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Wednesday
Sep072016

John Bray: Threats and pressure still drive facilitation payments

When Control Risks meets international companies at the headquarters level, we often hear that facilitation payments really aren’t much of a problem anymore. Many take comfort from their "zero tolerance" policies.

Others -- particularly U.S. and Australian companies -- point to the facilitation payments exceptions in their countries’ extra-territorial legislation. 

Anyway, no one goes to prison for making a small bribe to speed up a routine governmental transaction. So who cares?

It turns out that American companies in South-east Asia care.

Corruption as an impediment to business is a constant theme in the new ASEAN Business Outlook Survey 2016-2017 conducted by AmCham Singapore and the U.S. Chamber of Commerce with analytical support from Control Risks.

The survey received responses from 519 AmCham member companies in all ten ASEAN countries, making it possible to draw out broad regional comparisons.

The broad tone of the survey is optimistic with 87 percent of companies saying that their level of trade and investment in the region will increase in the next five years. However, 62 percent cite the need to combat corruption as a future priority area of work to enhance regional economic cooperation.

Corruption of course takes many forms.  When asked to differentiate, a narrow majority of 50.3% stated that pressure to bribe officials for routine government services was “some hindrance” or a “serious hindrance” to their business. “Pressure to bribe public sector clients for contracts” is still a major issue, but a clear second at 42.8 percent. “Pressure to bribe private sector clients for contracts” comes third with 38.6 percent.

Not all companies bid for government contracts, and that’s part of the reason why public sector bribes fall in second place. Also, in Control Risks’ view, companies often underestimate the impact of private sector bribery.

Nevertheless, it is clear that pressure to pay bribes for routine government services is a significant obstacle. This is especially the case when -- as often happens -- demands are accompanied by an implicit threat: “If you don’t pay, your business will suffer, if only from costly delays.”

Moreover, whatever the FCPA may say, small bribes are almost always illegal under the host country’s domestic law (Thailand may be a partial exception, but subject to narrowly defined qualifications). Companies that tolerate facilitation payments send a conflicting message to their employees: “Obey the law, but not always.”

The problem of course varies by location and, here too, the AmCham survey provides helpful insights.

Cambodia emerges as the country where demands for small bribes cause the greatest pain. Perhaps surprisingly Indonesia, which is often seen as particularly notorious for petty bribery, falls near the middle. Singapore falls near the bottom of the list. Even so, the figure of 8.9 percent of respondents citing demands for small bribes as a serious hindrance is unexpectedly high: the probable explanation is that Singapore often serves as a regional headquarters, and these people are thinking of their international operations.

Sectors also matter. It is scarcely surprising that transportation and logistics comes out as the industry worst affected: these companies routinely face demands when carrying goods across borders. Oil/petrochemicals ranks high for similar reasons. At the other end of the scale, the financial sector has the advantage that it transfers money but not physical goods across borders. In this area, the international standardisation of both internal controls and external regulation has been relatively effective.

This broad overview shows that -- while the problem is universal -- the impact on individual companies will vary according to their sector and location. Other key variables include their company cultures and, of course, the nature of specific transactions. The search for solutions needs to be both determined and nuanced.

In Control Risks’ experience, this search is only just beginning. At the headquarters level, many senior executives simply don’t know what is happening at the operational level. Other companies rely heavily on intermediaries without asking how these middlemen actually deal with government officials, and how they justify their fees.

As for "zero tolerance," we support the objective but its application is often problematic. In the worst case, it simply drives payments underground, piling extra stress on to employees and leaving senior management in blissful but culpable ignorance.

At the company level, the first step must always be a careful examination of specific transactions, talking to frontline operators to find out what problems they face, and what support they need. Simple management changes are often effective. If you can reduce time pressure on employees, they are less vulnerable to demands from officials seeking illicit payment for speedy services.

More broadly, demands for small bribes are a handicap for all businesses in the worst-hit economies, not just international ones. Working through business associations, individual companies can make a positive contribution through determined, patient advocacy for reform.

___

John Bray is a Director at the Singapore office of Control Risks, the international business risk consultancy. In addition to being a risk consultant he is a policy specialist with more than 30 years’ experience in Asia, Europe and Africa. His particular areas of expertise include: anti-corruption strategies for the private sector; business and human rights; and private sector policy issues in conflict-affected areas.

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