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Forty-two percent of respondents in emerging markets* believe that fraud and corruption pose one of the greatest risks to their business. This is significantly more than the 29% of respondents in developed markets. Unsurprisingly, corrupt practices are believed to be more prevalent in emerging markets, with 52% of respondents stating these occur widely, compared with 20% in developed markets.
Since our 2012 report, perceived levels of bribery and corruption in emerging markets have doubled those in developed markets. With increased regulation, enforcement and compliance efforts across emerging markets, it is disappointing that this gap has not reduced.
Sixteen percent of respondents from emerging markets acknowledged “it is common practice to use bribery to win contracts.”
In this context, the survey also finds that there are many situations in which organizations, its employees or representatives may feel that some form of incentive to a third-party is necessary to guarantee their company’s survival. High-risk activities include licensing, procurement, invoicing, payments, materials and supplies.
A bribe can range from a small facilitating payment to clear goods through customs, to hundreds of thousands of dollars to win a public tender for a major infrastructure project. The risk to the company of prosecution extends beyond its own employees’ activities to the corrupt actions of third-party representatives, such as distributors, agents or joint venture partners.
More critically, the EY report also shows that still too many executives believe that it is acceptable to give cash payments in exchange for commercial advantage. Nineteen percent of emerging markets2 respondents felt this could be justified compared with just 6% in developed markets.
In many countries, cultural traditions such as wining and dining and the provision of high-value gifts and entertainment are considered integral to doing business. However, such practices have become much less commonplace in recent years, particularly in developed markets. More pertinently, in emerging markets, seeking to gain a commercial advantage through offering prospects or clients lavish corporate hospitality ahead of an important deal or contract makes a company — and its executives — potentially liable under anti-corruption legislation.
Finally, there are economic factors to consider. In most emerging markets, there is a significant difference between the incomes of employees in the private and public sectors — and the urge to seek personal gain at the expense of the public can be difficult to resist.