NEW REPORT SHOWS CORRUPT BUSINESS COSTS BILLIONS, HURTS COMMERCE, DEVELOPMENT AND CONSUMERS

/transparenct-armenia
23 September 2009
New York/Berlin

The massive scale of global corruption resulting from bribery,
price-fixing cartels and undue influence on public policy is costing
billions and obstructing the path towards sustainable economic growth,
according to a new report released today by Transparency International
(TI).

The Global Corruption Report 2009: Corruption and the Private
Sector (GCR) shows how corrupt practices constitute a destructive
force that undermines fair competition, stifles economic growth
and ultimately undercuts a business’s own existence. In the last
two years alone, companies have had to pay billions in fines due to
corrupt practices. The cost extends to low staff morale and a loss
of trust among customers as well as prospective business partners.

"Fostering a culture of corporate integrity is essential to protect
investment, increase commercial success and ensure the stability
sought by poor and rich countries alike, particularly as we climb
out of an historical crisis," said TI Chair Huguette Labelle.

The report documents many cases of managers, majority shareholders
and other actors inside corporations who abuse their entrusted power
for personal gain, to the detriment of owners, investors, employees
and society at large. In developing and transition countries alone,
companies colluding with corrupt politicians and government officials,
have supplied bribes estimated at up to US $40 billion annually,
according to the GCR.

Research in the report also shows that half of international business
executives polled estimated that corruption raised project costs by
at least 10 per cent. Ultimately, it is citizens who pay: consumers
around the world were overcharged approximately US $300 billion through
almost 300 private international cartels discovered from 1990 to 2005.

Another concern addressed in the report is how the sheer economic power
of some companies and business sectors translates into disproportionate
and undue leverage on political decision-making. Failure to regulate
such influence lays the foundation for kleptocratic systems and
stunted growth. Lobbying efforts often lack transparency and tend
to fall outside the system of checks and balances that firms rely on
for strategic decisions. For example, in 2008, roughly one-third of
Standard & Poor’s 100 companies required board oversight of political
spending.

Revolving doors between public office and the private sector, another
practice documented in the report, provide a smooth path to deceitful
public procurement deals where non-competitive bidding and opaque
processes lead to immense waste and unreliable services or goods.

The extent and multifaceted ways in which private sector corruption is
manifested greatly surpasses the few companies that actually employ
systems to stop this abuse of power for illicit gain. Almost 90 per
cent of the top 200 businesses worldwide have adopted business codes,
but fewer than half report that they monitor compliance, according
to the report.

Many of the countries found at the bottom of TI’s yearly Corruption
Perceptions Index – which measures perceived levels of public-sector
corruption in over 170 countries – are not only victim to unscrupulous
governments but to major firms that are more than willing to enter
into corrupt deals with these governments. These intricate webs,
involving more than simple bribes, are possible because companies
believe that they can get away with such criminal practices.

"Basing a company or fund’s future on personal relationships and
unpredictable systems or simply operating in a dark space without
oversight and accountability is a path to guaranteed failure,"
said Labelle.

Corporate integrity pays. Companies with anti-corruption programmes
and ethical guidelines are found to suffer up to 50 per cent fewer
incidents of corruption and to be less likely to lose business
opportunities than companies without such programmes. The tools for
corporate anti-corruption action are broadly and readily available
but companies must pick up the pace in applying them.

The dearth of confidence in corporate ethics highlighted by the present
economic crisis makes the need to promote anti-corruption mechanisms,
as an integral part of a company’s operations, all the more urgent.

"Winning on anti-corruption means adding to the bottom line. It
is time that corporations face up to the risk of paying millions
in fines and the long-term loss of trust from their customers and
shareholders," added Labelle. Forward thinking CEOs are already
acting forcefully against corruption and reducing risks in an effort
to secure sustainable business growth with integrity at the core of
their operations.

Corporate integrity is about more than sustainable earnings or returns
on investment. When reckless companies engage in corruption, the
consequences can be devastating. From water shortages, exploitative
work conditions or illegal logging to unsafe medicines and poorly or
illegally constructed buildings that collapse with deadly consequences,
corruption can bring about unprecedented harm. The private sector has
a crucial role to play in preventing these outcomes, by operating with
transparency and accountability wherever there is a profit to be made.