The Importance of Due Diligence in Preventing Bribery

Bribery is an insidious practice that corrodes the fabric of ethical business conduct. Though many are unaware, it continues to plague industries and economies around the world. The risks of bribery have become more pronounced due to the interconnected nature of the world. Bribery is often disguised as a harmless exchange or favour. However, it permeates various sectors from corporate boardrooms to public offices. Being clandestine in nature makes it challenging to quantify. Yet, its destructive consequences are clearly visible. Bribery can occur anywhere, and it distorts fair competition and erodes the foundation of a just society.

In terms of impact, bribery poses a range of threats. It threatens corporate integrity, social cohesion and economic stability. The impact is not only financial. It extends to the compromise of trust and ethical standards underpinning healthy business environments.

Understanding bribery

Bribery means offering, giving, receiving or soliciting something of value while intending to influence the actions of a person in a position of trust or power. These exchanges, illicit as they are, usually take place behind closed doors.

There are a range of forms of bribery:

• Active bribery: When an individual offers or promises a bribe to influence someone’s actions.
• Passive bribery: This is when a person accepts or agrees to receive something to act in a certain way.
• Facilitation payments: These are small bribes that are used to expedite routine actions. For example, getting a licence or permit.
• Kickbacks: These are payments in return for a favourable business decision. They might be a percentage of the value of a contract, for instance.

Legal implications

There are, of course, national legislation and laws prohibiting bribery. In the UK, the Bribery Act 2010 is the key policy. There are also international agreements. For example, organisations like the Organisation for Economic Cooperation and Development (OECD) have established anti-bribery conventions. These encourage member countries to adopt strict measures against corruption.

Ethical implications

Besides the legal implications, there are several ethical implications too:

• Erosion of trust: Bribery undermines the trust that should exist in businesses. When business decisions are made corruptly, the trust in the system is lost.
• Unfair competition: Engaging in bribery means competition is not fair. Those willing to engage in bribery are at an unfair advantage. This compromises integrity.
• Social and economic impact: The ethical ramifications of bribery are not just about individuals or businesses. Bribery impacts the broader economic landscape and perpetuates inequality, creating an environment where further corruption is possible.

The cost of bribery

Although figures will never be exact due to the nature of bribery, it’s safe to say that this practice takes a heavy toll. It permeates through businesses and wider society, including governments. 

The consequences of bribery extend beyond the transaction itself:

Economic impact

Bribery disrupts fair competition because it provides an unfair advantage to those willing to engage in corrupt practices. This then distorts markets and hinders the growth of legitimate businesses. 

Countries that engage in, or have a reputation for, corruption will experience declines in foreign investment. In areas where bribery is prevalent, investors are hesitant to commit resources. This is due to fearing legal consequences and financial losses. Bribery also diverts resources away from essential public services like education and healthcare. Even the NHS is not immune to bribery. This diversion of funds perpetuates inequality and poverty.

Financial consequences for businesses

The financial cost of bribery comes in the form of fines and seizure of assets. Besides this, reputational damage and legal consequences for violating anti-bribery laws mean disruption to the day-to-day operations of the business. This affects profitability and productivity. Furthermore, one of the most significant costs is the damage to reputations.

Social consequences

Bribery also diverts funds from central public services. This leads to a decline in education quality, infrastructure and healthcare. In turn, this exacerbates poverty. Above all, bribery perpetuates a culture of unequal access to opportunities. It creates a society where success is not determined by hard work and talent.

Examples of bribery cases

In 2008, the global electronics company Siemens was embroiled in a severe bribery scandal that resulted in a fine of $1.6 billion. The company had been involved in paying bribes to secure worldwide contracts. This caused extensive financial and reputational damage.

In 2016, the Odebrecht scandal involved bribery and corruption in multiple countries. This Brazilian construction company settled by paying over $3.5 billion which reflected the huge financial repercussions of such a corrupt practice.

The role of due diligence

In the context of anti-bribery, due diligence is a process of investigating and assessing people and practices to mitigate the risks of bribery. Due diligence plays an important role in preventing corruption as organisations conduct investigations in line with relevant regulations and laws.

Essentially, due diligence is the process of exercising caution by investigation before entering into a business transaction or partnership. It involves collecting information, assessing risk and making a decision based on these facts.

Due diligence is a proactive measure that helps organisations to avoid bribery and its legal consequences. When businesses vet partners, customers, transactions and potential risks, they ensure compliance with anti-bribery regulations whilst also safeguarding their reputation.

What’s more, committing to due diligence fosters a culture of ethics, integrity and transparency. It sets the tone for employee behaviour at all levels of business. Due diligence also builds trust with stakeholders such as customers, investors and partners. It shows the organisation is dedicated to responsible conduct.

How due diligence works for anti-bribery

Through due diligence, organisations screen potential business partners to ensure they meet ethical standards. They assess their reputation, financial stability and past conduct. This process identifies red flags that could be indicative of bribery risks.

Due diligence also includes the evaluation of internal controls. It looks into financial reporting and audits to address vulnerabilities. 

Beyond the internal processes, an important part of due diligence is in the form of awareness campaigns and training programmes. These ensure that employees and business associates understand the risk of bribery and can contribute to its prevention.

Types of due diligence

There are different types of due diligence, including financial, legal and reputational due diligence.

• Financial due diligence focuses on examining the health and viability of a business. It involves analysing financial statements, cash flow, assets, liabilities and other indicators. The benefit of this type of due diligence is that it identifies financial risks and vulnerabilities. It also helps assess the accuracy of financial information held.
• Legal due diligence involves reviewing all of the legal aspects related to a business. This includes contracts, agreements and policies. By identifying legal liabilities, legal due diligence assesses how business operations comply with legislation.
• Reputational due diligence assesses a business’s or individual’s reputation. This is used when taking on new clients, customers or third parties. It involves investigations into their past conduct, ethical practices and risk. This helps organisations to identify potential risks that could impact their reputation.

Industry-specific considerations

Due diligence is industry-specific. This means the practices involved vary across industries due to the unique risks and challenges of each sector. It is important to tailor due diligence to specific industries as this helps identify potential risks properly.

Here are some examples of industry-specific considerations:

Technology and cybersecurity

In the technology and cybersecurity spheres, due diligence must assess the company’s susceptibility to data breaches and cyber-attacks in light of bribery concerns. These also need to be carried out in line with data protection and privacy regulations. Here, due diligence also verifies that companies adhere to industry standards.

Financial services

Financial services are perhaps the most significant area where due diligence helps in the prevention and detection of bribery. In the financial sector, due diligence focuses on compliance with financial regulations such as Know Your Customer (KYC) requirements and anti-money laundering (AML).

Pharmaceuticals

Pharmaceuticals are big business and they are also at risk of bribery efforts. In this sector, due diligence may involve verifying transactions, checking adherence to ethical standards in research and development, and evaluating intellectual properties.

Regulatory frameworks and best practices

In the United Kingdom, there is a robust framework that aims to combat bribery and corruption. Businesses in the UK must comply with these regulations alongside industry-specific guidelines. 

Here are the main legal and regulatory frameworks in the UK:

• UK Bribery Act 2010: This is a comprehensive piece of legislation that criminalises bribery and corruption. It details offences like offering and receiving bribes, failing to prevent bribery and bribing a foreign public official. The Act holds organisations liable for failing to prevent bribery. This emphasises the importance of adequate anti-bribery due diligence measures.
• Money laundering regulations: These regulations require businesses to conduct due diligence on their customers to prevent money laundering.
• Proceeds of Crime Act 2002: This legislation focuses on recovering and confiscating the proceeds of crime. This complements measures to combat corruption.

Other best practices include guidance by the Ministry of Justice to help businesses and organisations understand the requirements of the UK Bribery Act. This provides advice on how to effectively implement anti-bribery policies and due diligence. Additionally, the Financial Conduct Authority has published guidelines in the form of a handbook. This covers various aspects of financial services and includes measures to prevent corruption and bribery.

Challenges and solutions

Implementing due diligence processes poses several challenges. It requires organisations to have a strategic and proactive approach. Here are some of the challenges faced and their potential solutions.

• Lack of resources: This is a pertinent issue for small and medium-sized enterprise (SME) organisations that have limited resources. These businesses may struggle to allocate sufficient resources for due diligence processes. Here, companies should prioritise risks based on the potential impact. They should focus their due diligence on higher-risk areas.
• Global complexity: Operating a global business adds complexities due to language barriers, cultural nuances and varying legal frameworks. For businesses in these situations, it is wise to engage local experts to aid in the navigation of these challenges.
• Timeliness and efficiency: Due diligence processes are time-consuming and can cause delays in business transactions and partnerships. These processes can be aided by technology solutions, including artificial intelligence, to automate routine tasks.
• Insuring supplier and third-party compliance: Organisations often have a network of suppliers and third parties. This makes due diligence challenging as businesses need to ensure compliance through the supply chain. Companies should implement due diligence programmes that include contractual expectations regarding anti-bribery measures. These should be reviewed regularly and updated periodically.
• Data privacy concerns: Collecting and analysing sensitive information during due diligence procedures could raise concerns regarding data privacy. To mitigate these risks, companies should establish robust data protection measures, including secure storage, common encryption and compliance with data privacy laws. Consent should be sought from those whose data is being collected and information should be anonymised wherever possible.

The ethical imperative: Final thoughts

Organisations should not consider due diligence to simply be a matter of legal compliance. Companies that make due diligence a part of the ethics foster a culture of proper business conduct. Due diligence ensures that businesses uphold fairness and equity. 

Businesses are integral to society and their actions have an impact on the wider community. When they engage in bribery, it undermines the principles of fairness. This creates a society where success is determined by corrupt practices instead of merit. A fundamental aspect of corporate responsibility is, therefore, upholding fairness. Businesses have an ethical obligation to contribute to society positively by promoting equal opportunity, fair competition and meritocracy.

Besides fairness, successful businesses are built on a foundation of trust. When businesses, or individuals within businesses, engage in bribery they erode this trust. Businesses have a corporate responsibility to maintain transparent and ethical practices. This builds and sustains stakeholder trust as it actively prevents bribery and corruption.

Ultimately, businesses are influential entities. By engaging in ethical practices, including due diligence, they encourage others to follow suit. Leading by example is a core aspect of corporate responsibility. Businesses prioritising ethical conduct inspire industry-wide change. This fosters a culture where integrity is a shared ethical commitment and not just a legal requirement.