In conversation with… Catherine Harris from Transparency International UK’s Business Integrity Programme and Maggie Mckie, Manager at PwC

03 July 2020

Tags: Anti-Bribery & Corruption (ABC)

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After nearly four months of lockdown in response to the COVID-19 pandemic, it is clear that the economic impact of these restrictions has been severe across all business sectors. As businesses are having to adapt their operations in order to be viable within the current constraints, small and medium sized enterprises (SMEs) are potentially among the hardest hit, as they are under extreme pressure to cut costs and divert payments. 

In this guest blog, we focus on bribery and corruption risks and on the related grey areas that might be particularly problematic, as they are likely to lead to unethical or even illegal behaviour. 

As part of Transparency International UK’s Business Integrity team, Maggie Mckie and Catherine Harris work with companies to change the way they approach the issue of corruption. By providing expert insight and anti-corruption best practice to businesses of all sizes – from SMEs to multinationals – their work helps improve standards here in the UK, and by extension globally. 

Read Margaret’s and Catherine’s suggestions for SMEs to minimise bribery and corruption risks within their businesses in the current crisis. 

A lot of research has been conducted on the impact of COVID-19 is having on businesses and results show clearly that many SMEs are struggling to cope with the current economic environment. Does this make them more vulnerable to ethical risks as well, particularly when it comes to corruption? 

Maggie: There is definitely a link between the two. In such an uncertain and foreboding economic climate, businesses and individuals might increasingly rationalise their actions, significantly increasing the risk of corruption. This is especially the case for SMEs, given that they often have less resources dedicated to anti-bribery and corruption (ABC), less bargaining power than multinationals, and less flexibility in dealing with economic shocks.

This heightened risk of corruption for SMEs is compounded by the fact that many small and medium sized enterprises already have limited compliance and ABC functions and lack key ABC safeguards, including the monitoring and review of key ABC policies and procedures, facilitation payments, third party risks, and fair and transparent procurement. 

Could you give us some examples of corruption risks that SMEs might be particularly susceptible to? 

Catherine: A first example is related to bribery risks. Goods and services may be in short supply due to hold-ups in, or breakdowns of, both national and international supply chains. This is especially true in the context of a full or partial lockdown, in which only businesses deemed necessary can remain open and operate. Officials or businesses in import/export functions may demand additional payment to have cargoes jump the queue and get out of customs. In addition, certain suppliers may charge extortionate prices in order to capitalise on the current economic environment. Bribery can manifest itself in many ways: outright solicitations; facilitation payments; use of agents or fixers; new port fees, etc.

What can an SME owner or manager do to tackle this risk?

Catherine: A first point that I think is important is that the compliance with the law is an essential starting point, but often not enough. SMEs should consider re-emphasising, in messaging to key stakeholders and staff, their values (implicit or explicit) and commitment to ethics and ABC. This tone-from-the-top will allow third parties, employees and other stakeholders to see that although it is a time of crisis, the business will not be party to corruption and unethical behaviour.

My recommendations would be slightly different depending on whether an organisation as an ABC compliance programme or not. 

For SMEs with ABC compliance programmes:

  1. Consider publishing your ABC policies and procedures, including the frameworks and processes that support the implementation, monitoring and review of these policies and procedures. Transparency around your ABC programme makes it clear to others that you adhere to certain standards, as well as encouraging internal improvement. Our Open Business report offers further insights. 
  2. Continue to adhere to your own ABC policies and procedures, including policies around facilitation payments and third-party management. Again, Open Business provides further insights as to what we recommend your ABC policies and procedures should entail.

For SMEs without ABC compliance programmes: 

  1. Consider the rationale behind payments that appear to be out of the ordinary or suspicious in nature, in order to understand if these payments might be considered a bribe under the UK Bribery Act. Our free, 30 minute Doing Business Without Bribery online training course will help you spot a bribe.
  2. Report any suspicious payments or payment demands to the National Crime Agency’s International Corruption Unit. See the National Crime Agency’s advice on how to report bribery and corruption here.
  3. Consider alternatives to the payment of a bribe or extortionate price for goods or services. For example, could an alternative supplier be used? Or could cargo be sourced from a different country?
  4. Document the event as it transpired, the decision made and the rationale for the decision (e.g. if at this time, a business is required to pay an unreasonably high price due to market conditions the reasoning behind this must be documented). The payment documentation should include the amount, date, parties involved and the purpose of the transaction.
You mentioned that supply chain insecurity has become a rampant side effect of the current economy. As a result, SMEs may find they are doing business with new or different parties in order to stay afloat. Do you have any recommendation for SMEs to tackle the potential ethical risks related to this? 

Maggie: Even though it may be tempting to relax certain ABC safeguards, it is important to perform sufficient due diligence on third parties which have, in this time of crisis, become part of the supply or distribution chains of an SME. Some points that SMEs should consider are the following:

  1. The country, place of registration and place of payments of the third party and determine if any red flags are present.
  2. The third party’s ownership, particularly, consider if any conflicts of interest are present. If conflicts of interest are identified, these should be documented and safeguards should be put into place if the relationship is required for business reasons. See Transparency International’s guidance on conflicts of interest here
  3. The third party’s reputation within the industry and the public domain. 
  4. If the third party has its own ABC policy.
  5. It is best practice to agree payment terms upfront, agree services to be performed in detail, and include ABC language allowing for the right to terminate within contracts or agreements with third parties.
  6. Above all, ensure your due diligence is documented in writing.

In addition to this, Transparency International UK has developed an extensive Anti-Bribery Toolkit to support organisations in their fight against corruption, and The IBE Say No Toolkit can be used to get practical advice on what to do when facing an ethical dilemma.