes, products and markets.Ron Berenbeim o The Conerence Boardcompares the design process to a Christmastree. The trunk and branches, which representa commitment not to engage in corruption, arethe same or every strategy. The ornaments,which represent the ocus on particularcountries, products or processes, dier romone company to the next. “One size does nott all or all companies or even all companieswithin certain industries,” says Mr Berenbeim.“It’s company specic.”
In the survey, respondents indicated thatpayments made through agents, intermediariesor other third parties are the most prevalent
orms o corruption. Paying a lobbyist to arrangea meeting with a politician, hiring an agent toliaise with local authorities on an inrastructureproject, or engaging a contractor to handlelocal procurement are all arrangements that
“What each company needs to do is to lookthrough its business, both domestic andinternational, particularly which countries it’sin, the type o businesses it’s conducting, andbased on the specics o the business to do a riskanalysis.”
Jermyn Brooks
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Conronting corruption 15
Five steps to a better anti-corruption programme
Risk analysis: This basic step in the1.design o an eective anti-corruptionpolicy must cover all aspects oa company’s business, includingcountries o operation and the typeo business being conducted. Oncethe key corruption risks are identied,the programme is designed to coverthose points.
Implementation: Done properly, this2.
means a careul and continuouscommunication programme, trainingand adjustment o internal processes toensure they do not run counter to theanti-corruption policy.
Sanctions: Everyone in the company3.needs to know that a sanctions systemis in place and that i they contravenethe policy they endanger their job, orat least their prospects o promotion
and remuneration.
Help lines: Companies should have4.an open or an anonymous help linewhere employees can ask or advice.Individual employees, no matter whattheir level, should not ace dicultethical decisions alone.
Monitoring: Treat anti-corruption as you5.would a health and saety programme,
analysing its strengths and weaknesseson an ongoing basis and makingadjustments to make it more eective.
Jermyn Brooks
might lead to bribery because they can beused to disguise corruption and distance theperson paying the bribe rom the ultimaterecipient. Regardless o who actually deliversthe payment, the company bears the risk oenorcement and damage to its reputation.
Procurement stands out as the most vulnerablebusiness operation. Second are bids or sales.Third is the establishment o a presence in anunamiliar market. In interviews conductedor this report, sales was singled out by anumber o executives as an area in need oparticular attention, both in the design andthe implementation o an eective strategy.It is important in programme design that
compensation incentives or the sales orce arealigned closely with the anti-corruption strategy.I a sales person loses business because theyreuse to pay bribes and then are punishedor not reaching a particular target, the anti-corruption strategy is undermined. “You haveto look at all internal systems to make surethat they’re not countering your anti-corruptionpolicy,” says Mr Brooks o TransparencyInternational. “And that’s a big job.” A thoroughexamination o internal systems means bringingall the relevant departments—not just thegeneral counsel and nance unction—to thetable when the anti-corruption plan is designed.
Communication and training
The world’s best-designed anti-corruptionprogramme is not enough by itsel. Employeesmust also know about it and understand thatthere will be sanctions i they transgress. Thesurvey highlights the continuing challenges inthis area. Among all respondents, only 49%
say their company’s programme is clearlycommunicated and enorced, while 28%see problems with either communication orenorcement. Notably, 17% say their companydoes not have a programme that includespolicies and controls designed to prevent anddetect corruption. The larger companies appearto be doing a better job in this respect.
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While handing a large amount o cash to agovernment ocial in order to secure businessis commonly understood to be a bribe, thereare other payments and business arrangementsthat are more dicult to catagorise, especially
in countries where the business culture maybe dierent. Relationship-based businesspractices, or example, are one o the “greyareas” that anti-corruption advocates have toocus on in uture, says Mr Peterson o CH2MHILL. “It’s not necessarily illegal. It just hassome o the attributes that we ear.” Such greyareas need to be identied and addressed withclear guidelines or employees.
By fagging acilitation payments, gits and the
use o middlemen as potential grey areas andsetting clear guidelines backed by advice,companies can help their employees makethe right decisions.
Facilitation payments
Companies ace a dilemma regarding theuse o acilitation payments, characterised inUS law as payments or expediting routinegovernment actions, such as obtaining permitsand licences; processing visas and workorders; or providing phone, power or waterservices. The payments are not to obtain orretain business nor gain any other improperadvantage. Such payments are explicitlyallowed under US law and the OECD anti-bribery convention, but banned by manycountries and companies. There are divergentviews about whether companies shouldtolerate them. Some rms prohibit them entirelywhile others ensure transparency by requiringacilitation payments to be properly authorised
and recorded. Mr Murdy o Newmont Miningsays it is highly rustrating when ocialsin certain countries demand acilitationpayments or things like import clearance atports because the government is not payingthem enough to live on. “There’s a wholeineciency that occurs in that kind o system,”he says. For a company, it may be temptingto pay the money i it means the work will bedone more quickly. “I’m old ashioned,” saysPaul Volcker, chairman o the independent
inquiry committee into the UN Oil-or-FoodProgramme, which ound that more than2,200 companies involved in the programmepaid kickbacks to ocials in Iraq.3 “I you’regoing to go ater corruption, I don’t think youcan say it’s okay in one place and not okay inanother.” Proesor Dr Johann Gra Lambsdor,the German corruption specialist who inventedthe Corruption Perceptions Index used byTransparency International, says his researchsuggests that the most eective way o dealing
Navigating grey areas
with the problem is to reject all requests orbribes. “Bureaucrats understand very quickly ithey are told there is no slush und.” Given thesometimes emotional arguments on this topic,The Conerence Board identied acilitation
payments as perhaps “the most vexatiousanti-corruption policy issue.”4
Agents and middlemen
Companies that venture into new markets,where the culture and language are unamiliar,oten use agents, consultants and other ormso middlemen to understand the operatingenvironment. Yet, as the survey and severalrecent court cases show, such middlemen
are particularly prone to corruption. Drawingon his experience with the inquiry into the UNOil-or-Food Programme, Mr Volcker pointsout that when the Iraqis became aggressive indemanding kickbacks, a number o prominentcompanies decided to withdraw rom theprogramme. Those companies that remainedused what Mr Volcker reers to as “shadymiddlemen” or agents. “I think the spotlighthas been put on the casual use o agents,” hesays. Given the heightened risks associatedwith agents and middlemen, companies shoulddevelop specic and rigorous guidelines orperorming due diligence and approving theuse o agents.
Gits
When respondents to the survey were asked torank orms o corruption in order o prevalence,they placed payments made through agents,intermediaries or other third parties at thetop o the list, ollowed by inappropriate gits,
payment in company products or services,sponsorships or donations to a particularcause, political donations and bribes madevia a corporate or employee credit card. Evenor companies with a clear policy againstcorruption, gits can be a tricky area, saysMr Wong o Shell International. “How mucho a git can I give you? Can I send you aChristmas card? Can I send you a Ferraricar model? There are some very grey areas.”Transparency International suggests getting
advice on what is considered customary andwhat is excessive in a new market. Help linescan help employees in ar-fung locationsobtain quick responses to questions regardingwhat is acceptable in a particular country. Thisis not to say there should be no restrictions.“Cultural relativism ends where the Swiss bankaccount enters the scene,” says TransparencyInternational in the guidelines published onits website.
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“We have set examples just to drive home themessage that anyone who’s ound indulging insuch practices is immediately, shall we say, actedupon and removed rom the organisation.”
Dr Jamshed J Irani
Among corporations with annual revenues oUS $10 billion or more, 76% o respondentsindicate their company’s programme is clearlycommunicated and enorced, whereas amongcorporations with revenues o less than$10 billion, only 41% agree.
Too many companies ail when it comesto implementation, says Mr Brooks oTransparency International: “They don’t do toobadly on the policy. And they do understandthat it’s part o risk management. But thenthey sit back and say: ‘Well, we’ll just put iton notice boards, we’ll put it on our website,and then everyone inside and outside thecompany knows about it.’” Experience shows
more eort is needed. StatoilHydro in Norway,or example, is preparing what it calls an anti-corruption culture development programmethat will be rolled out this year to reach allo its 31,000 employees and will include amandatory e-learning programme, says AndersKullerud, senior vice president o integrity andsocial responsibility.
There was some disagreement among thoseinterviewed or this report as to whetherprogramme implementation should be primarily
a top-down aair, or whether employees shouldbe actively involved at all stages o the process.
A company must have both, says ProessorDr Lambsdor, the global corruption specialist.“You must have a clear commitment rom topdown, clear enorcement rom the top down,but also encourage the many grassroots,bottom-up endeavors within the company.”
There was no disagreement, however, on theimportance o training to ensure that the valuesincorporated in the anti-corruption programme
are translated into real action on the ground.Training was among the top ve actionsrespondents selected as the most eectiveways to minimise the likelihood o corruptionat a company. (The others are commitment
rom senior management, clear communicationo guidelines, hiring people with high ethicalstandards and sanctions.)
Since sales and bids are regarded as areas
where companies are particularly vulnerableto corruption, it would make sense to provideadditional training to employees in thesedepartments. At Thales, the French security anddeence group, sales and marketing unctionswere targeted rst when a new trainingprogramme began in 2000, says DominiqueLamoureux, vice president o ethics andcorporate responsibility. Storebrand, a nancialservices company in Norway, gives moretraining to nancial advisors who sell company
products than to other employees, says ElinMyrmel-Johansen, vice presidento corporate responsibility.
Sanctions
Even the strictest guidelines will eventuallybe ignored unless there is a penalty or notollowing them. The survey indicates thatrespondents place a high degree o importanceon consistent sanctions as a means ominimising corruption. The penalty may notnecessarily be immediate and tailored, but itmust be consistently enorced. “You have tosupport the system with a sanctions policy,which again, needs to be air and open and astransparent as possible, because you obviouslyneed to protect people’s privacy,” says MrBrooks o Transparency International. At TataSons in India, the anti-corruption strategy isingrained even in the code o conduct, saysDr Irani: “We have set examples just to drivehome the message that anyone who’s ound
indulging in such practices is immediately, shallwe say, acted upon and removed rom theorganisation.” Without exception, intervieweesor this report stressed the need or consistentapplication o sanctions.
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Monitoring in action
SASOL
SASOL in South Arica decided to appointethics champions in all o its operating units.“It’s a big group and one has to infuencebehaviour around the globe,” says Dr NereusJoubert, group general manager and companysecretary at the chemical and liquid uelscompany. These employees, specicallydesignated to increase the prole o the ethicsprogramme, are also brought together on aquarterly basis to discuss common concerns.SASOL ollowed the initiative by surveying9,000 o its 30,000 employees and discoveredthat awareness o its ethics champions wasmuch lower than expected. The inormal
designation o the employees as ethicschampions will now be made more ormal,says Dr Joubert. SASOL also has a orensicsdepartment that investigates suspiciousactivity. The amount that the orensicsdepartment has recovered justies the costo the programme, says Dr Joubert, addingit is hard to measure the cost o the corruptactivities that they prevented. He also pointsout that the ethics programme is part ocorporate governance and that studies have
shown that, over time, the shares o well-governed companies perorm better thanthose o their less well-governed peers.
Rio Tinto
At Rio Tinto, the global mining companybased in the United Kingdom, managerso business operations are required to llout a questionnaire every year on how wellthey are ullling their obligations, says SirBrian Fall, senior diplomatic adviser. Thoseobligations cover hard and sot managementissues, he says, ranging rom nancial targets,environmental targets and mine saetyto corporate social responsibility, humanresources and anti-corruption. “They all appearin the same questionnaire. We don’t have onequestionnaire or business questions and anadd-on or other areas.”
The company does not depend on thesereports alone to detect or prevent harmulbehaviour but they are part o an overallstrategy. Continuous monitoring, including acondential whistleblowing line where calls arehandled by independent interviewers and theresults orwarded to managers each month,ensures that serious incidents come to theattention o senior management long beorethe annual questionnaires are submitted.
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Monitoring
No company would put a health and saetyprogramme in place and then just assumethat it works. Treating an anti-corruption
programme this way greatly increases thepossibility that there will be problems down theroad. In ensuring that the processes actuallywork, companies may also uncover suspecttransactions and move to correct them longbeore the problems spread. In the survey,respondents place internal controls at the topo the list when asked how corruption, eitherattempted or actual, was discovered at theircompany. This was ollowed by internal audit,employees reporting through the normal chain
o command, a tip rom a whistleblower andby accident.
Internal auditors are part o the monitoringprocess, although they are more likely to catchcorruption ater it occurs. The TransparencyInternational guidelines suggest that internalauditors conduct regular tests to ensure theprogramme is working and is reaching all theright people in the company. Problems shouldbe reported to management and the inormationused to revise and improve the programme.5
To enhance periodic monitoring and establishcredibility or their anti-corruption programmes,leading companies, non-governmentalorganisations and specialists are workingtogether to develop means o independentverication. These eorts appear justied.
A public report by an independent auditor
stating that an anti-corruption programme isoperating eectively is judged to be very orsomewhat valuable by 76% o respondentsin the general survey, and by nearly 82% orespondents rom the largest companies.
The ever-changing nature o corruption makescontinuous monitoring essential. “We aregetting into the era where people are asking ordonations to oundations as sort o table stakesor jobs, or they want companies to pay orthe education o members o their civil serviceor the medical care needed by their amiliesor so on and so orth,” says Mr Berenbeimo The Conerence Board. “You are not goingto entirely put an end to corruption by having
some legislation that makes it unlawul to bribea public ocial and vigorously enorcing itbecause the orm and methods will change.”Constant monitoring helps companies identiynew orms o corruption and adapt theirprogrammes accordingly.
Hotlines and help lines
The survey indicates that a hotline orwhistleblowers is considered an importanttool in detecting cases o corruption. Yet,there is debate about whether the best use othese lines is to make them help lines (whichemployees can use to get advice on an ethicalquestion in advance) rather than hotlines (usedto report unethical or corrupt behaviour aterthe act). They need not be mutually exclusive.Increasingly, companies are using both.
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21Conronting corruption
“You shouldn’t leaveindividual employees,no matter what levelthey operate at, alonewith a very dicultethical decision.”
Jermyn Brooks
The emerging markets oBrazil, Russia, India andChina (BRIC)
No discussion o the private-sector ghtagainst corruption is complete without a
look at the challenges aced by companiesdoing business in the emerging economicpowerhouses o Brazil, Russia, Indiaand China, collectively known as theBRIC countries.6
Respondents rom companies in Brazil,Russia, India and China tend to viewcorruption in much the same way asthe overall group. Yet there are somedierences:
Almost 50% o respondents in the• BRIC countries consider corruption acost o doing business that cannot beeradicated, compared with only 35%in the general group. Looking at Chinaalone, 72% o respondents hold thisview.
Enorcement is considered less o a risk•by the BRIC group, with 45% saying ithad strengthened in the last ve years,compared with 56% in the general
group. Respondents rom Brazil stoodout rom the rest o the BRIC group, with72% saying enorcement had alreadystrengthened and an even greaternumber believing it will strengthen urtherin the next ve years.
The number o respondents saying•their company’s programme includesproactive risk assessments andmonitoring o corruption risk was aboutthe same in the BRIC group as in the
general survey, about 25%. Only 29% oBRIC respondents say their controls areeective in identiying high-risk partnersand suspect disbursements, comparedwith 40% in the overall survey.
BRIC respondents also dier rom the•general group in terms o what ormso corruption are most prevalent.Inappropriate gits head the BRIC list,compared with payments made throughagents and intermediaries or the generalgroup. This was particularly true in China.
Despite the skepticism and perceivedlevels o heightened risk in these markets,a number o companies have shown thatproactively addressing corruption riskscan help balance risk and return. Whilethe business opportunities are compelling,companies must tailor their programme’scontrols and oversight or each market.
Mr Brooks o Transparency International sayshelp lines help employees avoid the type obehaviour reported on hotlines. “You shouldn’tleave individual employees, no matter what levelthey operate at, alone with a very dicult ethicaldecision,” he says.
Sta need support, says Mr Murdy o NewmontMining. Earlier in his career, Mr Murdy workedas a public accountant with employees o acompany embroiled in a corruption scandal.“When we interviewed the employees thatwere involved, you could just see the distastethat they had,” he says. “It was very visibleand obvious—their attitude, though, was: Wedidn’t like it, but that was the way business wasdone. In my experience you put employees ina very, very dicult position i they think that
they’re supposed to take some action or the‘betterment o business’ that is not ethical or notlegal.” At CH2M HILL, the hotline has provedinvaluable, says Mr Peterson: “Most o theactivities that we have encountered that neededcorrective attention honestly suraced throughthis hotline. It is an ethical company’s bestriend because employees are, by and large,good people and they see things going on.”
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Essential elements o an
anti-corruption programme
Identiy risk actors,
schemes & scenarios Assess likelihood & impact Tailor to local environment4 4
Develop new/
enhanced controls
Review operating
eectivenessFocus design
on key risks
Programme design & control activities
33
D ev el o p a
r i s k r e s p on s e
C ont i n u o u s
r e a s s e s s m ent
Risk assessment
Monitoring
•Monitorriskfactors&indicators
•Examine“redflags”
•Evaluatecontrolefficacy
Tone at the top
•CEO/boardsupport
•Communication
•Hotlines&helplines
Tone at the top
•CEO/boardsupport
•Communication
•Hotlines&helplines
Risk assessment
•Identifyriskfactors
• Assesslikelihood&impact
•Tailortolocalenvironment
Tone at the top
Leadership and support of CEO, board and senior executives•
Consistent communication, support and enforcement of •programme is essential to establish credibility
Incorporate anti-corruption programme with the organisational•structure and formal decision making processes
Establish whistleblower hotlines, employee help lines and topical•guidance to support employees in challenging situations
Regular reporting to CEO and board•
Risk assessment
Utilise cross-functional teams (business unit, nance, internal•audit, compliance, legal) to establish credibility and consistency
Identify risk factors, schemes and scenarios at a business•process level
Assess likelihood and impact•
Tailor assessment to local incentives, pressures, opportunities•and attitudes
Evaluate and prioritise key risks relevant to the organisation•
A view rom PricewaterhouseCoopers
Response & remediation
•Investigate
• Analyserootcause
•Enhancecontrols
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23Conronting corruption
Programme design and control activities
Focus design and implementation on key risks identied in•the risk assessment
Typical policies and controls to consider:•
—Facilitation payments
—Gits, hospitality and entertainment
—Use o agents and other intermediaries
—Political and charitable contributions
—Acquisition due diligence
—Joint ventures or similar relationships
—Record keeping requirements
—Investigation and sanction procedures
Ensure controls contemplate risks o override, circumvention•and collusion
Tailor controls to local environment and business models•
Monitoring
Design monitoring and auditing procedures around risk actors•and indicators
Periodically evaluate program eectiveness by perorming•internal audits
Survey employees’ understanding o programme•
Constantly incorporate monitoring results into programme design•
Response and remediation
Establish ormal process or initiating, tracking, resolving and•documenting allegations
Identiy and remediate control weaknesses which led to• corrupt activities
Consistently enorce sanctions•
Programme design
& control activities
•Focusdesignonkeyrisks
•Reviewoperatingeffectiveness
•Developnew/enhancedcontrols
Monitoring
•Monitorriskfactors&indicators
•Examine“redflags”
•Evaluatecontrolefficacy
Response & remediation
•Investigate
• Analyserootcause
•Enhancecontrols
www.pwc.com/anti-corruption
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25Conronting corruption
eeding the “resource curse,” which involvespoor management by governments o resourcerevenues and predatory behaviour by corruptelites. In the high-risk industries o deence,construction and the extractive sectors, wheremany corporate leaders are already active inthese collaborations, 61% think they are veryor somewhat eective already, compared with53% in the general survey.
A challenge or these private-sector initiativesin the uture is to involve more small- andmedium-sized enterprises. While smallercompanies represent the vast majority o globalbusiness activities and are the most vulnerableto corruption,8 they do not have the same
resources to put internal saeguards in placeand lack the ability o larger companies to standup to government ocials demanding bribes.They are also vulnerable to private-to-privatecorruption, where the demand or a bribe maycome rom an employee o a larger rm.
It is in the interest o large companies to havesmall- and medium-sized rms involved.“Big guys don’t want to compete against cor-rupt little guys,” says Mr Wong o Shell In-ternational. Large companies are also under
increasing pressure rom regulators to ensurethe integrity o companies in their supply chain.There are at least two eorts underway tocorrect this imbalance. Transparency Interna-tional is working on guidelines developedspecically or smaller rms and the WorldEconomic Forum Partnering Against CorruptionInitiative is adapting its policy or smallercompanies.
Collaboration by governments and
non-governmental organisations
Recent activity by governments has madethe enorcement o anti-corruption laws anincreasingly important area or business.
Among survey respondents, 56% agree that
Companies are beginning to understand thatghting corruption requires working with othercorporations, as well as governments andnon-governmental organisations. The surveyindicates that 53% o respondents believe anti-corruption initiatives led by the private sectorare very or somewhat eective and 74% thinkthey will be very or somewhat eectiveve years rom now.
Two o the main global collaborations driven bythe private sector are (a) The Anti-CorruptionCommission at the International Chamber oCommerce, which encourages sel-regulationby enterprises in conronting issues o extortionand bribery and provides business input into
international initiatives to ght corruption,7
and (b) the World Economic Forum Partnering Against Corruption Initiative, which began withexecutives in the construction and extractiveindustries and has since expanded to includeother sectors.
Mr Boeckmann, a driving orce behind thecreation o the World Economic ForumPartnering Against Corruption Initiative, saysthat initially some companies were reluctant to
join because they eared it would be a business
disadvantage. “With the critical mass thatwe’ve created here, it gives a lot o comortto companies to come on board. The orumsthat we hold, where we share best practices,have really been well received because it allowseven smaller companies that may not have theresources or the wherewithal or knowledgeto quickly get up to speed and implement thesystems that will help them combat corruptionin their business.”
One example o the many programmes led by
the private sector is the Extractive IndustriesTransparency Initiative. Edward Bickham,executive vice president o external aairsat Anglo American, says the major miningcompanies work through this initiative to avoid
Looking to others or support
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Proessor Dr Mark PiethChairman o the Organisation or EconomicCo-operation and Development Working Groupon Bribery
Q. What challenges and opportunities do youexpect the OECD convention will ace in thenext ve years?
A. The major asset o the OECD anti-corruption system is exactly this direct, non-diplomatic monitoring mechanism, whichsubjects even the strongest economicpowers to public critique. It will graduallybring about signicant change over thecoming years.
I see, however, two major challengesahead: We should not orget that bribery is(on both sides) typically criminality o thepowerul and that there is a real temptation
or economic or political intererence ininvestigations. On the other hand, anti-corruption work by the OECD will onlyremain meaningul as long as the majorexporting nations participate.
Q. How do we get Brazil, Russia, India andChina, collectively known as the BRICcountries, ully on board in the ght againstcorruption?
A. First, all o these countries are alreadyinvolved in the United Nations anti-corruption initiative. Second, their links tothe OECD are getting stronger: Brazil isalready a member o the Working Groupon Bribery, and intensive talks aboutparticipation have taken place with Chinaand Russia. As well, China and Russia haveparticipated in the working group as ad hocobservers in the past. The BRIC countriesand members o the OECD convention
acknowledge that participating in the anti-corruption work is benecial to all.
Q. What should businesses be doing toadvance the agenda or anti-corruptioneorts?
A. I am convinced that the most signicantcontribution to the anti-corruption agendain the near uture will be made by theprivate sector, be it with the help oindustry standards, such as those o theWorld Economic Forum Partnering AgainstCorruption Initiative, or through company-specic compliance systems.
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27Conronting corruption
regulatory enorcement action has strengthenedover the last ve years and 71% believe itwill get tougher still in the next ve years.Government action is a critical component increating the level playing eld that companiesdesire. I government eorts are not sustainedand increased, there is a danger that the ghtagainst corruption will suer. In the survey, 65%o respondents say a level playing eld is crucialto their company’s uture business activities.Yet progress on this ront remains uneven.For example, the OECD anti-bribery conventionhas 37 signatories, but only 14 enorce therules with any vigour.9 “Governments needto somehow nd the political will to stopcorruption at the source, to get their houses
in order i there is going to be signicantimprovement,” says Mr McGhie o VimpelCom.
Governments also work through thedevelopment banks that they und, such asthe World Bank, the Asia Development Bankand the European Bank or Reconstruction andDevelopment. Businesses requently look tothese banks to help reduce the demand sideo corruption by setting rules on contracts andhelping governments to establish ecient andstable institutions. “The multilateral institutionscan really be helpul because some o thesecountries need a push,” says Mr Murdy oNewmont. “I people at the World Bank or theUnited Nations or some o these institutionsthat have leverage in these countries can reallytake a role on that side, I think that’s really thenext rontier.”
In 2007, the international nancial institutionsagreed to harmonise their approaches toinvestigating raud and corruption in their
lending programmes.10
The World Bank, orexample, has begun to use integrity pacts
(or “no-bribes agreements,” rst developedby Transparency International) betweengovernments and companies bidding ona project. These pacts, which have beenused in more than 80 projects around theworld both inside and outside o the WorldBank,11 speciy sanctions, which can includecancellation o the contract, liability ordamages and disqualication rom uturegovernment contracts.
The challenge ahead or governments is two-old: rst, to encourage those governments thathave ratied but not enorced international anti-corruption conventions to increase their eorts;and, second, to reach out to those countries
who have not yet joined.While stronger enorcement by governmentshas raised awareness o corruption and itscosts, so too have campaigns by watchdogadvocacy groups, chie among themTransparency International. Its programmes andpublications have sensitised the internationalmedia, and through them the public, to theprevalence and cost o corruption.
Given the act that people have become moresensitised to corruption, it is not surprisingthat respondents to our survey say that acompany’s reputation is its most vulnerableasset once corruption is made public. Thethreat o negative coverage can be a powerulincentive or companies to ensure they haveprevention programmes in place. “The exposurein the media is what gets people’s attention,”says Jean-Pierre Méan, group general counselor SGS Group, a global certication companybased in Switzerland. “People ollow what ishappening in the news and not necessarily in
the courts.”
“The exposure in the media is what gets people’sattention. People ollow what is happening in thenews and not necessarily what is happening inthe courts.”
Jean-Pierre Méan
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29Conronting corruption
The need to ght corruption has taken rm root in the private sector. The survey and interviewsconducted or this report show widespread use o anti-corruption programmes. They are a logicalextension o eorts already underway to improve corporate social responsibility. The challengenow is to make existing programmes more eective and to educate all companies, large andsmall, about the business case or having an anti-corruption strategy. Learning rom others, manycompanies would be able to mitigate and manage risk suciently to pursue new opportunities evenin unamiliar markets.
There is clear evidence that managing corruption risk is part o good governance and adds tothe value o the corporate brand. Help is available or those companies that need a hand.
In the last decade, momentum has been building, with companies, governments and non-governmental organisations oten working together to make corruption a priority. Still, challengeslie ahead.
Emerging markets, including ast-growing economies such as Brazil, Russia, India and China,oer attractive investment opportunities but also present challenges. There may be opportunities
where the risks outweigh the potential benets, but there is also encouraging evidence thatcorruption risks can be managed. This is true even in the most challenging countries i companiestake the right approach in developing and implementing a robust and comprehensive anti-corruption strategy.
There may never be a level playing eld where companies compete solely on the basis o merit andnot on the size o bribes. Yet, driven by their overall corporate social responsibility eorts and theincreasingly attractive global opportunities available, rms have every incentive to make eectiveanti-corruption programmes a key part o their overall business strategy.
Conclusion
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Endnotes
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1 See “New Report Shows Strong Action in World Bank’s Global Anti-Corruption Fight,”World Bank press release, December 18, 2007.
2 See speech by Alice S Fisher, assistant attorney general o the US Department o Justice,to the American Bar Association, October 16, 2006.
3 See “Illicit Oil-or-Food Programme Payments o nearly $2 Billion to Saddam Hussein; IIC UrgesUN Reorm,” press release, Independent Inquiry Commission, October 27, 2005, page 6.
4 See The Conerence Board press release, December 5, 2006.
5 See Business Principles or Countering Bribery: Guidance Document, Transparency International,November 2004.
6 There were 74 respondents rom BRIC countries out o a total o 390 responses. Because thesample size is small, the results should be treated with caution.
7 See Policy and Business Practices at www.iccwbo.org, accessed December 9, 2007.
8
See Unlocking the Corruption Dilemma rom the United Nations Global Compact Leaders SummitJuly 5-6, 2007.
9 See Progress Report 07: Enorcement o the OECD Convention on Combating Bribery o ForeignPublic Ofcials, Transparency International, July 2007
10 See “New Report Shows Strong Action in World Bank’s Anti-Corruption Fight,” World Bankpress release, December 18, 2007.
11 See “Civil Society and the Private Sector: Fighting Corruption Is Good or Business,” byHuguette Labelle, chairman o Transparency International, in Development Outreach, The World Bank Group, September 2006.
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Appendix
Survey methodology
Analysis
The survey relies on a variety o question ormats. For example, in a number o questions,respondents were asked to respond on a scale o 1 to 5 with 1 being “strongly agree” and 5 being“strongly disagree.” In other cases, comparison phrases such as “highly accurate / not accurate”or “very valuable / no value” were used within a similar ve-point scale to capture attitudes andpractices. In still other cases, respondents were asked to choose their top three answers or selectall that applied. Finally, questions were presented where respondents were asked to choose onethey believed to be the most appropriate rom among several options. The report itsel uses actualpercentages rom the survey in every case. But, in many situations, the analysis may combinetwo similar categories o answers (such as all those respondents who chose 1 or 2) to draw its
conclusions. While such combinations are reerenced in all cases, the tables themselves (appearingon the ollowing pages) are oten useul or a more detailed view o the responses.
Geography
The respondent locations were well dispersed geographically, with a survey ocus on non-OECDcountries (63%)—approximately, 42% Asia-Pacic, 16% Middle East and Arica, 23% WesternEurope, 8% North America, 5% Latin America and 5% Central and Eastern Europe.
Industry sector
The survey results come rom executives across the spectrum o industry sectors. Those
sectors represented in the survey by 5% or more o respondents, in order o requency, arenancial services (28%), manuacturing (11%), proessional services (9%), IT and technology(8%), consumer goods (6 %), telecoms (6%), energy and natural resources (5%) and healthcare,pharmaceuticals and biotechnology (5%).
Seniority o respondents
A cross-section o executives responded to the survey, at the board/C-suite level or equivalent(41%), senior vice president / head o business unit level or equivalent (34%) and manager levelor other (25%).
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34 PricewaterhouseCoopers
Results o the surveyRespondents’ answers to the survey questions are illustrated in the ollowing gures.
4. In your industry, in which unctional areas o
business do you think companies are at greatestrisk o corruption? Select up to three.
5. I your company has experienced corruption
(attempted or actual), how was it discovered?
6a. The risk o corruption is always considered
when making signifcant business decisions.
6b. The corruption risk assessment process at my
company is rigorous.
A
B
C
D
E
F
G
H
I
J
66%
60%
16%
41%
12%
22%
18%
16%
3%
1%
0 4 8 12 16 20 24 28 32 36 40
A
B
C
D
E
F
G
H
I
J
K
39%
32%
26%
18%
24%
15%
8%
7%
7%
1%
22%
23%
2%8%
11%
23%
34%
Don’t know
Accurate
Inaccurate
0 3 6 9 12 15 18 21 24 27 30
1
2
3
4
5
6
17%
30%
26%
13%
11%
3%
1
2
3
4
5
Don’t know
Accurate
Inaccurate
Procurement A.Bidding/salesB.Establishing business presence in new marketsC.LicensingD.RegulationE.Import/exportF.TaxationG.Intellectual propertyH.OtherI.Don’t knowJ.
Discovered through internal controls A.Discovered through internal auditB.Reported by employee through normal chain o commandC.Discovered through a whistleblowerD.Discovered by accidentE.We have not experienced any type o corruptionF.Discovered through external auditG.Discovered by a government or government agency (e.g., police)H.Discovered through other regulatory mechanism (e.g., rate-settingI.process by utility regulators)OtherJ.Don’t know; I am not aware o my company experiencing anyK.type o corruption
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35Conronting corruption
6d. My company has lost bids due to corrupt
ofcials handling the bidding.
6e. My company has withdrawn rom a tender in
the past because we were concerned over theexpectation o “personal avours.”
6. Our competitors have relied on bribes to
improve their position.
6c. Corruption risks precluded my company rom
entering specifc markets or rom pursuingsignifcant opportunities that it would otherwise
have considered.
0 5 10 15 20 25
1
2
3
4
5
6
20%
24%
20%
10%
16%
9%
1
2
3
4
5
Don’t know
Accurate
Inaccurate
0 3 6 9 12 15 18 21 24
1
2
3
4
5
6
19%
23%
15%
9%
14%
20%
1
2
3
4
5
Don’t know
Accurate
Inaccurate
0 5 10 15 20 25
1
2
3
4
5
6
21%
18%
17%
8%
11%
24%
1
2
3
4
5
Don’t know
Accurate
Inaccurate
0 5 10 15 20 25 3
1
2
3
4
5
6
20%
22%
18%
8%
6%
26%
1
2
3
4
5
Don’t know
Accurate
Inaccurate
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36 PricewaterhouseCoopers
6i. Penalties due to corruption enorcement actions
would diminish our ability to attract/retainemployees.
6h. Strengthening anti-corruption measures globally
would beneft my company.
6j. Interactions with government increase likelihood
o corruption among companies.
6g. Creating a level playing feld is crucial to my
company’s uture business activities.
32%
4%4%
6%
21%
33%
Don’t know
Accurate
Inaccurate
52%
3%
1%
5%
10%
30%
Don’t know
Accurate
Inaccurate
0 10 20 30 40
1
2
3
4
5
6
7%
14%
15%
16%
39%
9%
1
2
3
4
5
Don’t know
Accurate
Inaccurate
0 5 10 15 20 25 30
1
2
3
4
5
6
21%
26%
28%
8%
10%
7%
1
2
3
4
5
Don’t know
Accurate
Inaccurate
Results o the surveyRespondents’ answers to the survey questions are illustrated in the ollowing gures.
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37Conronting corruption
7. In your view, who is primarily responsible or
preventing corruption at companies?
8. Does your company have a specifc global
programme that includes policies and controlsdesigned to prevent and detect corruption?
9. I your company has controls and programmes
related to corruption, how would you describethem?
10. How confdent are you that your controls/
programmes identiy and mitigate corruptionrisk?
A
B
C
D
E
F
G
H
I
40%
33%
9%
4%
6%
2%
2%
2%
1%
49%
6%
17%
13%
15%
Yes, and it is clearly communicated and enforced
Yes, but it is not clearly communicated
Yes, but it is not clearly communicated or enforced
No, we do not have a policy in this area
Don’t know
25%
7%
13%
13%
32%
10%
Primarily controls designed to detect corruption after it occurs
Include proactive risk assessments and monitoring of corruption risks
Primarily controls designed to prevent corruption before it occurs
Ad hoc / event driven
We do not have controls or programmes in place relating to corruption
Don’t know
12%
14%
52%
22%
Very confident
Somewhat confident
Not at all confident
Don’t know
Senior management A. All sta members are responsible or their own ethical high standardsB.Internal auditC.Local management / business unitsD.Regulatory / compliance ocerE.Government / government agenciesF.Oce o general counsel / lawyersG.External auditorsH.OtherI.
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38 PricewaterhouseCoopers
13. Do you think internal auditors in your industry
are perorming procedures that are likely todetect instances o corruption?
11. In your view, how would a better understanding
o corruption risk most help your company?
12. Do you think your current controls are eective
at identiying high-risk business partners andsuspect disbursements?
A
B
C
D
E
F
G
27%
22%
18%
21%
10%
3%
1%
A
B
C
D
E
40%
20%
10%
21%
9%
0 10
I n t e r n a l a u d i t o r
40%69% 20%
32%
11%
Yes
No
Don’t know
Avoid the negative eects o corruption A.Compete more eectivelyB.Make better decisionsC.Improve corporate social responsibilityD.Enter new marketsE.Don’t knowF.OtherG.
Yes A.No—but additional investment could be a cost-eective way toB.prevent corruption No—and additional investment is not a cost-eective way toC.prevent corruptionNo—controls on their own are incapable o preventing corruptionD.Don’t knowE.
Results o the surveyRespondents’ answers to the survey questions are illustrated in the ollowing gures.
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39Conronting corruption
16b. In your view, what are the greatest barriers
to implementing a successul anti-corruptionprogramme in your industry?
14. In your view, what are the most eective ways
to minimise the likelihood o corruption at acompany?
16a. In your view, what are the greatest barriers
to implementing a successul anti-corruption
programme at your frm?
15. Do you think the severity o potential
government enorcement action in regards to acorrupt act would be reduced i a strong anti-
corruption programme is in place at a company?
A
BC
D
E
F
G
H
I
J
K
L
M
70%
49%
21%
39%
10%
4%
1%
37%
23%
14%
7%
6%
1%
14%
29%57%
0Yes
No
Don’t know
A
B
C
D
E
F
G
H
I
J
35%
24%
14%
22%
12%
20%
20%
13%
4%
9%
A
B
C
D
E
F
G
H
I
J
35%
31%
16%
28%
6%
24%
22%
12%
5%
4%
Commitment rom senior management A.Communicate clear guidelines policiesB.Hire people with high ethical standardsC.Consistently take action against all perpetratorsD.Provide adequate trainingE.Enhanced controls over risky transactionsF.Whistleblower hotlinesG.Create support networks and employee assistance programmesH. Aggressive enorcement by regulatory agenciesI. Additional external government regulation/oversightJ.Collaborating in industry or non-governmental organisation initiativesK.OtherL.Don’t knowM.
Country-specic cultural practices and ways o doing business A.Competitive pressuresB.Conficting interests; competitiveness vs. ethical controlC.Corporate cultureD.CostE.Systemic government corruptionF.Organisational structureG.Industry practicesH.Judicial corruptionI.Don’t knowJ.
Country-specic cultural practices and ways o doing business A.Competitive pressuresB.Conficting interests; competitiveness vs. ethical controlC.Systemic government corruptionD.Industry practicesE.Corporate cultureF.CostG.Judicial corruptionH.Organisational structureI.Don’t knowJ.
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40 PricewaterhouseCoopers
19. In your view, how does your company compare
to its closest industry competitors in theollowing areas?
18. What is the value to your company’s reputation
and/or brand in having a publicly disclosed anti-corruption programme and controls?
17. How valuable do you think external stakeholders
would fnd the ollowing actions taken by a
company?
0 10 20 30 40 50 60 70 80 90 100
A
B
C
D
E
F
19% 9%43%24% 4% 2%
20% 12%44%19% 5% 1%
24% 10%43%19% 3% 2%
24% 5%42%25% 3%2%
19%7%44%26% 2%2%
15% 4%40%36% 2%2%
Very valuable Agree Neutral
Don’t knowLittle value No value
8%
5%
41%
45%
Very valuable
Somewhat valuable
Not at all valuable
Don’t know
0 10 20 30 40 50 60 70 80 90 100
A
B
C
D
E
F
31% 12%40%14% 1%1%
31%11%41%14% 1%1%
32% 6%38%17% 1%5%
31%6%36%20% 2%4%
40% 4%29%17% 2% 9%
35% 4%35%15% 1% 9%
We are much stronger We are stronger We are equal
Don’t knowWe are weaker We are much weaker
Statement that an anti-corruption programme has been implemented A.Statement that an anti-corruption programme has been internally veriedB.Statement that an anti-corruption programme is in compliance with anC.industry or non-governmental organisation standard Statement that an anti-corruption programme has been externally veriedD.by a third party Public report by external auditor stating that an anti-corruption programmeE.has been designed eectively Public report by independent auditor stating that an anti-corruptionF.programme is operating eectively
Protability A.Revenue growthB.Transparency initiativesC.Company’s commitment to corporate social responsibilityD.Company’s commitment to internal anti-corruption initiativesE.Company’s openness to collaborate with third parties (e.g., civil society,F.governments, competitors) on anti-corruption initiatives
Results o the surveyRespondents’ answers to the survey questions are illustrated in the ollowing gures.
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41Conronting corruption
20. In your view, how eective are industry-led
global anti-corruption programmes currently andhow eective do you think industry-led global
anti-corruption programmes will be fve years
rom now?
A
B
C
D
22%
52%
46%22%
12%
34%
13%13%
13%
7%
In your view, how effective do you think industry-led global anti-corruption
programmes will be five years from now?
In your view, how effective are industry-led global anti-corruption
programmes currently?
Very eective A.Somewhat eectiveB.Not eectiveC.Don’t knowD.
21. In which region are you personally located?
A
B
C
D
E
F
23%
42%
16%
8%
5%
5%
Western Europe A. Asia-PacicB.North AmericaC.Middle East and AricaD.Central and Eastern EuropeE.Latin AmericaF.
22. Are you based in an OECD country?
0 10 20 30 40 50 60 70
Other
country
OECD 37%
63%
23. In which region is your company headquartered?
A
B
C
D
E
F
34%
27%
18%
12%
7%
3%
Western Europe A. Asia-PacicB.North AmericaC.Middle East and AricaD.Eastern EuropeE.Latin AmericaF.
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42 PricewaterhouseCoopers
24. What is your primary industry?
6%
28%
11%
6%
9%
2%
2%
2%
2%
2%
8%
5%
5%
4%
3%3%
1%
1%
1%
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
Financial services A.ManuacturingB.Proessional servicesC.IT and technologyD.Consumer goodsE.TelecomsF.Energy and natural resourcesG.Healthcare, pharmaceuticals and biotechnologyH.Transportation, travel and tourismI.EducationJ.ChemicalsK.OtherL. AutomotiveM.RetailingN.Construction and real estateO.Logistics and distributionP.Entertainment, media and publishingQ.
Aerospace and deenceR. Agriculture and agribusinessS.
Results o the surveyRespondents’ answers to the survey questions are illustrated in the ollowing gures.
25. What are your company’s annual global
revenues in US dollars?
15%
23%
8%
14%
40%
$500m or less
$500m to $1bn
$1bn to $5bn
$5bn to $10bn
$10bn or more
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43Conronting corruption
26. Which o the ollowing best describes your title?
A
B
C
D
E
F
G
H
I
J
K
7%
18%
14%
9%
11%
2%
5%
8%
20%
1%
5%
Board member A.CEO / president / managing directorB.CFO / treasurer / comptrollerC.CIO / technology directorD.Other C-level executiveE.SVP / VP / directorF.Head o business unitG.Head o departmentH.ManagerI.Country managerJ.OtherK.
A
B
C
D
E
F
G
H
I
J
K
L
M
25%
21%
4%
13%
3%
13%
8%
4%
2%
2%
1%
1%
3%
27. What is your main unctional role?
General management A.FinanceB.Marketing and salesC.Strategy and business developmentD.RiskE.Operations and productionF.ITG.Inormation and researchH.R&DI.Customer serviceJ.Human resourcesK.LegalL.OtherM.
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44 PricewaterhouseCoopers
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45
About us
45Conronting corruption
The rms o the PricewaterhouseCoopers global network (www.pwc.com) provide industry-ocusedassurance, tax and advisory services to build public trust and enhance value or clients and theirstakeholders. More than 146,000 people in 150 countries across our network share their thinking,experience and solutions to develop resh perspectives and practical advice.
The depth o our industry expertise, like our international perspective, is an attribute that our clientsvalue highly. We invest signicant resources in building and sharing such expertise. As a result, thepeople o PricewaterhouseCoopers have the scope, depth and expertise to advise companies onthe issues acing their business in a converging world. We work with these companies to help themachieve success and ulll the promise o great ideas.
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46 PricewaterhouseCoopers
About PricewaterhouseCoopers Global Anti-corruption Serviceswww.pwc.com/anti-corruption
For urther inormation, please contact
Chris KelkarPartner, Global Anti-corruption [email protected]+1 646 471 8963
David JansenPartner, Global Anti-corruption [email protected]+1 646 471 8329
Acknowledgements
We would like to thank the people atPricewaterhouseCoopers who worked diligentlyto develop this publication. The ConrontingCorruption team was led by:
Jacob SchmidtKrishan Ramessur
Global Anti-corruption Services
Our practice understands that with increasingconcern about the impacts o corruption and aocus on corporate citizenship, companies andstakeholders are pursuing practical ways toreduce corruption risk.
Our anti-corruption proessionals includeexperienced orensic accountants, internationaldevelopment proessionals, economists,ormer regulators and law enorcement ocialsand specialists in orensic technology and
document management.
To help our clients manage risk, we combinelocal proessionals in 150 countries with ouranti-corruption specialists to deliver entity-widesolutions tailored to local markets. As trustedadvisors to leading anti-corruption institutions,we have developed cutting-edge anti-corruptionmethodologies which we use to help our clients.
How we can help clients operate in
challenging environments
Identiy corruption risks by perorming•rigorous risk assessments
Assist in the design and implementation•o anti-corruption policies, programmesand controls
Identiy and develop responses to•weaknesses in programmes and controls
Conduct independent assessments o•
anti-corruption programmes and controls
Enhance corruption awareness by training•client personnel
Execute corruption-specic due diligence•procedures
Tailor technology solutions to monitor and•detect corruption
Perorm corruption investigations•
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47Conronting corruption
Australia Malcolm [email protected]+61 2 8266 2993
Brazil
Alredo [email protected]+55 11 3674 3686
Canada Steven [email protected]+1 416 941 8328
China Jean Roux
[email protected]+86 21 6123 3988
Colombia Diego [email protected]+57 1 635 5016
France Jean-Louis Di Giovanni
[email protected]+33 15 657 1257
Germany Claudia [email protected]
+49 69 9585 5552Ghana Felix [email protected]+233 21 761 614
Hong Kong Rick [email protected]+852 2289 1155
India Vali Nijhawan
[email protected]+91 124 462 0508
Anuradha [email protected]+91 124 462 0514
Italy Franco [email protected]+390 2 7785 593
Japan Owen [email protected]+81 3 6266 5579
Hajime Yasui
[email protected]+81 90 6045 6835
Kenya Philip [email protected]+254 20 285 5319
Jack Ward [email protected]+254 20 285 5214
Netherlands
Peter Cromhout
[email protected]+31 20 568 6430
Russia Roger [email protected]+7 495 232 5420
Singapore Subramaniam [email protected]+65 6236 3058
South Arica
Peter [email protected]+27 12 429 0331
Louis [email protected]+27 12 429 0077
Spain Enrique Bujidos [email protected]+34 91 568 4356
Tanzania
Edmund B [email protected]+255 22 219 2032
Tony [email protected]+255 22 213 3100
Thailand
Charles [email protected]+66 2 344 1167
United Arab Emirates
Amin [email protected]+971 4 3043120
United Kingdom
Andrew [email protected]+44 207 804 5761
Will [email protected]+44 207 212 2623
United States
Manny [email protected]+1 646 471 3242
Chris Barbee
[email protected]+1 267 330 3020
Greg [email protected]+1 202 414 1300
Jonny Frank [email protected]+1 646 471 8590
David [email protected]+1 646 471 8329
Chris [email protected]+1 646 471 8963
James Meehan [email protected]+1 415 498 6531
Fred [email protected]+1 202 414 1360
Peter Raymond
[email protected]+1 703 918 1580
Steven [email protected]+1 646 471 5950
Dalit [email protected]+1 646 471 8047
Glenn [email protected]+1 202 312 7668
PricewaterhouseCoopers delivers value with a global perspective through local implementation.Please contact the anti-corruption leader nearest you to discuss the challenges acing your
company and how we can help you.
PricewaterhouseCoopers Global Anti-corruption contacts
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