This article first appeared in the October issue of Boardroom magazine.
New Zealand is a star performer on Transparency International’s Corruption Perceptions Index. We have been rated first or first equal in each of the last five years and have never dropped below the top five in the history of the measure.
We are signatories to the OECD Convention against Bribery of Foreign Public Officials in International Business Transactions and to the UN Convention Against Corruption.
We have an established anti-corruption regime in the Crimes Act, which makes it an offence corruptly to accept or obtain a bribe for something done or not done in an official capacity, or to bribe judges, politicians, police officers and other public officials. These offences have extra-territorial effect - so that New Zealanders who offend overseas can be prosecuted here.
Put this all together and you might think that New Zealand’s bribery/corruption framework is in good shape.
But there’s a developing consensus that we’ve become complacent. New Zealand was recently placed in the “no enforcement” category by Transparency International in relation to the OECD anti-bribery convention because we have never laid a prosecution and have no investigations underway.
An Australasian survey conducted by Deloitte last year found that 51% of firms surveyed had overseas operations. Of these, 19% had experienced a bribery or corruption incident in the last five years. More than half of these incidents had occurred within the last 12 months.
Yet almost half (48%) of the firms operating off-shore did not have any formal policies or programmes in place to manage this risk, and only 14% had ever conducted a corruption risk assessment.
By global standards, New Zealand is not a high risk environment for bribery and corruption. However, we aspire to compete in a global marketplace and in that context the habits formed in the New Zealand market can be a blind spot.
Many of our high profile current and target trade partners, such as China, India, Russia and other developing countries, are demonstrably not corruption free environments.
An additional layer of complexity is added by the risk that your business may be subject to overlapping anti-corruption regimes. The two show stoppers in this context are the UK and the US.
The UK Bribery Act, passed in 2010, applies to all businesses operating in the UK and not just to their UK arm but to their full operation and to everything they do, anywhere in the world. It also makes it a corporate offence for a business to fail to prevent bribery by an associated person.
The US Foreign Corrupt Practices Act is limited to acts within the US but these include any electronic transfers in relation to a corrupt payment, and a lot of this traffic passes through New York clearing banks.
So, even if historically you have not regarded corruption as a priority matter for your organisation, it may be time to give it serious consideration. This is particularly so for directors of companies engaged in high risk parts of the world and in alliances or joint ventures with local partners.
Your local partners may think nothing of “facilitation” payments, which are commonly viewed in many jurisdictions as a compliance cost of doing business. This was the case with BP, which was recently investigated by the UK Serious Fraud Office in relation to the conduct of one of its contractors in Azerbaijan.
Property transactions and consenting processes are historically a fertile ground for the types of transactions that fall within the ambit of anti-corruption laws. In Russia, IKEA ran out of patience with the demands of local officials for payments to deliver required permits and announced a halt in 2011 to its plans for expansion of new stores outside the Moscow region.
There are significant advantages in planning ahead. Recent New Zealand case law on directors’ duties shows that the enforcement authorities and the Courts take a dim view of a governance structure which fails properly to identify and provide against foreseeable risk.
Planning ahead your response to a suspicious incident is advisable. Self-reporting, or a thorough and timely internal investigation, can be a mitigating or exculpatory factor in any litigation.
The Ministry of Justice in its guidance note – Saying no to bribery and corruption - has identified some of the signs to look for:
abnormally high profit margins
business arrangements which don’t seem to serve any commercial purpose
reimbursement requests for undefined or unjustified costs
unusually high commission payments, and
apparent special treatment.
Early identification of the issue is important. Some practical steps you might take include:
adopting a specific anti-corruption policy
training your staff to understand what constitutes bribery and corruption
ensuring that any agents, partners or contractors doing business with you or on your behalf have valid credentials and understand the standards of conduct you expect of them
establishing clear reporting lines for reporting of suspect activity, and
implementing a clear policy on how you will respond to - and investigate - any suspicious behaviour.
Josh Blackmore is a senior associate based in Chapman Tripp’s Wellington office. He specialises in corporate law.