Reputation the next business battleground

Australia and New Zealand, once considered shining lights when it comes to corruption, are starting to dim.

Behind recent data showing the declining perception of Australia and New Zealand as nations free of corruption is the worrying notion that businesses backed by other governments with a more proactive stance on fighting bribery and corruption will use this feature to gain a competitive edge.

"Australia and New Zealand also have a raft of anti-bribery and corruption legislation but very few successful foreign bribery prosecutions."
Lee White, CEO of Chartered Accountants Australia and New Zealand

Bribery and corruption is rightly viewed as a massive tax on business that restricts global growth. A World Economic Forum paper that presented the business case against corruption noted that moving a business from a country with a low level of corruption to a country with medium or high levels of corruption is found to be equivalent to a 20 per cent tax on foreign business.

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The most important financial incentive to minimise corruption is the reduction of reputational risk. In business, a strong reputation means lower costs of doing business, a lower cost of capital, and easier access to international markets.

As corruption knows no borders, fighting this scourge has become a multi-jurisdictional issue producing mixed results.

A game changer in setting the standard for fighting corruption globally is the United Kingdom's (UK) Bribery Act 2010, which increased the UK's prosecutorial reach in addition to the seriousness of penalties imposed.

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Notably, prosecutions can extend to those who have links to the UK regardless of where the corrupt activity took place. The Act also extends criminal liability to organisations that fail to prevent bribery which might account for the significant increase in both public and private sector anti-bribery and corruption compliance programs in the UK.

The United States (US) Foreign Corrupt Practices Act 1977 doesn't appear to have the same reach but its objectives are similar in that it makes companies and officials criminally liable for bribery. Like the UK Act, the US legislation applies to those who are connected to the US, regardless of whether the corrupt activity takes place there.

Australia and New Zealand also have a raft of anti-bribery and corruption legislation but very few successful foreign bribery prosecutions.

It is this disparity that has resulted in both countries being criticised for lacking tough enforcement procedures. While threats and observed cases of corruption are increasing, convictions are not.

Despite both countries holding a favorable position in global fraud and corruption surveys, Transparency International's most recent annual ranking of how 175 nations perceived the corruptibility of their public sector was not all good news for Australia or for New Zealand.

The survey revealed that after holding the top spot (the least corrupt) for many years, New Zealand has slipped to second place. Australia's position has dropped for two consecutive years, from seventh equal in 2012, to ninth equal in 2013 and eleventh in 2014.

While Transparency International described the growth in global public sector corruption as “alarming", a PwC survey reported corruption as rising more quickly across the economy generally than most other categories of economic crime.

The PwC Survey highlighted an increase in reported bribery and corruption between 2011 and 2014 from seven to 15 per cent in New Zealand, and from 24 to 27 per cent globally.

Other studies support this finding, with an Australian study finding that 43 per cent of respondents believing that corruption had increased in the three years to 2012.

Last year the OECD's Working Group on Bribery expressed concerns about New Zealand's lack of enforcement of the foreign bribery offence despite being a signatory to the OECD Convention on Combatting Bribery in 2001. New Zealand has not prosecuted any foreign bribery cases.

The low number of foreign bribery allegations raised concerns on the levels of awareness, reporting and detection. There are further concerns that detection efforts may be undermined by the outdated perception by many that New Zealand individuals and companies do not engage in bribery and corruption.

Similarly the OECD chastised Australia in 2013 for failing to enforce, among other things, foreign bribery laws: “Out of 28 foreign bribery referrals that have been received by the Australian Federal Police, 21 have been concluded without charges."

ANZ manages the risk of bribery and corruption both in Australia and abroad through the implementation of a strong global anti-bribery and anti-corruption compliance programs, applying to ANZ employees and contractors. The ANZ Anti-Bribery and Anti-Corruption policy is part of a broad suite of policies making up the ANZ Conduct and Ethics Policy Framework.

The policies relate to anti-money laundering and counter terrorism, management discretions and expenses, risk management, reputation risk, whistle blower protection, political donations, fraud, and conflicts of interest. See ANZ’s submission to the senate economics references committee inquiry into foreign bribery here.

As international agencies criticise Australia and New Zealand for not doing enough to fight corruption, and both nations will be doing more trade with countries that have poor records for fighting corruption, perhaps now is the time for our legislators to review the effectiveness of our anti-corruption laws and our enforcement agencies in protecting the reputation of our businesses.

Otherwise our well-deserved reputation could slip further in the global marketplace in a much shorter time than it was gained.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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