Anti-bribery compliance in a changing world

Robert Clark – Manager of Legal Research, TRACE International

Corruption, however you define it, has been with us from the beginning of human society. And for just as long, it has been the object of struggle and resistance. Prophets have railed against it; philosophers have denounced it; and people in every age have endured and chronicled the suffering it causes.

Yet the anti-corruption movement, in the form we currently know it, is relatively young. It has its roots in a specific post-war global economic order, made possible by technological developments and transnational political institutions. It grew from those roots after the Watergate-era exposure of widespread foreign bribery within that global order. And its branches take a variety of forms, from national agencies to international NGOs, from citizen activists to corporate compliance departments.

As stewards and overseers of their organisations’ economic activities, corporate directors are uniquely positioned to align those activities with the highest ideals of governance and trade. Those ideals, and the institutions that promote them, provide a framework of stability, predictability, and transparency that allows free markets to thrive. The corruption of those ideals by kleptocrats and their accomplices undermines stability, gives rise to uncertainty, and fosters suspicion through darkness and distraction. It breeds chaos and corrodes trust, to the detriment of all.

Addressing the uncertainty of business-bribery risk

To engage effectively and responsibly in international trade, companies need to take advantage of stability and trust where they can, and gird themselves against corruption and chaos where they must. A critical part of that effort is obtaining reliable information about the relevant conditions in each market. With respect to the issue of public-sector bribery, TRACE International (in collaboration with the RAND Corporation) has developed a tool to help with that effort. That tool – the TRACE Matrix – models the conditions that make bribery demands more or less likely in 199 countries.

The Matrix risk model is composed of four interlocking ‘domains,’ each including a number of specific factors that may contribute to bribery risk.

First are the factors directly affecting companies’ engagement with public officials:

■  The amount of government contact typically required in conducting business

■  The degree to which bribes are considered a normal part of the process

■  The extent of business regulation

The second group of factors gauges the government’s own efforts to rein in corruption:

■  The extent to which bribery is legally proscribed

■  The effectiveness with which those proscriptions are enforced

The third domain concerns transparency:

■  The extent to which information is publicly available about legislative and executive processes

■  The amount of financial disclosure required of government officials and civil servants

Finally, we have the factors that measure the public’s ability to make use of such transparency:

■  Freedom of the press

■  The strength of civic institutions

How are these factors measured? For this, we rely on research performed by organisations devoted to supporting the ideals of good governance worldwide: foundational institutions, such as the United Nations and the World Bank; public-private associations, including the World Economic Forum and the International Budget Partnership; and issue-specific NGOs, such as Freedom House, Reporters Without Borders, and Global Integrity.

For example, the first factor – contact with government – in the first domain (business interactions with government) is calculated based on six country-specific indicators:

■  The percentage of the labour force employed by government

■  The number of visits or required meetings with tax officials

■  The number of official procedures required to register property

■  The number of procedures required to build a warehouse

■  The number of procedures required to enforce a contract

■  The number of procedures required to register a business

These indicators are taken from datasets produced and made publicly available by the International Labor Organisation (at its ILOSTAT webpage) and by the World Bank (from its Enterprise Surveys and its Ease of Doing Business reports). Taken together, they provide a reasonable proxy for the amount of interaction with government officials one can expect to encounter when doing business in a country – and thus the number of hands potentially reaching out for an illicit payment. The other domains and subdomains are similarly aggregated to provide standardised, objective numeric scores for each country.

Interpreting the results

It’s worth emphasising what these scores mean. They are intended to represent a set of interlocking societal conditions that either help keep corruption in check or encourage bribery to thrive: opportunity, expectation, and leverage; the threat of legal sanction; the ease with which illicit transactions can be kept hidden; the power of sectors outside the government to demand accountability. These factors can either promote or defy the ideals of regularity, predictability, transparency, and stability on which a well-functioning market economy is based.

These ideals, undergirding a healthy global economy, didn’t arise spontaneously. They have been advocated and sustained for the better part of a century by a particular set of institutions, established to promote a global order in which trade and development can be undertaken peacefully and effectively. It is those very institutions that, as an explicit part of their mission, have devoted significant time and resources to measuring and reporting the country-specific conditions that affect the strength and resilience of those ideals.

One characteristic of large institutions is that they move slowly. This can be a strength – in some ways it embodies the ideals of stability and predictability on which good governance depends. But a certain nimbleness is lost. This has implications for an aggregate index, such as the Matrix. Most of the indicators from which the Matrix scores are calculated are updated at most once a year – not surprising, given both the direct costs of research and the institutional costs of defining the research’s direction, scope, and methods. In addition, some countries are simply harder to obtain reliable information about than others, requiring the careful use of statistical ‘gap-filling’ techniques as part of the Matrix’s computational analysis.

All of this means that the Matrix should not be thought of primarily as referring to a particular moment in time. One might think of it as more a portrait than a snapshot. It aims to convey a nuanced and meaningful image of bribery-related conditions throughout the world; it is not meant to capture short-term fluctuations or track minute differences within a given country from one iteration to the next. TRACE’s biennial production of a new edition of the Matrix is, in effect, a recalibration that is  designed to ensure ongoing fidelity to the relevant business-bribery risk conditions, rather than a staging of the anticorruption equivalent of an international horse race.

Of course, countries do sometimes undergo rapid and dramatic changes – for better or for worse – in their corruption environments. And these sorts of changes do in fact find themselves reflected in the Matrix calculations. For example, in the 2014 Matrix, Estonia was deemed to be in fairly good health, presenting a low overall public-sector bribery risk of 33 out of 100. The reasons for that assessment were reflected in the country’s individual domain scores, with the low risk levels associated with minimal governmental interactions (20) and civil-society oversight (26) offset by significantly higher risk levels in connection with government transparency (39) and anti-bribery law and enforcement (58). Overall, these scores were good enough to place Estonia just below the top 10 per cent of rated countries.

When the calculations were run again in 2016, it almost seemed like an error had been made. Estonia had suddenly jumped into a new position as the third-least-risky country in the world, with an overall bribery risk score of 17 out of 100. For comparison, the only countries with better overall scores were Sweden (10) and New Zealand (15) – each of which had already enjoyed a place among the top-five scoring countries in 2014.

The reason for this remarkable shift quickly became clear: beginning in 2014, Estonia had implemented and vigorously enforced a new anti-corruption act, including substantial new asset-disclosure requirements for the country’s public officials. These changes were reflected in various Matrix indicators related to government transparency and anti-bribery law, which in turn caused a drop in the associated Matrix domain scores from 39 to five and from 58 to eight. There had been no error – just a focussed and sustained societal effort to cut away at corruption’s roots.

Looking forward

As the Estonia example suggests, the risk model on which the Matrix is based – with its four interlocking domains of interaction, enforcement, transparency and oversight – corresponds to and articulates various positive steps that can be taken within a society to directly confront the causes of public-sector bribery risk. Reducing undue regulatory burden; making anti-bribery enforcement a political priority; subjecting public servants to appropriate financial scrutiny; supporting media freedom and independence – measures such as these can individually reduce the opportunities for and the temptations of corruption and, taken together, may function in a kind of self-reinforcing ‘virtuous cycle’ of governance.

Of course, this virtuous cycle can just as easily (or more easily) be turned on its head to become vicious. Media can be captured by the state; the interests of a country’s leaders can be obscured; anticorruption can be devalued as an agenda item; hurdles can be erected deliberately to impede access to government information and services. All of this can happen very quickly, each degradation making the others easier to accomplish.

Corruption works by defying and attacking the elements and ideals of order. Given sufficient latitude, it can display an agility and a ferocity unrestrained by legal, ethical, or institutional norms. Pursued systemically, it can do more than evade those norms; it can act strategically to destabilise the very framework by which the norms are maintained.

The present era of anti-corruption was inaugurated with the passage of the Foreign Corrupt Practices Act by the US Congress in 1977. While that lead has subsequently been followed by several national legislatures and transnational organisations, the threat of prosecution under the FCPA remains one of the clearest and greatest incentives for companies to proactively refrain from engaging in cross-border bribery.

How should such companies respond if a changing world leads to a weakening of prosecutorial resolve against corruption – whether under US law or the law of other states? How to react if political history takes a radical turn away from the ideals that have supported the global economic order over the past century? Would ‘compliance’ still mean anything if the familiar legal proscriptions against bribery were no longer there to be complied with?

Here are some important considerations: the instinct to resist corruption is older than history’s current incarnation of the anticorruption agenda. And the long-term individual and social benefits of free and open exchange are more valuable than complicity’s mess of pottage. These realities are more stable than any given institution – and they will remain realities for your company’s stakeholders long after any change of regime. People like stability and order, and they don’t like corruption: not your customers, not your suppliers, not your trading partners, not your investors – not even your competitors. Even dictators and kleptocrats solidify their power by exploiting people’s anger at perceived crookedness, and by promising to make the trains run on time.

Companies can choose to support the ideals of compliance – not just in the absence of a prosecutorial risk, but precisely because of what such an absence signifies. Robust anti-corruption enforcement goes hand-in-hand with the other elements of a healthy economic order: a government structured to serve rather than strangle; a clarity about its leaders’ financial interests; and a vibrant public engagement in the process of holding those leaders accountable.

As a practical tool, the TRACE Matrix can help you assess this kind of health in particular regions and markets. As a theoretical model, it can help you contemplate the ideals and institutions that permit safe and free engagement with those markets, and to reaffirm your own commitment to support them, come what may.

About the Author:

Robert Clark is the Manager of Legal Research at TRACE, where he oversees a team of lawyers responsible for the production of analytical content. Mr. Clark has more than ten years of experience performing careful and thorough legal analysis in both the public and private sectors. He has served as a staff attorney for the Seventh Circuit Court of Appeals in Chicago and as law clerk to the Hon. Terence T. Evans in Milwaukee. He has also worked as a commercial and appellate lawyer specializing in business-bankruptcy litigation, first with the boutique firm of Friedman Dumas & Springwater LLP in San Francisco, than as a founding partner of Dumas & Clark LLP. Before attending law school, he spent four years working as a research analyst for the City of Chicago Board of Ethics.

Mr. Clark holds a bachelor’s degree from the University of Chicago, from which he graduated with honors, and is a member of Phi Beta Kappa. He also received a master’s degree in religious studies from the University of Chicago Divinity School, and a J.D. cum laude from Harvard Law School. He has been admitted to the state bars of Illinois and California.