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Brexit Means Bribes?

by John Taylor

In Transparency International's Corruption Perception Index scores range from 100 (not corrupt) to 0 (utterly corrupt). The top country is Denmark with a score of 90. The UK is, surprisingly, only 10th with a score of 81 and the USA is, perhaps less surprisingly, 18th with a score of 74.

In the bottom half of the table are countries such as Russia (131st with score of 29), Brazil, China and India all of whom score 40 and come 79th equal. The very bottom of the table is dominated by some of the poorest countries in the world where corruption is blatant and endemic such as Somalia, South Sudan and North Korea. Transparency International's report highlights a disturbing conclusion:

"This year's results highlight the connection between corruption and inequality, which feed off each other to create a vicious circle between corruption, unequal distribution of power in society, and unequal distribution of wealth... The interplay of corruption and inequality also feeds populism. When traditional politicians fail to tackle corruption, people grow cynical. Increasingly, people are turning to populist leaders who promise to break the cycle of corruption and privilege. Yet this is likely to exacerbate – rather than resolve – the tensions that fed the populist surge in the first place."1

Corrupt practices are not confined to poor countries, morally bankrupt dictatorships or repressive regimes. In the last few months news stories from countries much higher up the Perceptions Index have included:

  • Rolls Royce to pay a fine of £671m to avoid prosecution for alleged corrupt practices in, yes, India, China and Russia, among several countries
  • The economy minister of Japan forced to resign amidst allegations he received money from a construction company executive
  • The 'Fat Leonard' scandal in the USA where a dozen naval officers were indicted for bribery having received favours from a Malaysian defence contractor in return for them arranging for ships from the US Pacific fleet to be repaired in his yards
  • Football riddled with corruption scandals from the giants of FIFA to the assistant manager of Barnsley FC accused in a Daily Telegraph sting of taking a £5,000 bribe to introduce footballers to an agency
  • The recent arrest of Samsung vice- chairman Jay Y Lee on bribery charges

Nobody condones corruption – even the governments of some of the most corrupt countries in the world say they don't - but it goes on. In some countries extreme poverty or uncertainty can explain why bribery is a fact of life as, often very poorly paid, individuals seek to better themselves but in other countries, including the UK and USA, such practices represent a failure of practical moral and ethical leadership. The MP's expenses scandal in the UK of 2015 still lingers in the memory and corrupt practices including cronyism among elites has lead to a cynical devaluation of the ethical climate as ordinary individuals see the gulf between them and the rich and favoured grow ever wider.

A recent study by Prof Andrew Kakabadse of Henley Business School claims that 85% of UK managers working in emerging markets have to resort to bribery in order to do business and that as many as 80% of Board level managers were aware of this practice. Many of these markets involve countries with a very low index on the Transparency International scale so this is hardly surprising.

Prof Kakabadse goes on to say that the study rapidly revealed that for these managers, "a key obstacle was dealing with everyday fraud, bribery and corruption. In other words, if they didn't pay-up to achieve their organisation's objectives, then their competitors certainly would."

He goes on to say that "These suspect business practises are typically costing organisations 5% of their revenue annually and are often committed by concerned managers, who feel that they have no alternative other than to pull out of the country in question."2

If the UK government negotiates a 'hard Brexit' and therefore is excluded from the single market, post-Brexit deals with morally bankrupt countries will assume much greater importance and the danger is that an unwanted side effect of that will be the increased spread of corrupt practices.

UK companies will be squarely between a rock and a hard place. On the one hand they mustn't do it because it's against some of the most draconian anti bribery legislation in the world, the Bribery Act 2010, but it is obvious that, in many countries, they will have to do it if they want to do business there.

There will be a cost and that will be the spread of corrupt practices and the increasing challenge of hiding them from the regulator. In a global world this is not too difficult to do on a large scale as the recent revelations about the Russian inspired 'Laundromat' show. Money laundering on a gigantic scale is perfectly feasible if you own a bank or have one in your pocket and is so spectacular that it is the province of elites. It's the low level stuff that insidiously pervades trading practice that becomes the real problem as lower level managers bribe their counterparts.

Once this becomes acceptable business practice the malaise can spread unless organisations take a strong moral and ethical stand against it. This requires senior managers to create a culture within their organisation where corruption is seen as morally unacceptable. Well, to be more precise, the policy is more likely to be that bribery is morally unacceptable but pragmatically tolerated in extreme situations and only overseas where local conditions require it.

The greater the pressure on organisations to do deals in countries at the lower end of the Transparency International scale – and remember this includes Russia, China, India and Brazil - the greater the possibility that corrupt practices will spread.

If doing the deal becomes more important than any ethical principles and the policies of 'smaller government' emasculate regulators the business climate will suffer and those who want to trade ethically will find it much harder to do so. So an unwanted side effect of a hard Brexit may be an increase in corruption and money laundering – something which UK and EU politicians may not have factored into their calculations but may become all too well aware of as time passes.

[1] www.transparency.org/news/feature/corruption_perceptions_index_2016
[2] www.kakabadse.com/news/bribery-hits-85-for-uk-managers-operating-internationally
[3] www.theguardian.com/world/2017/mar/20/the-global-laundromat-how-did-it-work-and-who-benefited

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