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Dizzying matrix of global anti-corruption laws raises risks for business

Commentary: New laws reflect the realization that corruption is unsustainable in the long run. But a 'zero tolerance' posture also magnifies risks for companies reliant on global supply chains.
GlaxoSmithKline China corruptionEnlarge
An employee of British drug firm GlaxoSmithKline enters the company's headquarters in Shanghai on July 1, 2013. Chinese police are investigating senior management staff at GlaxoSmithKline in China for economic crimes including bribery. (Peter Parks/AFP/Getty Images)

WASHINGTON – It used to be that the US Foreign Corrupt Practices Act (FCPA) was the main instrument of enforcement against bribery worldwide. No more. The legal landscape is changing quickly as dozens of countries beef up their anti-corruption laws, creating new risks to companies whose supply chains and business partners traverse the globe.

One of the most striking illustrations of the risk that can now be visited on global companies through the actions of third parties has surfaced in a precedent-setting case against foreign companies with operations in China.

In July, Beijing began a crackdown on UK-based pharmaceutical giant GlaxoSmithKline, alleging bribery worth up to 3 billion yuan ($480 million) of Chinese doctors and officials, facilitated by third parties acting under the guise of travel agents.

The investigation has since expanded to include at least three other foreign pharmaceutical and medical device makers — Switzerland’s Novartis, France’s Sanofi SA and US-based Eli Lilly — and a bevy of Chinese companies in the sector.

Just this week GlaxoSmithKline announced it will stop paying doctors to promote its products and will no longer tie sales employee pay to the number of prescriptions written. Chief executive Andrew Witty said the new rules are part of ongoing efforts “to try and make sure we stay in step with how the world is changing,” according to The New York Times.

Around the world, governments are putting in place laws to combat bribery of foreign officials and other types of corruption in international transactions.

In doing so, more and more are aligning with treaty obligations. The Organization for Economic Co-operation and Development (OECD) convention on combating bribery in business transactions, which went into effect in 1999, today has 40 parties, including all 34 OECD member countries and six non-members — Argentina, Brazil, Bulgaria, Colombia, Russia, and South Africa. These nations collectively account for two-thirds of world exports and three-quarters of foreign investment globally.

Meanwhile,167 parties have ratified the 2005 United Nations Convention Against Corruption (UNCAC), under which signatories agreed to prohibit bribery, solicitation, and other corrupt acts. Those who have signed include all parties to the OECD convention, along with countries as diverse as China, India, Morocco, Indonesia, South Korea, Ukraine, and Vietnam.

While the growing “zero tolerance” posture is a positive development, it magnifies risks to multinational companies relying on supply chains that traverse the globe.

The FCPA is now just one of many enforcement mechanisms. The UK Bribery Act, revised in 2011 to have more teeth, is now arguably more comprehensive than the FCPA and explicit about holding companies liable for the corrupt acts of third parties.

Russia, China and Brazil have new corruption laws. Dozens of other countries have proposed or passed new legislation.

Many of these new laws reach well beyond the borders of the countries that enacted them. Most also recognize that companies can be held liable for the corrupt activities of third parties acting on their behalf.

Brazil’s revised anti-corruption law calls for penalties of up to 20 percent of a company’s gross revenue. Penalties under Indian and Chinese law are potentially unlimited.

The laws reflect a realization that corruption is unsustainable over the long run. It squanders as much as 5 percent of global GDP, equivalent to $2.6 trillion, according to the World Bank. It fuels unrest in many countries. It was one reason that angry Brazilians took to the streets of Sao Paulo this summer.

But how enforcement of these new laws plays out in many countries is yet to be seen.

Is China’s drug company crackdown a signal of new resolve against corruption, a political tactic, or both? It is too soon to know. But the high-profile case shows Chinese leaders’ willingness to confront major foreign corporations under anti-corruption provisions when they see fit.

Bottom line: There’s nowhere to hide.

To mitigate the risk in this rapidly changing legal landscape, it is vital for multinationals not only to have robust internal compliance programs, but also to engage with their business partners.

Some questions a global company should consider for its supply chain partners:

• Does your company have anti-corruption policies and procedures?
• Does your company have an anti-corruption compliance team?
• Does your company train its employees?
• Does your company have a process to drive continual improvements both internally and with key business partners?

Some questions a global company should ask of itself:

• Have we clearly communicated our expectations for anti-corruption practices to third parties?
• In our supply chain, beginning with high-risk third parties, do we need to provide training or other capacity building to help them comply?

Answers to these questions are a starting point for building a robust system to prevent corruption. It is a process that involves ongoing assessment, improvement, transparency and engagement. Although there’s no silver bullet, this approach acknowledges that preventing corruption and its inherent risks requires management systems built for integrity and the involvement of all participants in global business networks.

Companies that embrace the global trend toward eliminating corruption — now encoded in the dizzying array of legal measures and international conventions — are much less likely to be broadsided by it.

Leslie Benton is vice president of the Center for Responsible Enterprise and Trade (CREATe.org), a nonprofit organization dedicated to helping companies and their suppliers and business partners reduce counterfeiting, piracy, trade secret theft and corruption. She previously worked as senior policy director with Transparency International-USA, responsible for its government relations and regulatory policy agenda.

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