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With a significant minority of respondents still willing to justify unethical acts, is enforcement a deterrent and is management doing enough to tackle these challenges?
Governments across the world continue to introduce and enforce corporate criminal liability laws. Despite over $11b in fines being issued globally under the FCPA by the U.S. Department of Justice and the SEC, and the UK Serious Fraud Office since 2012, 38% of global executives still believe bribery and corrupt practices remain prevalent in business.
The last four years have seen the introduction of new legislation and greater levels of enforcement outside the US. What do our survey results tell us about the effectiveness of anti-corruption laws and enforcement?
Analysis of the number of FCPA enforcements over the last four years shows a changing focus on countries in which corrupt payments are alleged to have been made. Over the four-year period, 30 of the 133 enforcement actions related to Latin America. In 2016, enforcement activity was dominated by China and Latin America with 16 enforcement actions in Latin America and 15 in China.
Twelve of the Latin American enforcement actions related to alleged corrupt activity in Brazil. The Clean Company Act in Brazil came into force in 2014 and over the last three years there has been a dramatic increase in anti-corruption enforcement. However, Brazilian respondents are yet to see any significant reduction in bribery and corruption, with 96% of respondents in 2018 stating that bribery/corrupt practices occur widely in business in their country, increasing from 70% in 2014.
The UK Bribery Act came into force in 2011, however, the percentage of respondents in the UK that stated corrupt practices happen widely increased from 18% to 34% from 2014 to 2017. It is worth noting that the first prosecution did not occur until 2016 and there has been significant enforcement activity in 2017.
The US FCPA was passed 40 years ago; however, significant enforcement began from the mid 2000s. Our survey found that 18% of respondents in the US stated that bribery/corrupt practices happen widely in business in their country: a reduction from 22% who believed this to be the case in 2014.
In our experience there is often a lag between the introduction of anti-corruption laws and a response from management.
The initial reaction of many organizations to the introduction of laws is for compliance functions to draft high level policies or deliver training. Unfortunately, for some companies, regulation it seems is not enough; it is not until governments start enforcing laws and publicizing nes and penalties that management take legislation seriously and introduce real change. The views of respondents on the level of widespread corruption in their country therefore might initially increase.
In the chart below we have compared respondents’ views on widespread corruption from 2014 to 2018. The survey results from Australia and New Zealand, Brazil, Saudi Arabia and the UK show increases in the percentage of respondents who believe corruption to be widespread. In these countries it is notable that there has been significant enforcement in 2017.
The survey results from China, Czech Republic, Romania and the US show decreases in the percentage of respondents who believe corruption to be widespread. In these countries enforcement agencies were active prior to 2014. So has the enforcement activity resulted in real change to compliance programs and company culture? Or is it simply that the perception of corruption decreased as enforcement has dropped?
The key challenge for compliance professionals is to increase the effectiveness and efficiency of their anti-fraud and corruption program in a complex risk environment with challenging budget constraints.
Our survey found that the majority of organizations have implemented infrastructures, policies and high-level communications. Ninety-three percent of respondents stated that senior leaders demonstrate a commitment to compliance and 95% stated senior leaders set examples of good ethical behaviour. However, when asked specific questions on the implementation and effectiveness of the compliance programs, our survey highlighted a number of differences between management statements and conduct by their organisations.
1. When asked if their organization has an anti-corruption policy and/or a code of conduct, 97% of heads of compliance and 92% of heads of internal audit surveyed stated this was the case. This was signficantly lower for sales and marketing respondents at 77%. This suggests that high level policies may be in place, but there are key employees within organizations that are still not sufficiently aware of them.
2. When asked if their organization had a tailored risk-based approach to due diligence that varies by country, industry or nature of activity of the third party, the results suggest a mismatch between the 66% of internal audit, compliance and legal respondents who felt this applied in their organization and the 56% of internal audit, compliance and legal who would generally be responsible for engaging a third party. More worryingly, 29% of sales and marketing and 20% of other management were not able to answer the question regarding the due diligence approach at their organisation.
3. We found that management had often set clear intent regarding penalizing non-ethical conduct with more than three in four respondents stating that there are clear penalties for breaking their policies. However only 57% are aware of people actually being penalized.
4. More than one in four of respondents stated that people managing relationships with third parties are not required to complete fraud and compliance risk training.
5. Our research shows that only one-third of organizations have incentivized their third parties to act ethically.
“Anti-corruption compliance is not just a question of checking boxes and it shouldn’t happen only when things go wrong. Taking a proactive approach to compliance by putting in place strong controls and making anti-corruption compliance part of one’s corporate culture is the best way to prevent corrupt acts before they happen.”
Angel Gurría, Secretary-General, OECD
In a March 2018 article, the Harvard Business School Professor Eugene Soltes and former DoJ compliance counsel commented that “The DoJ recognized that firms might be spending a lot and creating all the components of compliance programs but actually producing hollow facades.”* The DoJ has called for prosecutors “to determine whether a corporation’s compliance program is merely a ‘paper program’ or whether it was designed, implemented, reviewed, and revised, as appropriate, in an effective manner.”
* Why Compliance Programs Fail and How to Fix Them,” Harvard Business Review March-April 2018 issue, 2018.
In 2017 the U.S. DoJ released a guidance document consisting of a series of questions that prosecutors should consider when conducting an investigation of a corporate entity. But is management aware of this guidance? And, if so, is it making a difference?
The results from a DoJ investigation determine whether they will bring charges or be willing to negotiate an agreement with the organization. We found that globally only 12% of respondents knew this guidance fairly or very well; this increased to one in four for heads of compliance and decreased to only one in ten for the C-suite. In recent years, enforcement agencies are holding individuals and senior executives accountable for unethical actions; this lack of awareness is therefore worrying.
We asked our respondents 18 questions from the DoJ Evaluation of Corporate Compliance Programs guidance document. We found that, from an industry sector perspective, companies in financial services (FS) have the most mature compliance programs with the consumer products/retail/ wholesale sector the relatively less mature.
Although FS appear to have the strongest compliance programs this does not correlate to reduced incidents of fraud and corruption.
We asked our respondents 18 questions from the DoJ Evaluation of Corporate Compliance Programs guidance document. Based on the responses to these questions we have built this interactive heat map which includes the ability to analyse the survey results by sector, type of business, size of business, job title and region. How does your organisation benchmark against others globally and in your sector?