Bribery and corruption; a plague of modern-day corporations
Name two similarities among the following personalities;
- Ansal Brothers.
- Sanjay Chandra.
- Ravi Parthasarathy.
- Rana Kapoor.
Suppose you have guessed it – kudos! Five brownie points for you. The answer is for those who are still scratching their head: they are all business barons, and presently, all are behind bars.
Yes, you read that right. The above list has names of people ranging from real estate tycoons to promoters of large corporations, and they are all united by one common factor. They are all guilty of numerous corruption charges and similar financial crimes.
Such offences are often hidden deep in bogus invoices or disguised in forms that are impossible to spot for an untrained eye. Therefore before we proceed, let’s look at the majorly accepted definition of such crimes to clear our basic understanding.
Basic Definitions:
- Bribery – Granting preferential treatment in exchange for receiving items;
- Kickbacks – A sum of money that a vendor or a business pays someone to choose them for an important job;
- Fraud – Illegal or dishonest activities performed by an individual or company to achieve an advantageous financial outcome;
- Embezzlement – The crime of secretly taking money that is in one’s care or that belongs to an organisation that they work for;
The web of Bribery and Corruption
The average person has a bi-directional approach to the notion of bribery and corruption. Either they scoff it off as something that happens only on the silver screen and in big business houses and will never affect them. Or they accept it as a regular part and parcel of their life to get things “done”. Unfortunately, both of these kinds of people are detrimental to society.
We have all heard of a friend or may have ourselves paid a small fee to get out of a much larger fine, such as violating a traffic light or parking in no parking zones.
Remember how you gave the administration clerk money “for tea” in return for getting a quick photocopy of your lost mark sheet back in your university days? Wasn’t it so much more efficient than going through the prescribed channel and paying double besides waiting for a minimum of 2 weeks!
Oh! how can we forget Shekhar?* Remember how he struck an under-the-table deal with the infrastructure supplier for the agency he worked? Every time the supplier got nominated in a bid, Shekhar would get a lump sum. Finally, an internal audit by the anti-corruption department in his office discovered the matter. He got sacked due to his conduct and faced legal proceedings.
It’s not just limited to these cases; according to Transparency International (2021), 68% of countries worldwide have a serious problem with corruption. Unfortunately, a corruption-free land is as mythical as a unicorn in the present day and age.
In 2019, the Institute of Business Ethics worked on spotting the most reported issues with business ethics worldwide. No surprise, the findings were – matters related to corruption, bribery, embezzlement, and money laundering. The study showed that the finance, retail, and technology sectors are the usual hotspots.
Corruption, cancer for your business –
The intimacy of bribery and corruption with work is age-old and a source of constant headaches for businesses. Not only because of the loss of reputation it brings about in the market but also the enormous anti-bribery and corruption penalties the government can charge if discovered.
Tackling illegal and unethical practices such as bribery is a process of constant vigilance and training of your employees. Unfortunately, classifying bribes as a norm of the job’s nature is a deeply ingrained attitude in multiple sectors. As a result, it isn’t easy to root out. Thus slowly, over time, if left unattended, it devours a business from the inside out.
Surprisingly, the impact on employee performance when their company is charged with corruption is an often unnoticed area. P.M. Healy and G. Serafeim, based out of Harvard Business School, thought of this and created a survey.
Participants in the survey associated with a company charged with corruption chose the options related to the adverse effects on employee morale over other options such as reputation, relations, and financial standings.
According to Serafeim’s survey, such practices by a corporate show its employees that they can resolve any hindrance to an objective by offering money or similar forms of incentive.
Moreover, it works much better than working hard or taking your time to build relationships.
Case study –
The British American Tobacco debacle is a relevant example to support the preceding study. A BBC investigation in 2015 uncovered a massive scale of bribes in various forms. Ranging from straight-up cash to family vacations in exotic locations to gifting expensive and rare commodities to politicians, civil servants, and whoever else required to get the company an advantage over its competition in East Africa.
This rampant and aggressive exercise of business upscaling had its heyday for quite a stretch. Until a whistleblower within the company itself leaked documents of illegal payments made to people as far as the chairs of the World Health Organisation’s (WHO) Framework Convention on Tobacco Control (FCTC).
Internal investigations revealed that employees jumped ship at the earliest opportunity to avoid the embarrassment of being associated with a tainted organisation, and those that stayed performed at a significantly reduced productivity output.
A generous gift or a return favour?
We are at an exciting juncture to talk about gifts or hospitality. This form of bribery is dealt with by specific legislation, “The Prevention of Corruption Act” (PCA). The Act prohibits receipt or provision through a third party or directly any undue advantage, including gifts, boarding, transport, or other hospitality.
The decision in AB Bhaskara Rao vs Inspector of Police, CBI, Visakhapatnam, [AIR 2011 SC 3845] sheds some light on this scenario. The Apex Court states that the value of the gift received is immaterial. But the fact that the contribution was received shows the receiver’s ill intentions of not disposing of his duty with honesty. Hence, it is an offence in the eye of the law.
The same jurisprudence is applied and holds water in most jurisdictions of other nations. For example, the UK government’s Bribery Act (2010) legislation acts on the same principle.
Need for accountability –
In recent years a strong and steady development in public sentiment has been observed towards corruption. There is a strong insistence and pressure on the elected representatives to weed out and stop crime in their backyard and any public or private listed companies. As a result, anti-corruption and anti-bribery policies are being pushed out at an all-time high. Willful financial defaulters who are absconding from India, and corporate promoters who were granted substantial loans by banks but have deliberately defaulted, are now sought after by vigilance authorities. These bodies have the power to confiscate the properties of the defaulters available in India, as provided for in the Fugitive Economic Offenders Act 2018. These, after due proceedings, can be put up for sale to recover the debt or pay any creditor.
Guidelines for a better future –
A glaring loophole in this context would be the absence of uniform legislation required for corporations to be filled by disclosing or reporting violations or otherwise potential incidents of such corruption. They must also disclose details of the anti-measures set in place or taken by them.
However, as per the Securities Exchange Board of India (SEBI), Regulations, 2015 (under listing obligations and disclosure requirements), corporations must mandatorily disclose defaults and fraud committed by their promoters or key employees, directors, or managerial persons. The Companies Act also allows an auditor of a company to report to the government if they have reasons to believe that there has been a fraud committed involving INR 10 million or more. The auditor must report to the company’s board of directors if the sum is less than that.
Understanding the cons over the short-term pros and inculcating an anti-corruption and anti-bribery mindset amidst the workforce is not the work of a single day, week or month. Instead, long-term commitment from people in the leadership roles, creating a culture of integrity and openness, and adopting ethical business approaches are the way to go.
Some basic principles that you can put in place are –
- An internal policy for anti-bribery rules and procedures;
- Helplines for whistleblowers;
- Authorised and stamped receipts for all payments made;
- Deny cash payments;
- Commitment and zero tolerance towards corruption from senior members of the company;
- Assessment of risk in the field of the company’s operation and developing adequate measures for it;
- Due diligence;
- Communication and caution from senior members to their employees regarding possible pitfalls and lures;
- Reviewing whether the anti-corruption policies set in place are actively being implemented and followed;
Companies have understood this reality, and there has been a paradigm shift in active attempts to raise awareness. For example, companies are now holding training sessions conducted by law firms and periodically hammering away at anti-corruption laws to educate the workforce better.
It’s never too late to address attitudes toward corruption or its possible forms. If left unchecked, such practices continue to negatively impact the business in many ways, leaving it defunct.
Need a course?
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*The name used here is fictitious. Therefore, no identification with actual persons (living or deceased) is intended or should be inferred.
Author: Sagnik Mukherjee
Editor: Sumali Nagarajan
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You can read this blog for effective ABAC policy requirements. 5 must-haves for an effective ABAC Policy – Rainmaker
References-
https://www.transparency.org/en/cpi/2021
https://www.hbs.edu/faculty/Pages/profile.aspx?facId=6475&view=publications