anti-corruption practices survey 2011

8/3/2019 Anti-Corruption Practices Survey 2011

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Anti-corruption practices survey 2011

Cloudy with a chance of prosecution?

Deloitte Forensic Center


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Executive summary

As used in this document, Deloittemeans Deloitte LLP and its subsidiaries.Please see www.deloitte.com/us/about or a detailed description o thelegal structure o Deloitte LLP and itssubsidiaries. Certain services may not be

available to attest clients under the rulesand regulations o public accounting.

Companies have increased their ocus on preventingand detecting corrupt activities in their global operationsin response to the increase in prosecutions underthe U.S. Foreign Corrupt Practices Act (FCPA) and theincreased size o penalties. Yet, only 29 percent o the276 executives surveyed by the Deloitte Forensic Center(Deloitte) were very condent their companys anti-corruption program would prevent or detect corruptactivities. This low level o condence indicates thatmany companies may need to evaluate and upgradetheir anti-corruption eorts.

Having an eective anti-corruption program is moreimportant or companies today than ever beore. Thenumber o FCPA-related enorcement actions and thesize o penalties have increased dramatically over the lastseveral years, aecting companies rom all around theworld. The July 1, 2011 start o enorcement o the UKBribery Act o 2010 is leading many companies to re-evaluate their anti-corruption eorts - even companiesthat have extensive policies and procedures to complywith legislation such as the FCPA. Any entity that doesbusiness in the United Kingdom is subject to the UKBribery Act and its extraterritorial reach applying to theentitys activities worldwide. The Act covers not onlybribery o oreign government ocials but also domesticbribery o government ocials and any commercialbribery as well. Unlike the FCPA, the UK Bribery Act hasno exemption or acilitation payments.

Although relatively ew executives were very condentabout the eectiveness o their anti-corruptionprograms, almost 90 percent said their company had ananti-corruption policy. Also, at most companies thesepolicies covered a wide range o potentially corruptactivities including bribes (91 percent), gits to oreigngovernment ocials (85 percent), expenses relatedto government business/government relations (75percent), acilitating payments (74 percent), and politicalcontributions (73 percent), among others.

Since most companies have policies that seek to addressthe common orms o corrupt activities, why are soew executives very condent in the eectiveness otheir companys program? Although each company hasa unique situation, given its business procedures andoperational prole, the survey suggests several areaswhere many companies may have deciencies in theiranti-corruption programs.

Lack o stand-alone anti-corruption policiesOnly 45 percent o the companies surveyed had astand-alone anti-corruption policy while the remainingcompanies had a policy that was part o a broader codeo conduct. In Deloittes experience anti-corruption issuesmay not receive adequate attention unless they areaddressed by a policy specically ocused on corruption.


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Inrequent anti-corruption auditsAlthough roughly 80 percent o executives said theircompany conducted internal audits o its oreignoperations to identiy corrupt activity, only 32 percentsaid these audits were conducted annually or moreoten. Also, Deloitte has ound some companies relyon their standard internal audits, which may not besucient. Companies should consider conductingprocedures specically designed to identiy corruptactivity.

Lack o consistent due diligence and monitoringo third partiesThe activities o third parties were seen as the greatestsource o corruption risk, considered to be a signicantrisk by 52 percent o executives. Similarly, 43 percent oexecutives considered identiying and managing third-party relationships to be a signicant challenge, morethan or any other issue. Despite these concerns, only41 percent o executives said their company regularlyconducted due diligence on third parties in oreigncountries that interact with oreign government ocialsand just 9 percent said they conducted very detailedmonitoring o third parties to ensure they comply withthe companys anti-corruption requirements. Further,when conducting anti-corruption internal audits, only 50percent o executives said their companys audits coveredoreign sales agents and roughly 40 percent said theycovered oreign distributors and oreign consultants.

Increased corruption risk in emerging marketsGlobal companies ace a greater potential or corruptactivities as they expand into major emerging markets,such as Brazil, Russia, India, and China (BRIC countries).Fity-ve percent o executives said their company wasextremely concerned about the potential impact ontheir business o corruption in China, while 43 percentsaid the same about Russia, 39 percent about India,and 26 percent about Brazil. Further, these concernsare growing. Hal o the executives said their companywas more concerned today about corruption risk inChina than it was three years ago, while 42 percent oexecutives said their concerns had grown in India, 38percent in Russia, and 33 percent in Brazil.

Although most companies have anti-corruption policiesand programs, ew executives are very condent in theireectiveness. At many companies, more work mayneed to be done to develop stand-alone anti-corruptionpolicies, regularly conduct special anti-corruption audits,perorm due diligence on and monitor third parties, andmanage the increased corruption risk in major emergingmarkets. Companies that evaluate the strengths andweakness o their anti-corruption programs and takesteps to address their deciencies can reap substantialbenets by reducing the likelihood o being the subjecto a prosecution, avoiding the resulting cost o penaltiesand litigation, and saeguarding their reputation.


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Achieving compliance with the FCPA and similar anti-corruption legislative requirements has become anincreasing concern or companies that operate globally.Deloitte surveyed 276 executives to assess howcompanies are managing their eorts to prevent corruptpractices in their operations around the world andensure compliance with legislative requirements.

Growing ocus on corrupt activities

The FCPA makes it illegal or a U.S. citizen, a U.S.-basedor U.S.-listed company, or oreign persons acting inthe U.S., to attempt to bribe oreign ocials (includingmaking gits or charitable contributions) with the goalo gaining a business advantage. It is also illegal or acompany to use an agent or a third party to make oroer such a prohibited payment.

Prosecutions and nes under the FCPA have increaseddramatically in recent years. While in 2004 the U.S.

Department o Justice (DOJ) and Securities and ExchangeCommission (SEC) had only ve enorcement actions,that number rose to 40 actions in 2009 and 74 in 2010.The size o penalties has also increased. Eight o theten largest FCPA-related settlements occurred in 2010with penalties ranging rom US$56 million to US$800million1. The DOJ is now enorcing FCPA requirementsmore vigorously, including using sting operations suchas those traditionally used in ederal drug busts andorganized crime prosecutions.

The increased ocus on preventing corrupt activitiesis not conned to the United States. The UK BriberyAct o 2010, eective on July 1, 2011, expands thecriminality o bribery beyond acts involving governmentocials to include bribery between private entities. Italso covers bribery that takes place anywhere in theworld, including domestically. Finally, unlike the FCPA,the UK Bribery Act does not provide an exemption oracilitation payments.

The UK Bribery Act applies to all companies, includingU.S. companies, that do business in the UnitedKingdom, and many believe the U.S. DOJ will alignwith many o the guidelines and principles in the UKlegislation. Given these signicant new provisions,companies will likely need to re-evaluate their anti-corruption programs and compare them with the ocialguidance provided or the UK Bribery Act.

Importance o an eective anti-corruptionprogramAccording to the DOJ, companies implementingeective anti-corruption programs are much less likelyto incur substantial penalties levied or FCPA violations.In addition, the costs to companies o investigatingand deending FCPA allegations can be signicant.Investigation costs can oten run into the tens omillions o dollars based on the size o the matter. Theinvestigative costs are generally driven by the need to1

2010 Year-End FCPA Update,Gibson Dunn

Introduction


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review huge volumes o electronic documents, both atthe company and at third parties, as well as by the needin many cases to investigate activities over several yearsand in countries beyond the original country in question.

When a corruption case is settled, regulators mayappoint a monitor to oversee the companys complianceactivities, which have been revised to address thedeciency. The government selects the monitor, typically

a private lawyer, but the company bears the cost, whichin Deloittes experience, can easily total millions odollars or more.

I a company can demonstrate to the SEC and the DOJthat it has a robust compliance program and respondedappropriately once it d iscovered the corrupt activity,the government will sometimes simply close their lewithout bringing a case.

In addition to these direct nancial benets, companiesgain a less easily quantiable, but potentially evenmore valuable dividend. Companies with a strongprogram designed to prevent corrupt activities amongits employees and third parties may avoid the potentialdamage to their reputation and disruption to theirbusiness i such acts were to occur and becomewidely known.


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An eective anti-corruption policy provides theoundation o a companys eorts to detect and preventcorrupt activities. Almost 90 percent o the executivessaid their company had an anti-corruption policy. Yet,only 45 percent had a stand-alone policy specicallyocused on anti-corruption compliance, while theremaining 43 percent said their policy was part o abroader code o conduct. In Deloittes experience, anti-corruption issues may not receive adequate attentionwhen they are a component in a broader policy. Instead,they tend to receive more detailed treatment whenaddressed in a stand-alone policy.

Given the potential impact o FCPA violations, boardso directors have an important role in overseeing anti-corruption programs. Eighty percent o executivessaid their board o directors received updates on thestatus o their anti-corruption compliance program,and roughly two-thirds said that they received updates

annually or more oten. However, 32 percent oexecutives rom smaller companies (with less than US$1billion in annual revenues) said their board o directorsdid not receive any updates on their complianceprograms2.

Anti-corruption policies covered a broad range oactivities, with bribes (91 percent) and gits to oreigngovernment ocials (85 percent) cited most oten.(See Figure 1.) Smaller companies were almost our

times more likely (23 percent) than larger companies

2In this report, larger companies arecompanies with US$1 billion or morein annual revenues, while smaller

companies are companies with lessthan US$1 billion in annual revenues.

Anti-corruption policies

Figure 1Activities addressed in company's anti-corruption policy

Base = Executives at companies with anti-corruption policies

91%

85%

75%

74%

73%

65%

65%

63%

50%

42%

7%

Bribes

Gifts to foreigngovernment officials

Expenses for governmentbusiness/relations

Facilitating payments

Political contributions

Travel/lodging expenses for foreigngovernment officials

Due diligence on third parties

Charitable contributions/donations

Employment of governmentofficials or their relatives

Due diligence with acquisitionsor joint ventures

Others

(6 percent) to have no written policy addressing anti-corruption and the plans at larger companies tended tocover more issues than those at smaller companies:

Gits to government ocials: 93 percent at largercompanies; 72 percent at smaller companiesFacilitating payments: 79 percent at larger companies;

63 percent at smaller companiesTravel/lodging expenses or oreign government

ocials: 70 percent at larger companies; 55 percentat smaller companies.


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When determining the content o their anti-corruptionpolicies, executives said their company was most likelyto rely on a review o legal/regulatory requirements(85 percent) and risk assessments (76 percent) as veryimportant sources3. In addition, roughly two-thirds oexecutives also said that problems experienced in theirindustry and prior corruption issues at their companywere very important in determining their policies.

Facilitating paymentsAn area o concern at many companies is theappropriate policy with respect to acilitating payments,which are sometimes reerred to as grease payments orexpediting payments. Although the FCPA allows limitedacilitation payments, these are prohibited under the UK

Bribery Act. In Deloittes experience, many companiesare now eliminating these payments.

In act, almost hal o the executives said their companyprohibited acilitating payments in all cases.(See Figure 2.) For the remaining executives, 36percent said acilitating payments were allowed withpre-approval, 5 percent said they were allowed withno restrictions, and 12 percent said they took other

approaches.

Among the companies that permitted acilitatingpayments in at least some cases, 53 percent had norestrictions on the amount o these payments, while 23percent restricted the maximum amount to less thanUS$100 and 13 percent had a maximum amount oUS$100 to US$249. (See Figure 2.)

Figure 2Company policy on acilitating payments Maximum permitted amount o acilitating payments

Base = Respondents at companies that permit acilitating payments

No restrictions, 53%Under US$100, 23%

US$100 toUS$249, 13%

US$250 toUS$499, 4%

US$500+, 7%

Allowed with norestrictions, 5%

Other, 12%

Prohibited in allcases, 47%

Allowed with pre-approval, 36%

3Some percentages in this report totalmore than 100% since executives could

make multiple selections.


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Relatively ew executives were very condent in theeectiveness o their companys anti-corruptionprogram. Only 29 percent o executives said they werevery condent that their companys anti-corruptionpolicy and procedures would prevent and detect corruptactivities, while another 58 percent said they were onlysomewhat condent. (See Figure 3.)

One reason may be the many potential sources ocorruption risk. Executives were most likely to cite theuse o third parties as a source o corruption risk, with52 percent saying it presented signicant risk4.(See Figure 4.) (See Managing third-party relationships)

Roughly one-third o executives considered customsclearance and importation o goods, and entertainmentor business development expenses related togovernment business or to government relations, topresent a signicant corruption risk or their companies5.In addition, 20 percent or more o executives elt a

number o other activities posed a signicant risk

4A "third party" is any person or entitydoing work or the company or onbehal o the company such as salesagents, representatives, vendors, andconsultants.

Challenges in designing an effectiveanti-corruption program

Figure 3Confdence in eectiveness o companys anti-corruption policyand procedures

Very confident, 29%

Somewhat confident, 58%

Not confident, 13%

Figure 4Sources o corruption risk

Percent responding Signifcant Risk

52%

36%

30%

27%

24%

21%

20%

15%

15%

14%

Use of third parties

Customs clearance andimportation of goods*

Entertainment related togovernment business/relations

Bribes

Gifts to foreigngovernment officials

Expenses for travel and lodgingof foreign government officials

Facilitating payments

Charitable contributions/donations

Political contributions

Employment of governmentofficials or their relatives

* Only asked o executives in the ollowing industries: manuacturing, energy &resources, lie sciences, and retail.

5This gure is or respondents in theollowing industries typically involvedin importing and exporting goods:

manuacturing, energy & resources, liesciences, and retail.


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including bribes, gits to oreign government ocials,expenses incurred in connection with sponsored traveland lodging or oreign government ocials, andacilitating payments.

In several areas, executives at larger companies weremore likely to perceive greater risk. Given the wide-spread use o third parties to provide services, rawmaterials, or manuactured goods, 63 percent o

executives at larger companies believed the use o thirdparties posed a signicant risk, compared to 33 percento those at smaller companies. Similarly, 35 percent oexecutives rom larger companies perceived a signicantrisk rom entertainment or business developmentexpenses related to government business or togovernment relations while only 19 percent o those atsmaller companies shared that concern.

In assessing their exposure, executives were most likely

to say their companies relied extensively on internalrisk assessments (58 percent) and past experiencewith corruption issues (51 percent). Roughly one-thirdo executives said their companies relied extensivelyon industry inormation or on the ratings o theTransparency International Corruption Perceptions Index.

The many challenges companies ace as they build theiranti-corruption programs may be another reason orthe lack o condence amongst most executives. When

executives were asked about the challenges they aced,

at the top o the list were identiying and managingthird-party relationships (43 percent) and managing thecultural norms in dierent countries (40 percent).(See Figure 5.)

Figure 5Challenges or companys anti-corruption eorts

Percentage responding Signifcant Challenge

43%

40%

33%

25%

23%

22%

19%

18%

18%

18%

12%

Identifying and managingthird-party relationships

Managing cultural norms indifferent countries

Testing and monitoringfor compliance

Creating an anti-corruptionculture

Implementing effectivetraining programs

Balancing pressure to achieve results

with anti-corruption requirements

Conducting risk assessments

Securing involvement ofbusiness units

Securing adequate funding

Developing a practical and specific

anti-corruption/FCPA policy

Securing senior managementcommitment


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These two issues presented greater challenges tolarger companies than to smaller companies. Amongexecutives at larger companies, 51 percent saididentiying and managing third-party relationshipspresented a signicant challenge to their companies,compared to 30 percent o executives at smallercompanies. Managing the cultural norms in dierentcountries was cited as a signicant challenge by 45percent o executives rom larger companies but by only31 percent o those rom smaller companies.

There were several additional issues many executivesconsidered to present signicant challenges includingtesting and monitoring or compliance (33 percent),creating an anti-corruption culture (25 percent),implementing eective training programs (23 percent),and balancing the pressure to achieve results with therequirements o an eective anti-corruption program(22 percent).


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Managing third-party relationships

Figure 6Due diligence on third parties in oreign countries that sell to, orinteract with, oreign government ofcials

Regularly, 41%

Sometimes, 34%

No, 25%

Companies oten use third parties in oreign countries tohelp establish operations, secure permits and licenses,or provide a sales orce, among other activities. Corruptactivity by a third-party agent can result in a violation orthe company, even i the company does not have directinvolvement, as long as the company benets. In manycases, regulators can uncover evidence, such as e-mails,indicating that a company's employee was aware othe activity. Regulators oten take the position that the

company should reasonably have known about thealleged corrupt activity by its agent or the company wasusing willul blindness in not wanting to know. This isespecially the case in countries where it is widely knownthat potentially corrupt activities are oten accepted asnormal business practice.

Given the concern over the corruption risk posed bythe use o third parties, companies need to engagein intensive due diligence on activities that could lead

to FCPA violations beore entering into a relationshipwith a third party. Yet, only 41 percent o executivessaid their company regularly conducted due diligenceon third parties in oreign countries that sell to, orinteract with, oreign government ocials, while 34percent said they sometimes did so. (See Figure 6.) One-quarter o executives said they did not conduct suchdue diligence at all, including 38 percent o those romsmaller companies. Since the use o third parties wasrated as presenting the top source o corruption risk, the

lack o due diligence in this area by many companiesmay be another reason or the lack o condence inthe eectiveness o their companys anti-corruptionprogram.


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Figure 7Procedures used in anti-corruption due d iligence othird partiesBase = Executives at companies that conduct due diligence

68%

64%

62%

56%

49%

49%

Search of politically exposed orother watch lists

Financial background checks

Personal background checks on

company and key management

Adverse media searches

Use of external consultants

In-person or phone interviews

with third parties

Figure 8Anti-corruption provisions in companys contracts withthird parties

76%

73%

68%

64%

49%

Anti-bribery language

Compliance with company

anti-corruption/FCPA policies

Termination rights forbreach of anti-corruption

provisions

Right-to-audit clauses

Written approval required

for use of sub-agents

Among companies that did conduct due diligence othird parties, roughly two-thirds searched watch lists,perormed nancial background checks and conductedpersonal background checks. (See Figure 7.)Roughlyhal o the executives said their company also searchedor negative media coverage, employed externalconsultants, and conducted interviews as part o theirdue diligence.

Another positive trend is that most executives said theircompany included a number o provisions in contractswith third parties designed to address anti-corruptionissues including anti-bribery language, requirementso compliance with company anti-corruption policies,termination or breach o anti-corruption provisions,and right-to-audit clauses. (See Figure 8.) Such anti-corruption contractual provisions can help a companymitigate corrupt activity risk among third parties, both

by clearly indicating that such activities will not betolerated and also by providing legal recourse.


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Figure 9Monitoring o relationships with third parties to ensure compliancewith anti-corruption requirements

Very detailed, 9%

Somewhat detailed, 47%

Do not monitor, 44%

Despite these contractual provisions, only nine percento executives said that their company conductedvery detailed monitoring o third parties to ensurethey complied with the companys anti-corruptionrequirements, while 47 percent said the monitoring wassomewhat detailed. (See Figure 9.) In act, 44 percentsaid their company did not conduct any monitoring othese issues.

Conducting due diligence beore entering into arelationship with third parties and continuing to monitortheir activities can pose a monumental task or largecompanies with thousands, or even tens o thousandso third-party relationships around the world. For thesecompanies, it is likely not easible to provide the samelevel o ocus or detail on each o these third parties.Instead, it can be more eective to take a risk-basedapproach and provide more detailed due diligence andmonitoring o third parties in situations or countries

likely to pose a higher corruption risk. For their otherthird-party relationships, they may use less intensivedue diligence or monitoring in the normal course obusiness, but each year sample a portion o these lower-risk third parties to receive more intensive monitoring.


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Figure 10Groups receiving anti-corruption trainingBase = Executives at companies that provide anti-corruption training

64%

50%

44%

34%

26%

Select employees

All international employees

All domestic employees

Board of Directors

Third parties

Communicating to employees the importance opreventing and detecting corrupt activities andproviding training on the specics o the companysanti-corruption policy and procedures are key actors ineective compliance. There should also be methods inplace, such as whistleblower systems, to provide waysor employees to report their concerns over suspiciousactivities that may indicate corruption. However, amongsmaller companies, 37 percent said they were not likely

to re-evaluate anti-corruption programs in light o theDodd-Frank whistleblower provisions; 20 percent olarger companies said the same.

Seventy-three percent o executives said their companiesprovided anti-corruption training. Among those whosaid their company provided such training, 64 percentsaid they trained select employees, such as thosemost likely to be involved in or be aware o activitiessusceptible to corruption. Many executives said their

company cast a much wider net or anti-corruptiontraining. For example, hal o the executives said theircompany trained all international employees, while 44percent said it trained all domestic employees. Roughlyone-third o executives said their company also trainedmembers o its board o directors on the companysanti-corruption policy. Given the concern over corruptactivities involving third parties, it was surprising only 26percent o executives said their company trained thirdparties on anti-corruption requirements. (See Figure 10.)

Training and communication


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6Some percentages in this report totalmore than 100% since executives could

make multiple selections.

Among the executives at companies that providedtraining, roughly hal said anti-corruption training wasprovided annually, while another 24 percent said it wasprovided more oten than once a year. Companies mostoten relied on traditional in-person classes (80 percent)and computer sel-directed training (75 percent)6.Roughly two-thirds o executives said their companyused internal communications to communicate withemployees on these issues.

While training is important in helping all employeesunderstand the legal requirements and companypolicy on what constitutes corrupt activity, and itsconsequences, it is unlikely to be enough.Anti-corruption training programs should besupplemented by robust monitoring throughoutthe year and by an eective approval process ortransactions and or the use o third parties.


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Figure 11Frequency o anti-corruption audits o oreign operations

More often than annually, 13%

Annually, 19%

Every 2 to 3 years, 14%

Less often than every 3 years, 5%

Rotation basis, 28%

Do not conduct, 21%

Roughly 80 percent o executives said their companyconducted internal audits o its oreign operations toidentiy potential corrupt activity. Larger companieswere more likely to conduct internal audits to identiypotentially corrupt activities. Among executives atlarger companies, 87 percent said they conducted suchaudits, compared to 63 percent o those rom smallercompanies.

Ideally, such audits should be conducted at least oncea year, but only 19 percent o executives said theseinternal audits were conducted annually and13 percent said they were conducted more oten thanannually. (See Figure 11.)

Testing, monitoring and technology

Instead, many executives said their company onlyconducted these audits less oten than once a year (19percent) or on a rotation basis (28 percent). Companiesshould also be ready to evaluate the impact o changesin their business on their exposure to corrupt activities,e.g., i they are entering or expanding in a high-riskcountry, have recently made acquisitions or created jointventures, or entered into new relationships with vendorsor other third parties.

Another potential exposure identied in the survey isthat many companies anti-corruption audits did notcover third parties. For example, only 57 percent oexecutives said their companys audits covered jointventure partners, 50 percent said they covered oreignsales agents, and roughly 40 percent said they coveredoreign distributors and oreign consultants.

Some companies may believe they can rely on their

usual internal audits to identiy corrupt activity, butwhen individuals engage in illegal activity, such aspaying bribes, they typically attempt to hide theiractions, e.g., by using alse documents, having thirdparties keep slush unds, or dividing and hiding illegalpayments under existing categories. Given this reality,corrupt activities may oten not be detected by normalinternal controls or internal audits. Instead, companiesneed to consider employing procedures that aredesigned specically to identiy corrupt activities.


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TechnologyRoughly one-quarter o executives said their companyused sotware applications to identiy suspiciousor anomalous payments or transactions that mayindicate corrupt activity. (See Figure 12.) Such sotwareapplications can provide automated surveillance oe-mails, data, and transactions. Larger companies wereroughly twice as likely to use such sotware - one third

o executives at larger companies said they used suchsotware compared to 15 percent o those at smallercompanies. While only one-quarter o executives saidtheir company used such technology, those that didound it to be eective. Almost 80 percent o theexecutives at companies that used such sotware saidit had identied suspicious transactions that requiredurther investigation. (See Figure 12.)

Figure 12Does your company use sotware designed to identiy anomalous

payments or transactions?

Has sotware identifed anomalous or suspicious transactions that

required investigations?Base = Respondents at companies that employ sotwaredesigned to identiy anomalous transactions

No, 74%

Yes, 26%

No, 21%

Yes, 79%


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O course, an automated system can generate alsepositives, transactions that are fagged as suspicious butturn out to be innocent ater investigation. I a systemgenerates too many alse positives, it can result in highcosts to investigate them. For such tools to be both cost-eective and ecient, they need to be designed to strikea reasonable balance between generating alse positiveson the one hand and ailing to detect raudulent activityon the other.

Sel-reportingExecutives were asked whether they thought that ian executive in their industry (not specically in theirown company) uncovered a signicant violation o thecompanys anti-corruption policy, they would reportit to the SEC or the DOJ. Executives were divided onhow they thought the typical executive in their industrywould respond, with 36 percent saying it was very likelythat an executive would report such a violation, 39

percent thinking it was somewhat likely, and 25 percentsaying it was not likely. Only 27 percent saw signicantbenets in sel-reporting violations, while an additional43 percent saw some benets.

This is an area where it is prudent to seek advice romlawyers who have extensive knowledge and experiencein dealing with the relevant prosecutors oces. Theycan explain how the company and any individualsinvolved may be treated by prosecutors i wrongdoing

were sel-reported or i the wrongdoing were discovered

by prosecutors or reported by others to prosecutors.There are many actors to consider including thepotential reduction in penalties or companies thatsel-report and the potential ability to mitigate moreeectively the reputational impact and businessdisruption that may arise. The accuracy o disclosuresand o managements reports and certications relatingto internal control over nancial reporting are amongthe other potential concerns.

Given the potentially multi-million dollar awards createdby the Dodd-Frank Act or whistleblowers who reportFCPA violations and other securities raud mattersto the SEC, the likelihood o FCPA violations goingunreported may be considerably lower than beore theimplementation o these awards.


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Figure 13Concern about potential corruption in BRIC countriesPercentage responding Extremely Concerned

55%

43%

39%

26%

China

Russia

India

Brazil

As companies look to expand around the world, eitherthrough selling their products and services, establishingcompany operations, or sourcing products and servicesrom third parties, the potential or corrupt activitiesincreases sharply. Companies tend to have the greatestdegree o knowledge o third parties and cultural normsin their home country or in countries where they haveoperated or decades. In many countries, paymentsor gits that are potentially corrupt activities under the

FCPA or other statutes may be considered a normalbusiness practice, even i illegal under local laws.Managing cultural norms in d ierent countries was citedby 40 percent o executives as presenting a signicantchallenge to anti-corruption programs, the secondhighest rating item. (See Figure 5.)

As companies expand into higher-risk countries, theyneed to gain greater insight into local conditions,business norms, and third parties. However, only 57

percent o executives surveyed said their companytailored its anti-corruption/FCPA policy and proceduresby providing additional saeguards in countriesconsidered to pose a high risk. This is something morecompanies operating in emerging markets may want toconsider.

The BRIC countries play a prominent role in thebusiness strategies o many companies today, yet manyexecutives have signicant concerns about the increasedpotential or corrupt activities in these markets. Roughlyhal o the executives said their company was extremelyconcerned about potential corruption in China, while 43percent said the same about Russia, 39 percent aboutIndia, and 26 percent about Brazil. (See Figure 13.)

Corruption risk in emerging markets


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For many companies, their concerns are only increasing.Hal o the executives said their company was moreconcerned about corruption risk in China today than itwas three years ago. For the other BRIC countries, 42percent o executives said they were more concernedtoday about corruption risk in India, 38 percent weremore concerned about Russia, and 33 percent weremore concerned about Brazil.


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Profle o respondents

The Deloitte Forensic Centersurveyed 276 executives to assesshow companies are taking actionsto mitigate the risk o corruption.The survey was conducted onlinein February and March, 2011. Thesurvey was conducted or Deloitteby Bayer Consulting.

The respondents came romcompanies rom a variety oindustries, with the greatestrepresentation in manuacturing(29 percent), nancial services(14 percent), technology/telecommunications/media (12percent), and energy/resources (8percent).

Regarding size, 35 percent orespondents were rom companieswith less than US$1 billion inannual revenues and 65 percentwere rom companies with annualrevenues o US$1 billion or more.

Designing and implementing an eective program toprevent corrupt activities has become more importantto companies than ever beore. The United States andother governments have implemented tougher anti-corruption requirements and are aggressively enorcingthem. At the same time, many companies are now moreexposed than beore to potential corrupt activities asthey expand their operations into emerging markets.

While most companies have anti-corruption policies andconduct internal audits, relatively ew executives are verycondent that their current eorts are sucient. Manycompanies will need to conduct a stringent evaluationo their existing anti-corruption programs and take stepsto address their deciencies. These steps are likely toinclude developing more detailed stand-alone policiesand special anti-corruption audits, improving duediligence and monitoring o third-party relationships,and enhancing anti-corruption requirements in emerging

markets. Enhancing anti-corruption programs will notonly make it less likely that a company becomes thesubject o a prosecution, but equally important it willalso help to saeguard its hard-earned reputation.

Conclusion


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The ollowing material is available on the DeloitteForensic Center Web site www.deloitte.com/orensiccenter or rom [email protected].

Deloitte Forensic Center Book:CorporateResiliency:ManagingtheGrowingRiskofFraudand

Corruption Chapter 1 available or download

ForThoughts newsletters and videos:Fraud,BriberyandCorruption:ProtectingReputationand

Value

TenThingstoImproveYourNextInternalInvestigation:

Investigators Share Experiences

SustainabilityReporting:ManagingRisksandOpportunities

TheInsideStory:TheChangingRoleofInternalAuditinDealing

with Financial Fraud

MajorEmbezzlements:HowCantheyGetSoBig?

WhistleblowingandtheNewRacetoReport:TheImpactof

the Dodd-Frank Act and 2010s Changes to the U.S. FederalSentencing Guidelines

TechnologyFraud:TheLureofPrivateCompanies

E-discovery:MitigatingRiskThroughBetterCommunication

White-CollarCrime:PreparingforEnhancedEnforcement

TheCostofFraud:StrategiesforManagingaGrowingExpense

ComplianceandIntegrityRisk:GettingM&APricingRight

ProcurementFraudandCorruption:SourcingfromAsia

TenThingsaboutFinancialStatementFraud-Thirdedition

TheExpandedFalseClaimsAct:FERACreatesNewRisks

AvoidingFraud:ItsNotAlwaysEasyBeingGreen

ForeignCorruptPracticesAct(FCPA)DueDiligenceinM&A

TheFraudEnforcementandRecoveryActFERA

TenThingsAboutBankruptcyandFraud

ApplyingSixDegreesofSeparationtoPreventingFraud

IndiaandtheFCPA

HelpingtoPreventUniversityFraud

AvoidingFCPARiskWhileDoingBusinessinChina

TheShiftingLandscapeofHealthCareFraudandRegulatory

Compliance

SomeoftheLeadingPracticesinFCPAComplianceMonitoringHospital-PhysicianContractualArrangementsto

Comply with Changing Regulations

ManagingFraudRisk:BeingPrepared

TenThingsaboutFraudControl

Notable material in other publications:CorporateCriminalsFaceTougherPenalties,Inside Counsel,

August 2011

FollowtheMoney:WorldcomtoWhitey,CFOworld, July 2011

WhistleblowerRulesCouldSetOffaRashofInternalInvestigations, Compliance Week, June 2011

WhistleblowingAfterDodd-Frank:NewRisks,NewResponses,WSJ Proessional, May 2011

TheGovernmentWillPayYouBigBuckstoFindtheNextMadoff,Forbes.com, May 2011

MajorEmbezzlements:WhenMinorRisksBecomeStrategic

Threats, Business Crimes Bulletin, May 2011

AsBulgingClientDataHeadsfortheCloud,LawFirmsReadyfor

a Storm, and More Discovery Woes rom Web 2.0, ABA Journal,April 2011

Deloitte Forensic Center


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TheDodd-FrankActsRobustWhistleblowingIncentives,Forbes.com, April 2011

WhereTheresSmoke,TheresFraud,CFO magazine, March 2011

WillNewRegulationsDeterCorporateFraud?Financial Executive,January 2011

TheCountdowntoaWhistleblowerBountyBegins,ComplianceWeek,November9,2010

DeployingCountermeasurestotheSECsDodd-Frank

Whistleblower Awards, Business Crimes Bulletin, October 2010

TemptationtoDefraud,Internal Auditormagazine, October 2010

ShopTalk:ComplianceRisksinNewDataTechnologies,

Compliance Week, July 2010

ManyCompaniesIll-EquippedtoHandleSocialMediae-discovery,

BoardMember.com, June 2010

ManyCompaniesExpecttoFaceDifcultiesinAssessingFinancial

Statement Fraud Risks, BNA Corporate Accountability Report,May 2010

WhosAllegedlyCookingtheBooksandWhere?,BusinessCrimes Bulletin, January 2010

BeingReadyfortheWorst,Fraud Magazine,November/

December 2009MappingYourFraudRisks,Harvard Business Review, October

2009

ListentoYourWhistleblowers,Corporate Board Member, ThirdQuarter, 2009

UseHeatMapstoExposeRarebutDangerousFrauds,HBR NOW,June 2009

This survey is published as part o ForThoughts, theDeloitte Forensic Centers newsletter series, which isedited by Toby Bishop, director o the Deloitte ForensicCenter. ForThoughts highlights trends and issues inraud, corruption, and other complex businessissues. To subscribe to ForThoughts, visit www.deloitte.com/orensiccenter or send an e-mail [email protected].

Deloitte Forensic CenterThe Deloitte Forensic Center is a think tank aimed atexploring new approaches or mitigating the costs, risksand eects o raud, corruption, and other issues acingthe global business community.

The Center aims to advance the state o thinking inareas such as raud and corruption by exploring issuesrom the perspective o orensic accountants, corporateleaders, and other proessionals involved in orensic

matters.

The Deloitte Forensic Center is sponsored by DeloitteFinancial Advisory Services LLP. For more inormation,visit www.deloitte.com/orensiccenter.


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This publication contains general inormation only and is based on the experiences and research o Deloitte practitioners. Deloitte is not, by means o this publication,rendering accounting, auditing, business, nancial, investment, legal, or other proessional advice or services. This publication is not a substitute or such proessional adviceor services, nor should it be used as a basis or any decision or action that may aect your business. Beore making any decision or taking any action that may aect yourbusiness, you should consult a qualied proessional advisor.

Deloitte, its aliates, and related entities shall not be responsible or any loss sustained by any person who relies on this publication.

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anti-corruption practices survey 2011

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