The price of worldwide corruption is rising for those that get caught...and those that don't

Companies are paying a huge price for worldwide corruption and bribery, even if they are adopting practices to fight against it. That's because the cost of corruption takes many forms, including loss of business to less scrupulous companies, regulatory requirements, and lost opportunities in regions where corruption risks are too high.

According to a new survey from consulting firm Alix Partners, corruption risks for companies in the United States, Europe, and Asia are expanding. Anti-corruption laws and regulations are proliferating, increasing the need for compliance efforts. They are also causing some companies to avoid or delay acquisitions due to bribery risks, and they are avoiding or pulling out of some regions or countries due to those risks. Nine out of ten respondents said their industries are exposed to corruption risk, compared to 85 percent in 2015, and 28 percent cite "significant risk," compared to 22 percent last year.

Those risks take several forms.

  • 23 percent of respondents said their companies lost business during the previous 12 months as a result of situations involving illicit payments to government officials, compared with 22 percent in the 2015 survey.

  • 32 percent said they have ceased doing business with certain partners because of corruption risk, compared with 28 percent last year.

  • 36 percent said their companies pulled out of or delayed acquisitions because of potential corruption risk, compared with 26 percent last year.

  • 64 percent said they have not avoided doing business in a region based on possible corruption risk, compared with 66 percent last year.

A Few Bad Seeds

For companies that engage in bribery and corruption, the potential consequences are clear enough: multimillion dollar settlements with regulators, potential prosecution of executives, and consent decrees and monitoring plans that require massive compliance efforts for those who get caught.

The record number of enforcement actions taken by the Securities and Exchange Commission is proof that corruption, fraud, and other misconduct remain legitimate problems for many companies globally. Vigorous enforcement, which today involves the use of sophisticated technology and data analytics tools to generate cases, produced a record 807 enforcement actions and roughly $4.2 billion in sanctions in 2015, according to the survey.

Internal Audits Make a Difference

Yet enforcement concerns are just the tip of the iceberg. Not only must companies adopt expensive systems to mitigate risks, they are paying to beef up compliance efforts and conducting more internal audits of anti-bribery and anti-corruption programs. In fact, 85 percent of the corporate compliance and general counsel respondents cited internal audits as the most-effective means of reducing risk; also cited were compliance policies (85 percent), training (82 percent), and increased scrutiny of books and records or internal controls (80 percent).

Some regions stood out as particularly risky. Nearly 80 percent of respondents said the risk level in Africa was "significant," up from 59 percent who said so in 2015, and 68 percent said risks were significant in the Middle East, up from 48 percent last year. Corruption risks are also growing in Russia, with 73 percent of respondents indicating significant levels of risk there, up from 75 percent.