Managing Anti-Corruption Violations Risk When Using Third Party Agents Essay examples

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Running head: MANAGING ANTI-CORRUPTION RISK

Managing Anti-Corruption Violations Risk When Using Third Party Agents

Introduction
Corruption can be broadly defined “as the abuse of entrusted power for private gain. It is an insidious problem affecting the lives of millions around the world.” (UN Global Compact, 2013) It is not surprising then that laws prohibiting corruption, and the enforcement of those laws, is on the rise. Increasingly, governments are holding organizations strictly liable for the actions of individuals that represent them, not just employees but indirect agents, e.g. third parties, that often act on their behalf.
The possible repercussions for an ethically intentioned multinational organization using third parties without awareness and oversight are enormous. The reputational damage, investigation and litigation fees, civil and criminal penalties can be crippling to an organization and devastating to its stock value.
The engagement of these third parties then represents a risk to the business that should be managed and mitigated. This paper focuses on strategies organizations can implement to reduce and manage these risks when engaging third parties.
Problem
The most prominent of anti-corruption laws is the U.S. Foreign Corrupt Practices Act (FCPA). This act, passed in 1977, applies criminal and civil penalties on U.S. public companies and their agents involved in securing business through improper advantage by bribing government officials. In 2010, the UK passed the Bribery Act. This act utilizes some of same verbiage as the FCPA but takes notable steps further by creating strict liability for the failure of a commercial organization to prevent bribery. (Bribery Act, 2010) In 2013, Brazil passed the Clean Companies Act. Under this act, Brazilian and multinational companies operating in Brazil are subject to severe civil and administrative sanctions for bribing domestic or foreign officials. All these regulations have international reach in that they apply to acts committed within the home nation and abroad.
Relevance
A representative third party might regularly perform many legitimate activities on behalf of an organization that could invoke anti-corruption laws. For example, many multinational companies utilize sales agents to represent them in countries or territories where they do not maintain a presence themselves. Using these agents is often beneficial because of their familiarity with local customs. However, should these agents solicit or attain business on behalf of the organization by offering anything of value in exchange, such as political donations, travel, kickbacks, facilitation payments, or gifts, the organization may find itself having to defend against anti-corruption violations.
Other types of agents such as vehicle licensing agents, visa processors, shipping agents, freight forwarders and customs brokers interact with government authorities on behalf of organizations all the time. Again, these necessary and legitimate activities can be fraught with risk for an organization if improper payments are made to expedite or facilitate processes.
In many countries where multinational companies do business, corruption is less taboo and more prevalent. First launched in 1995, Transparency International publishes a yearly corruption survey, called the Corruption Perceptions Index. This index ranks the perceived public sector corruption of 177 countries and territories. “No country has a perfect score and, and two-thirds of countries score below 50” (on a scale of 0-100 or highly corrupt to very clean). (TI, 2014, para. 1) While surveys like this can help an organization assess it’s likelihood of encountering corruption, having this information does nothing to protect the organization.
One thing is clear, multinational companies need to have mitigation strategies to prevent the occurrence of corruption, if possible, but also to protect
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