Putting the Brakes on Corruption: Pressing the Compliance Accelerator

Corruption scandals are like wallpaper bubbles: probe one and another pops up right next door. The telecommunications giant VimpelCom, for example, was recently hit by a $795 million from the U.S. Department of Justice for bribery payments in its Uzbekistan subsidiary. Meanwhile, energy company Unaoil and its subcontractors are being investigated for bribing foreign officials to help major multinational corporations win billions of dollars in government contracts.

The widely-publicised ‘Panama Papers’ scandal has also revealed how clients used the secretive services of Panama-based law firm Mossack Fonseca to facilitate everything from bribery, arms deals and tax evasion, to financial fraud and drug trafficking.

And of course the acronym ‘FIFA’ is fast becoming more closely associated with corruption than championships and corner kicks.

In each of these incidents and others beside, multi-agency, trans-national investigations are instigated. The aim being to reveal the misuse of companies, other legal entities and legal arrangements, including trusts, to hide the proceeds of corruption.

Everyone—government, law enforcement, organizations, and citizens themselves—agree on a business culture that is accountable and motivated to fight corruption. In other words, everyone is united on the need for business and government to possess complete integrity, transparency and accountability.

Corporate responsibility and good corporate citizenship

Here’s the issue. This drive to tackle corruption should not be driven by cases and events such as the Panama Papers, but rather by design. Businesses should not commit to an anti-corruption agenda simply to prevent themselves becoming the next VimpelCom, Unaoil or Mossack Fonseca social media story. They should do it for reasons of corporate responsibility, good corporate citizenship, good governance, and brand reputation.

There is another irrefutable reason for business to adopt an anti-corruption stance. This is the pressure emerging among citizens for change. There is emerging anger in society to expose abuse, strengthen accountability, and improve prevention and law enforcement capabilities while respecting human rights.

Following the recent collapse of the British retailer BHS, for example, past and present owners were called before a UK Government House of Commons Select Committee to explain how the business was sold to the final owner (a thrice-times bankrupt) for £1, and how staff pensions were being administered. Citizens want action and they want answers!

Creating a compliance perimeter

So what steps can business and government, civil society, and business take to expose and drive out corruption? The answer lies in the creation of a compliance perimeter: a protective technology and diligence zone to balance the conflicting requirements of maintaining profitable growth while remaining compliant and minimising reputational and regulatory risk.

This approach enables organizations to cost-effectively on board clients with confidence. Timely, accurate, global data can be used to identify and verify businesses and people, screen entities, and create an audited trail of the clients an organisation on boards. The result is compliant Know Your Customer and Corporate Due Diligence processes.

It’s a lesson BHS is learning the hard way, the business having been sold to a person that has been bankrupt three times and who possessed no previous experience in retail management. “We chose the wrong guy”, the previous owner told the House of Commons Select Committee.

Second, organizations should establish beneficial ownership. Although all governments are not yet on board to have registries of beneficial owners, businesses can take two different routes to collecting beneficial ownership data. Look at each record manually, or automate the process. The manual approach is prohibitive: too slow, too expensive and too prone to error.

However, a semi-automated beneficial ownership data collection process streamlines the data collection process, delivers the necessary transparency and ethical business growth. For example, it enables an organization to visualize corporate ownership structures up to and including corporate ownership over 5% or more. There is also the flexibility to source and maintain full ownership details, type of share ownership and percentage.

All of this can’t be a one-time process. An ongoing review for changes in third-party status or risk is essential. The third party’s presence on sanctions lists, criminal activity or relationships with government entities should be checked regularly. Changes in ownership or status, or the appointment of a new CEO should also be detected. And payments to third parties need to be tracked and only authorized within the approved scope.

How can this investment be justified? First, there is the risk on not investing: the risk that the company will be exposed to non-compliance and all the financial cost and damage to brand reputation associated with this. Second, investment in a data and analytics platform can be shared across multiple business processes and business units. The high quality data absorbed into the on boarding verification process, for example, can be used just as easily to support data quality activities in Sales or Customer Support.

Those wallpaper bubbles will never disappear entirely. However, conducting the appropriate levels of due diligence, establishing beneficial ownership and ongoing monitoring enables government and organizations to take a quantum leap forward towards transparency and good governance.