Leaders | Bribery

Daft on graft

A hard line on commercial bribery is right. But the system is becoming ridiculous

IN 2008 Siemens, a German conglomerate, was fingered for handing out bribes in emerging markets. It has since spent a staggering $3 billion on fines and internal investigations to atone for its sins. Half of that has gone to advisers of one sort or another. Walmart, an American retailer, will soon have spent $800m on fees and compliance stemming from a bribery investigation in Mexico. The most complex bribery probes used to take three years. Now they last an average of seven.

In recent years lots of big economies, from Britain to Brazil, have followed America’s lead in tightening anti-bribery enforcement (see article). Offences that once drew a slap on the wrist now attract fines in the hundreds of millions of dollars as well as prison terms for palm-greasing managers. It is right that bribery should be punished. The economic effects of graft are insidious. Bribery distorts competition and diverts national resources into crooked officials’ offshore accounts. But the cost and complexity of investigations are spiralling beyond what is reasonable, fed by a ravenous “compliance industry” of lawyers and forensic accountants who have never seen a local bribery issue that did not call for an exhaustive global review; and by competing prosecutors, who increasingly run overlapping probes in different countries.

To stop a descent into investigative madness, enforcement needs to be reformed in four ways. First, regulators should rein in the excesses of the compliance industry and take into account the cost to firms of sprawling investigations. When firms admit to having uncovered bribery among their managers, regulators expect them to investigate themselves. The authorities should tell them what level of investigation they want so that companies are not overzealous out of fear of seeming evasive. This is slowly starting to happen, with officials telling firms they should not “aimlessly boil the ocean”.

Second, governments should lower costs by harmonising anti-bribery laws and improving co-ordination between national probes. The OECD, whose anti-bribery convention has gained wide acceptance, is the natural body to lead this effort.

More justice, please

Third, more cases should go to court. Too often, prosecutors strong-arm firms into agreeing to settlements based on controversial legal theories (one being peddled by American law enforcers is that hiring relatives of well-connected officials counts as bribery). Taking such matters to court would have the advantage of establishing clear precedents. When firms are loth to go to trial, because they are worried about the financial costs of a criminal charge, the terms of settlements should at least undergo more judicial scrutiny.

Lastly, anti-bribery laws should be amended to offer companies a “compliance defence”. If firms can show that they had sound anti-bribery policies, that they were making reasonable efforts to uphold them, that the wrongdoing did not involve senior managers and that they came forward to the authorities promptly, the penalties should be greatly reduced.

As corrosive as bribery is, the response must be proportionate. Investigations that drag on are a waste of management and public resources. The starting-point for up to half of all cases is a firm’s voluntary disclosure, but if costs continue to rise then firms may be more tempted to bury their bad news. Anti-corruption campaigners would have nothing to cheer if the cure ended up being more harmful than the disease.

This article appeared in the Leaders section of the print edition under the headline "Daft on graft"

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