Corruption risks in emerging markets turn off potential investors

A patchwork of sketchy anti-corruption rules that make it difficult for executives to assess business risk is causing a majority of international companies to delay or abandon key business initiatives in emerging economies, according to a recent survey by Dow Jones, a provider of global business news and information services.

The results of the Dow Jones state of anti-corruption compliance survey were released December 9 – the United Nations’ international anti-corruption day.

Unclear anti-corruption regulations

Out of 182 company executives surveyed globally, 51 per cent said companies delay key business plans and 14 per cent abandoned them completely due to legal questions arising from unclear anti-corruption regulations.

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Decisions like new business partnerships and entry into new or developing markets have become more difficult due to these issues. About 60 per cent of companies delayed and another 11 per cent abandoned key initiatives because they had no access to information that could help them assess the corruption risk.

Rupert de Ruig, managing director of risk and compliance at Dow Jones, said these results show the effect of anti-corruption regulations on business and economic expansion.

He suggests regulators should provide clearer guidance to comply with current laws. Companies should incorporate the best available data tools and research processes into their market and business partner risk assessment.

Competitors broke laws

Unfair business practices have led to losses for many companies, according to the survey results. Thirty-four per cent of executives said they are sure they lost business to a competitor that did not follow ethical business practices. Two-thirds of these executives said the competitor broke anti-corruption laws and one-third said the competing business was not bound by anti-corruption laws.

Around 54 per cent of the respondents said businesses should always report suspected bribery by a competitor. But not everybody thinks reporting is always the right thing to do and 40 per cent said companies should file complaints only under certain circumstances. There are some (six per cent) who think competitors should never file reports.

It is evident that companies take compliance seriously as 80 per cent of the respondents said their compliance departments regularly perform anti-corruption due diligence on senior-level employees. But these efforts are not enough because 41 per cent of the executives expressed their lack of confidence in their company’s anti-corruption due diligence process.

“It was striking that significantly more firms will check out a senior executive than will carry out due diligence on sales agents acting on their behalf,” said de Ruig. “Given the legal exposure of sales agents and other business partners, this appears to be an area of great exposure for many firms.”

Several executives said time (56 per cent) and costs (59 per cent) are the two factors that limited their due diligence process. Forty three per cent of the respondents felt constrained by the lack of access to subscription databases containing well-structured information.

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