In today’s global economy, bribery is rampant. It erases between $1.5 and $2 trillion worldwide, or 2% of global GDP, according to the International Monetary Fund (IMF).1 In fact, it’s become so prevalent that a recent survey of 500 board-level executives by Eversheds law firm revealed that 4 out of 5 corporate executives report having witnessed bribery and corruption first hand.2 So how did bribery get so out of control?
One reason is the globalization of business. Joint ventures and mergers and acquisitions routinely involve foreign counterparts. Unfortunately, one-third of the study’s respondents also admitted not doing any anti-bribery due diligence involving M&A.3 This probably isn’t a priority for investment bankers who structure these deals since their compensation isn’t jeopardized by any future indiscretions.
Bribery is unfortunately widespread among emerging markets, including one of Africa’s most promising-Nigeria. While the oil-rich Western African nation holds tremendous much promise as a developing country, it has many hurdles to overcome. U.K. Prime Minister David Cameron went as far as to call the nation “fantastically corrupt.”4 The latest episode of alleged bribery involves an unlikely pair-Nigeria and the iconic, British luxury car company, Rolls Royce.
Today’s Rolls Royce
According to the Financial Times, the bribery inquiry by Britain’s Serious Fraud Office (SFO) is investigating dealings with a Nigerian energy infrastructure company called PSL Engineering and Control. There is some speculation around securing tenders (contracts) for gas turbine engines for sea vessels since much of Nigeria’s oil exploration and production is offshore. Rolls-Royce has actually become one of the world’s largest manufacturers of engine systems for the aerospace and energy industries. This is another blow to the company whose revenues dropped last year for the first time in a decade amidst defense spending cuts and the collapse in oil prices.5 Rolls Royce sold their energy gas turbine division to German conglomerate Siemens back in 2014.6
Unfortunately, the company is no stranger to corruption and bribery accusations. A criminal inquiry by Britain’s SFO is ongoing for incidents involving their aerospace division in Asian emerging markets, China and Indonesia as well as Roll Royce’s energy division in another emerging market economy, Brazil.7 We’ve pointed out the various ways in which violators can cover up bribes and money laundering through the use of offshore corporate entities.
Bribery in Developed Countries
But bribery occurs in developed economies as well. Even when a country may not directly engage in bribery, it can be criminally negligent by not properly vetting business practices. In fact, Transparency International named 20 major exporting countries that violate international law obligations by failing to investigate instances of foreign bribery. These twenty countries represent over one-fifth of global exports and includes some surprising names such as Japan, Denmark, Israel and Belgium.8 In the wake of the Panama Papers, it is reasonable to expect increasing regulatory scrutiny of both public and private organizations.
The rebound in the global economy over the last few years has masked some of the problems involving bribery and corruption, but another severe downturn in equity markets could cause increasing negative social mood, resulting in vastly more financial crime investigations. The commodity sell-off of the last year has hit many developing nations hard, including petro-economies such as Russia, Venezuela, Saudi Arabia and Nigeria. Many of the budgets of these nations depend upon higher commodity prices and could result in political instability if prices remain low.
With top line growth at many financial institutions stagnant, focus is turning towards risk management of economic crimes to help achieve bottom line targets. This transition from offense to defense signals choppy times ahead for revenue generating positions such as trading and investment banking, but signals steady work for compliance managers, anti-money laundering professionals, auditors and fraud examiners. Existing financial crime and fraud management policies need revamping. The Eversheds study also revealed that 59% believe current policies to prevent bribery are inadequate.9 Expect regulators to use fines and penalties to help force this to change in corporate boardrooms. With punitive fines running in the billions of dollars, future careers in finance should increasingly involve the detection and prevention of financial crimes.