Preventing Bribery and Managing Corruption Risks in the GCC Construction Industry

Transcription

1 Preventing Bribery and Managing Corruption Risks in the GCC Construction Industry

2 EXECUTIVE SUMMARY In November 2017, Thomson Reuters Projects hosted a panel discussion on risk and compliance in the regional construction industry. The event, which was part of the company s participation at Dubai s The Big 5 international trade show, brought together sector experts and covered bribery, corruption, fraud, risk and compliance with a particular focus on companies operating in the six-nation Gulf Cooperation Council (GCC). Guest speakers included Dyfan Owen, Partner at Ashurst, Nabil Al Ouf, Senior Consultant at Virginia Institute of Finance, and David Shepherd, Thomson Reuters Market Development Lead for Risk. The global construction industry is forecast to nearly double in value to $15.5 trillion in To safeguard against increased risk of bribery and corruption arising from this growth, effective risk compliance is vital. Companies in the Gulf should conduct internal audits as per global risk compliance standards to shield themselves from malpractice. Listed companies in particular those with international shareholders will come under more scrutiny and are more likely to be prosecuted if found guilty of involvement in bribery and/ or corruption. Adopting international best practices will also help businesses improve access to project finance, especially for family-owned firms. This paper covers the issues discussed in the session. INTRODUCTION There is a growing regional realisation that bribery and corruption are not victimless crimes, with anti-corruption laws now in force in Saudi Arabia, the United Arab Emirates (UAE), Kuwait, Bahrain and Oman. The six GCC countries have ratified and acceded to the United Nations Convention against Corruption, and are also signatories to the Arab Convention against Corruption. In the UAE, measures include setting up enforcement agencies and imposing heavy fines. Furthermore, GCC conglomerates are changing their internal practices, with this process likely to continue for five to ten years. PAGE I 1

3 UK BRIBERY ACT Companies doing business in Britain and the United States must comply with laws in these jurisdictions. For example, the UK Government Bribery Act often regarded as the gold standard for risk compliance - extends to GCC companies that carry out business operations in Britain, where it is a serious offence if a company fails to prevent bribery. The only defence is to show the company has established adequate procedures to prevent persons associated with it undertaking bribery. The UK Bribery Act does not differentiate between facilitation payments and bribes. This may be a challenge for companies operating in countries where such payments are considered the norm, for example when trying to obtain visas and permits to conduct business. Conversely, the U.S. s Foreign Corrupt Practices Act (FCPA) outlines how companies can make facilitation payments without breaking the law. Therefore, it is insufficient for companies to comply with FCPA when operating under British jurisdictions. Companies found in breach of the Bribery Act may be severely punished. Penalties include criminal convictions, unlimited fines and permanent exclusion from government contracts. British authorities are also taking greater interest in prosecuting overseas corruption. BRIBERY AWARENESS In 2008, the global financial crisis roiled the GCC construction industry and high-profile cases of corruption were made public. Long-standing GCC business practices were not necessarily in compliance with today s global anti-corruption standards, yet industry leaders shied away from tackling bribery and corruption, instead preferring to deal with issues after they occurred rather than taking a proactive approach. Today, however, there is a growing awareness of bribery and corruption, Mr Owen said. Companies are changing the way they operate and family-owned businesses in particular want to understand how these issues can impact their operations in various jurisdictions. PAGE I 2

4 EDUCATING EMPLOYEES GCC companies wanting to build a zero-tolerance culture towards bribery and corruption must begin by educating staff on what these concepts are and the correct policies to counter them, delegates said. While employees are not expected to be experts, they must be able to identify risks and report them accurately. Education should be supported by robust compliance procedures so that action can be taken following reports of malpractice. Mr Al Ouf said companies find it difficult to assess their own culture from within and so need to enlist external advisors to help. Companies offering such services include the Big Four accounting firms - Deloitte, PwC, EY and KPMG. Mr Owen said many people still do not understand what constitutes a bribe, which can come in multiple forms. A bribe is ultimately anything that provides an unfair advantage to gain business and is not necessarily monetary. An example of a bribe would be JP Morgan s Sons & Daughters Programme that awarded internships to the children of leading figures in the Chinese Communist Party. The bank was fined $264 million. MANAGEMENT BACKING Strong governance should be installed from the top, with a company s board of directors and senior management communicating an uncompromising message to staff and third-parties that bribery and corruption will not be tolerated. Mr Owen said third-parties must be informed of the company s best practices. For example, literature on how to tackle bribery and corruption should be disseminated to all stakeholders in the company and all parties should be encouraged to report abuses. Management must also constantly review third-party contracts and make any amends necessary to ensure continued efficacy. Delegates noted that regional listed companies in which governments or investors had a stake were more proactive in implementing risk management policies and procedures in different jurisdictions. Yet corruption is more likely to occur when dealing with government entities. According to a KPMG report, 55 percent of fraud and corruption cases were linked to senior management. While most countries have laws against fraud and corruption, these mean little unless applied. Delegates noted that in countries where enforcement was not prevalent, malpractice remains widespread and is sometimes considered the norm. Delegates urged staff, who may be better informed than their superiors, to convince management of the best practices available, especially if their companies operate in risky jurisdictions. Mr Al Ouf stressed top management will usually listen and take the correct action. Participants expressed concern that implementing risk compliance and whistle-blower procedures would increase internal bureaucracy and disrupt business. Mr Owen said this should not be the case, and helping companies identify risks will ultimately give them a competitive advantage in jurisdictions such as Britain. Companies implementing these procedures often enjoy preferential consideration during tendering processes as well as easier access to finance. Having these measures in place can protect a company s reputation. Delegates said this should be highlighted to board members and decision makers. PAGE I 3

5 REVIEW PROCESS Mr Al Ouf stressed that while the internal audit department should be independent of the CEO, it should not be seen as a threat but as an important team working protect the company. The department should also be free to report to other stakeholders. Ultimately, the internal audit department should not be reprimanded by senior management if it investigates them. Delegates drew on the example of a well-known family-owned UAE energy business that wanted to acquire another company. It needed finance for the transaction and lenders demanded to see its risk policies and compliance procedures. This requirement resulted in the company becoming more proactive in this field because it wanted to make further acquisitions. Delegates also noted rising interest in risk compliance policies related to other threats such as cybercrime, with third parties now also demanding information on a company s security policies. FRAUD SCENARIOS Delegates said it was important for a company to internally detail the different fraud scenarios that could arise in different departments, with procedures then established to address these risks. Mr Al Ouf said he did just that during his time at Dubai s Dragon Oil, with potential offences ranging from the intentional withholding of important information to the provision of false statements for material gain. Mr Al Ouf said that with the correct policies, procedures and awareness, organisations did not need to set up the jail room for people who committed these acts. Instead, companies should focus on resolving such problems before they became major issues. He said when staff were made aware of the company s zero tolerance policy towards bribes and corruption they were usually unlikely to engage in risky activities. PAGE I 4

6 WHISTLE-BLOWERS Whistle-blowing has garnered a lot of interest from GCC companies. High-profile global cases such as Olympus, whose ex-ceo Michael Woodford blew the whistle on one of Japan s biggest corporate frauds, highlight how wrongdoing can emanate from the top tiers of a company. Effective whistle-blowing structures enable staff to report malpractice and show organisations are committed to tackling bribery and corruption. Employees should be able to first speak up internally, rather than going straight to enforcement agencies. Furthermore, whistle-blowers should feel comfortable reporting an issue without fear of punishment. In the U.S., organisations reward whistle-blowers financially. In the GCC, whistle-blowing is an emotive subject and organisations are concerned it could lead to troublemaking and be counterproductive. Companies must substantiate whistle-blowers concerns, with investigations ended quickly if there is no evidence of wrongdoing. Mr Al Ouf said his former firm, Dragon Oil, set up a hotline for whistle-blowers, which was run by an independent British company. The whistle-blower could call to register a complaint, choosing whether to remain anonymous. Once a report was filed it was ed to the internal audit department who would investigate. Having a hotline serves as a deterrent and will reinforce the message that bribery and corruption are taken seriously, providing senior management act on any information received. Whistle-blowers should feel protected, whether they remain anonymous or not. THIRD PARTY RISK Mr Owen said bribery and fraud frequently occurs through third parties and often it is potential suppliers which offer bribes to company employees to secure prequalification. Companies must make it clear this will not be tolerated and third parties should sign pledges that they will adhere to the company s anti-bribery code. Due diligence checks should be made. Participants said many regional businesses felt under pressure to pay bribes, especially if asked for by an individual in a position of power. For example, a project manager could ask a supplier for a bribe to work on each of his projects. Mr Owen said one strategy to stop third-party corruption is to refuse to do business with those that do not adhere to the required practices. He gave an example of a client whose company helicopter was grounded at an airport. The company was told to pay a bribe to release the helicopter, but the chief executive refused and gave up the helicopter. Mr Owen said this action sent a strong message to third parties that the company would not pay bribes. Mr Al Ouf recalled when his team was tipped off by a supplier that a company employee was asking for a bribe. The supplier produced recordings of the employee asking for two mobile phones. The case was investigated and action was taken against the employee. The investigation also revealed the supplier had violated company procedures, so the company refused to do business with that supplier again. PAGE I 5

7 CONCLUSION Delegates said the discussion boosted their awareness of how regional organisations can better conduct business activities to avoid falling foul of the law. It was agreed that companies must first work to educate staff on bribery and corruption, and top management must play a proactive role to create the correct corporate culture. Furthermore, internal audit departments tasked with investigating bribery and corruption must be independent and report directly to shareholders or board members. Having these policies and procedures in place will greatly shield companies from malpractice, allow them to self-regulate and increase their competitiveness. AUTHOR Tahani Karrar, Founder and CEO of Menar Media FZ-LLC, is an award-winning journalist and Middle East business news expert. She started her career as an Editorial Graduate Trainee with Thomson Reuters News Agency in London, UK. Disclaimer The above is solely the opinion of the participants of the round table and does not reflect the opinions, views, policies or positions of Thomson Reuters or its affiliates. No one should treat any opinion expressed by the author as a specific inducement or advice to make a particular investment or follow a particular strategy. The above is based upon information that the participants consider reliable, but neither Thomson Reuters nor its affiliates warrant its completeness or accuracy, and it should not be relied upon as such. Responsibility for information, opinions and views expressed in this document lies entirely with the participants. About Thomson Reuters Thomson Reuters provides trusted answers as a dedicated partner serving consultancy and accounting firms, corporations and governments. Blending intelligence, technology and human expertise, we provide leading tax and accounting solutions for a fast-paced and evolving world. We work with your organization to introduce ONESOURCE VAT-approved trusted advisors and systems integrators to help make the VAT implementation process as seamless as possible Thomson Reuters. All Rights Reserved. PAGE I 6