Businesses need to clean up their act

This opinion piece was published on 27 January 2011 in the Financial Times.

If a bank robber makes off with millions of dollars, he can expect to feel the full force of the law. So why should big corporations be able to evade justice if caught engaging in corruption or other economic crimes? Is the private sector effectively buying its way out of trouble?

As a number of recent high-profile cases show, this has been happening in too many countries. In 2009, a US multinational paid $579m to the US government to settle charges over the bribing of  officials in an African country to win a contract. In 2008, a German industrial conglomerate paid €1bn in fines to the German and American governments for bribing officials.

For a large multinational, this is probably only a modest part of the cost of doing business. The temptation must be for companies to factor such penalties into their business plans.

In cases where companies faced substantial fines, that money has stayed in the country where the settlements were reached and not returned to the countries from which it was effectively stolen.

Thankfully, we are seeing growing intolerance of corruption throughout the world. In the past two years or so, a number of countries have stepped up enforcement of anti-corruption laws, and we have seen high-level prosecutions of major companies - but many of these cases have ended in plea bargains.

While litigation may be long-winded and expensive, the settlement route poses troubling questions. With only enough evidence unearthed to bring the offending party to the negotiating table, the settlement amount is probably a fraction of what the wrong-doer should actually pay. Typically, the full picture could be damning enough for a company to want to stay out of court and the headlines.

The time has come to examine this practice. We need to make sure that settlements do not imply insufficient punishment, or worse, impunity for corporations that can afford to pay. And we must make sure that settlements do not flout the United Nations Convention against Corruption - the first and only global instrument designed to prevent and combat corruption.

The Convention is not just for governments; it contains guidance for the private sector too. We have a common framework. Let's use it.

The public sector has made great strides in addressing corruption but the private sector is lagging behind - although its contribution to fighting corruption is just as essential. Businesses need to be proactive and address the real costs that corruption imposes on them and, ultimately, on their customers.

Yes, the private sector is taking steps to ensure transparency. Bank secrecy laws have been effectively scrapped and are no longer an obstacle to money-laundering investigations. More companies are establishing ethics and compliance programmes to build an accountable workforce. Increasingly, investors are factoring ethical performance into their decisions.

But much more needs to be done. I urge chief executives to set the tone from the top with a zero-tolerance policy for corruption, as many have already done. This week, political and business leaders are gathering in Davos for the annual World Economic Forum. On this occasion, I propose four concrete actions that businesses may consider.

First, adopt anti-corruption policies in line with the UN Convention against Corruption and put in place the checks and balances needed to strengthen accountability and transparency. This will send a powerful statement of resolve to investors, executive boards, customers, employees and the public.

Second, establish a credible review mechanism designed and governed by business. Just as companies' financial reports are audited, businesses should create a system to ensure probity.

Third, invest in developing the public integrity infrastructure of developing countries by helping them implement the Convention. The reward can be a potent insurance policy for protecting corporate assets. My office stands ready to support the establishment of legal frameworks and institutions and the development of skills to combat corruption.

Finally, work with us and governments to create incentives for corporate reporting by creating an environment that can help companies to report internal wrong-doing and protect whistle-blowers.

Together, let us address the integrity deficit in the private sector.

The writer is executive director of the UN Office on Drugs and Crime