Corporate executives say corruption on the rise

May 16, 2008
Recent survey shows that corruption remains a big challenge for companies

Senior executives across the world say corruption is getting worse, with one in four business leaders saying their company experienced at least one incident involving corruption in the past two years.

Japan leads the pack with 72 percent executives experiencing recent incidents of bribery or other corrupt practices, while India, along with West Asia and Africa and the Far East, is also high on the fraud survey, with 48 percent of executives surveyed citing incidents.

These are some of the findings of the 10th global fraud survey, titled Corruption or Compliance-Weighing The Costs, released by audit and consulting firm Ernst and Young (E&Y) on Wednesday.

The survey is based on 1,186 telephone interviews, conducted between November 2007 and February 2008, with senior executives comprising senior financial and risk managers as well as heads of legal, compliance and internal audit teams in large organizations in 33 countries.

In the survey, 56 percent of executives say corruption remains a big challenge in day to day functioning of their organizations.

"Lack of regulation in the private sector is one of the reasons for corrupt practices in Indian companies," says Dharmesh Srivastava, partner and a human resource and employment specialist at law firm Fox Mandal Little. "The Prevention of Corruption Act is only applicable to the public sector companies. Secondly, the local chambers of commerce in India do not play a proactive role in creating awareness on good corporate practices."

The study says some 70 percent of the respondents said enforcement had become heavier in the past five years.

Probes into incidents of bribery involving foreign entities in the Organisation for Economic Co-operation and Development, or a group of the 30 countries that accept the principles of representative democracy and a free market economy countries, rose to 270 cases in 2007 from 51 cases in 2005. Individuals are increasingly being probed for corruption as well, the survey said.

The study also shows that organizations still don't know much about regulations.

Only one-third of the respondents claimed to have good knowledge about the Foreign Corrupt Practices Act (FCPA), which has become the international standard for bribery and corruption. Almost 58 percent of senior in-house counsel knew nothing about the Act.

"Companies cannot afford to ignore the obligations associated with the FCPA and other anti-bribery laws. Compliance is certainly not just a matter for SEC registrants or US nationals," said David Stulb, global leader (fraud investigation and dispute services) at E&Y in a release issued on Tuesday. "Companies and their boards that do not consider their corporate and individual vulnerability to FCPA enforcement are taking unnecessary risks."