Wednesday, December 2, 2020

What is Bribery

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Bribery is the practice of offering or receiving something such as money or goods with the intention of influencing an outcome or behaviour of the receiving party.  Bribery includes any form of favour in exchange for the desired outcome that would otherwise be different.

Bribery exists in all aspect of the society; business to business, business to government, individuals to individuals, individuals to business.

In many countries, bribery is illegal and carry jail time or severe penalties.  Bribery is just not associated with public officials, everyone is susceptible to bribery either directly or indirectly.

Recently, Britain’s leading Automotive giant Rolls-Royce was fined £671m in penalties after it was discovered that it paid bribes to get export contracts.  While this settlement means the company will avoid fine, it demonstrates the scale of bribery within the corporate world.

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As part of the settlement, Rolls-Royce plan to pay £497m to the UK Serious Fraud Office (SFO), subject to approval by the high court. It will also pay $169m (£140m) in penalties to the US Department of Justice and $25m to the Brazilian authorities. 

Multinational organisations like Rolls-Royce are vulnerable to bribery issue across multiple jurisdictions and complex forms of briberies either directly or via subsidiaries.

In 2014, Gary Lloyd West, former Director and Chief Commercial Officer of SAE was sentenced to a total of 13 years for the offence of receiving a bribe and disqualified from being a director for 15 years (the maximum permitted).

Consequently, Stuart Stone, a sales agent of unregulated pension and investment products for a separate company was sentenced to a total of 6 years in prison for offering and giving bribe.  Also, disqualified from being a director for 10 years.

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These examples are mere mentions from thousands of cases involving bribery.  A lot of countries treat bribery as a serious crime and have robust regulations in place to pursue businesses or individuals suspected of offering or giving bribes.  Bribery is a serious crime.

Active and Passive Bribery 

When a person offers, promises or gives a bribe, it is called ‘active bribery’ and when a person requests, receives or accepts a bribe, it is called ‘passive bribery’.  Both forms are of concern to companies and are outlawed in most countries.

Until the advent of the UK Bribery Act, the focus of anti-bribery legislation had been on active bribery of foreign public officials as this is the main arena for bribery because of the harm it brings to societies and the way it undermines fair trading. For example, the OECD Anti-bribery Convention and the U.S. Foreign Corrupt Practices Act (FCPA) address only active bribery.  

Examples of active bribery

  • Bribing a public official in order to:
    • Be awarded a contract in the briber’s favour.
    • Obtain an inspection report or to be awarded a license.
    • Circumvent planning or safety controls. For a case study, click here.
  • Channelling bribes to win public contracts through a consultant.
  • Payment of small bribes to customs officials to expedite passage of goods through a port.
  • Employing a public official’s son to influence the award of contracts.
  • Providing sponsorship fees and excessive travel expenses for doctors to influence them to prescribe a pharmaceutical company’s products.

Examples of passive bribery

Passive bribery takes place most often in certain operating functions; examples of instances are below:

  • Security: A security officer in a company accepts a bribe from criminals to allow access for theft.
  • Purchasing and procurement: A procurement executive demands a ‘kickback’ to award a contract. This involves a portion of the contract fee being given back to the individual who made the decision to award the contract. The consequences of such bribery can include financial loss through overpaying for goods, projects or services and purchase of substandard, counterfeit or otherwise non-compliant goods or services. See the UK retailer case study.
  • Allocation of goods and services: An employee favours a customer by expediting delivery at the expense of other customers or giving preferential allocation of goods or services.
  • Recruitment: An executive demands a bribe to appoint or promote a person who would otherwise not have been selected. A senior buyer awards a contract on the strength of promise of a lucrative appointment with the supplier after a suitable interval.
  • Insider fraud: A bank employee accepts a bribe to provide details of the bank’s customers.  See case study.
  • Illegal information brokering: An executive accepts a bribe to provide contract specifications to be used in a tender ahead of time. Bribery might also be accepted to alter the specification in favour of a bidder.

How Bribes are Paid

Bribery through Middlemen: The use of intermediaries, sometimes also called introducers or agents, is widespread and legitimate in global business. They provide local knowledge, legal advice, market research, sales, and logistics, and are particularly useful in new or unfamiliar markets.

However, the channelling of bribes through intermediaries is a common feature of bribery schemes.

To hide bribes, a chain of intermediaries is often used to disguise the link between the recipient of the bribe and the bribe-paying company. It is not unusual for intermediaries, or some links in a chain of intermediaries, to be professionals such as lawyers, accountants or bankers.

They can be used to add a veneer of respectability to a corrupt transaction. 

False or inflated invoicing or product pricing: The payment of a bribe is usually hidden or disguised within the organisation’s accounting records, or paid off-balance sheet (e.g. through bank accounts which are not recorded in the organisations’ accounting records).

Fake or inflated invoices provide a common veneer of legitimacy to conceal bribery. An inflated invoice can be generated by a supplier, which covers both the fees legitimately due, and an additional amount to be used as a bribe.

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An invoice can also be entirely false and represent no legitimate service whatsoever. 

Off-shore arrangements and off-balance sheet payments: In addition to, and often in conjunction with, the use of intermediaries, bribes are often transited through a number of bank accounts or front companies.

It is useful for those engaged in bribery if these are located in foreign countries with lax regulation, poor transparency, or favourable secrecy laws. The goal is to distance the bribe from both the payer and the recipient, and also to conceal the identities of both. Slush funds can also be located offshore.

Profits from legitimate company business may be directed into offshore slush funds through fictional or vague invoices and using a chain of agents. Once these are set up, bribes may be paid from the slush funds at any time – to develop a relationship, obtain a specific contract, as a ‘thank you’, to maintain favourable relations, etc. 

Rebates and discounts or kickbacks: Rebates and discounts are commonly used as incentive schemes in business, particularly when they are linked to a customer increasing the quantities it purchases.

However, rebates and discounts may also be diverted to the individuals who are responsible for procurement decisions, thus becoming a kickback to the vendor, and a bribe in order to secure a contract.

Employment contracts and association agreements: While it may make business sense to hire candidates whose background is known, offering jobs or internships to relatives or associates of clients or officials can also become a form of bribery.

For example, hiring the children or relatives of a client or an official, whether for an internship, a job or work experience, could unduly influence contract awards or other business decisions. Therefore, although there is no legal prohibition on this, it is a risky area.

There is also the possibility that a new ‘employee’ may never actually work for the company and only be a ‘ghost’ employee purely created in the accounting records as a means to extract cash. The paperwork for the individual can be fabricated to give the impression that the appointment was via a proper process. 

Bribery through supply chains: In today’s globalised economy, corporations often rely on large supply-chains, made up of sub-contractors based in a number of countries. However, complex networks of sub-contractors also increase the risk of bribery.

Any link, or sub-contractor, in the chain, maybe approached for a bribe or decide to pay a bribe. Complex supply chains represent a high risk of corruption since they are local, often made up of small and medium-sized subcontractors that have less power to resist demands for bribes, or simply have more “contact” with centres of bribery.

Moreover, sub-contractors are of course also interested in maintaining profits and could bribe the prime contractor to keep them on the suppliers’ list.

When operating overseas or fulfilling complex orders, corporations often hire local sub-contractors as they lack local knowledge, expertise, or capacity in house. Selecting a sub-contractor with close links to an official who is in a position to favour the main company over its competitors is a common way of disguising a bribe. It enables the official to benefit directly or indirectly, while the company can claim it was simply tapping into local expertise. 

Bribery Statistics

  • Nearly half of workers across Europe, the Middle East, Africa and India think bribery and corruption are acceptable ways to survive an economic downturn.
  • Over 12 months, one in four people paid a bribe when they came into contact with one of nine institutions and services, from health to corruption to tax authorities.
  • Illicit Financial Flows, including corruption, bribery, theft and tax evasion, cost developing countries US $1.26 trillion per year, which is equivalent to the economies of Switzerland, South Africa and Belgium combined. This amount of money could lift the 1.4 billion people living on less than $1.25 a day above this threshold for at least six years.
  • In one Russian province, if you want to become a police officer you will probably have to pay around $3,000. To get a place in medical school, you will need to part with around $10,000. One consequence of this, according to the International Crisis Group, has been that some people have grown so disaffected that they have become drawn to Islamic extremism.
  • In war-torn Afghanistan, of the $8 billion donated in recent years, as much as $1 billion has been lost to corruption. Integrity Watch Afghanistan estimates bribe payments — for everything from enrolling in elementary school to getting a permit — exceed $1 billion a year.
The Reference Shelf

Antibribery guidance – Here

Weforum.org – Here

 

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