A PRICE TO PAY
Corruption has long pervaded transport operations. A 2014 Organisation for Economic Co-operation and Development (OECD) study found that the transportation and storage sector tied with the construction sector for the second-most foreign bribery cases. Of bribes involving public officials, 11% were paid to customs officials.
A combination of factors make transport operations particularly susceptible to bribery. Frequent port calls, border crossings and customs checks involve routine and sometimes one-on-one interactions with government officials who have broad discretionary authority and may demand bribes. Transportation companies are often under strict time constraints, and delays can trigger penalties, drive up operational costs and compromise future business. Distance from the public eye can create an atmosphere where bribery seems like the simplest solution to address regulatory issues or expedite government formalities.
The COVID-19 pandemic amplifies opportunities for corruption, putting transportation companies and their clients at greater risk. As some companies are forced to pause operations, trade barriers are introduced, and established supply chains break down, the logistics industry must be agile and adapt quickly. Vigilance is essential in times of crisis, and the impact of COVID-19 on supply chains makes anti-corruption measures particularly important for companies that employ asset transportation services.
TYPES OF BRIBES
Corruption in transport operations may range from a truck driver carrying perishable goods who pays off a border official to skip the queue, to a third-party agent who pays a bribe to a foreign official to help secure a long-term multimillion-dollar contract. Bribes come in many forms and are not always cash. Under the U.S. Foreign Corrupt Practices Act (FCPA) - which is known for the long arm of its extraterritorial jurisdiction - and most other transnational anti-bribery laws, a bribe is defined, in part, as “anything of value” offered to a public official.
In the transportation industry, the shipment of often valuable commodities raises the possibility that part of the cargo itself will serve as the bribe. For example, a government official might ask a truck driver carrying high-value electronics to “lose” a portion of the load to expedite customs clearance at a border crossing, passing the cost and potential liability onto his employer and possibly the client.
There is an exception for facilitation payments under the FCPA. These are typically small-value “grease payments” made to low-level government officials with the goal of expediting a service the payer is otherwise entitled to, but they are prohibited under all but a handful of anti-bribery laws. Few companies rely on the FCPA’s facilitation payments exception. Most recognize that the risk of violating local law in the country they are paid, as well as strong anecdotal evidence that paying only invites more and larger demands, is not a sound compliance strategy. Clear guidance around facilitation payments should be conveyed to all employees and third parties in the supply chain, especially to those directly interacting with government officials, such as truck drivers and ship crew. Aside from the legal, financial and reputational risks, bribery undermines commercial and government relationships, employee morale, and public trust.
Bribery also enables piracy, theft and extortion. In the Gulf of Guinea, for example, which has the highest prevalence of piracy in the world, armed groups are believed to pay off police and other officials to share port schedules or look the other way. At its worst, this can lead to armed robbery, loss of cargo, kidnapping and hostage-taking. While this activity occurs mostly out of the control of commercial transport companies, there are precautions that may help, which are outlined later in this article.
RISK CONSIDERATIONS WHEN ENTERING A NEW MARKET
A high-level risk assessment undertaken prior to entering a new market or opening a new route can identify where a company is most vulnerable to corruption, ultimately informing detection and monitoring processes:
- Geographic risk: Some countries and regions present a greater likelihood that bribes will be demanded, and the nature of the risk can vary by locale. A good starting point for a geographical risk assessment is a corruption index such as the publicly available TRACE Bribery Risk Matrix. Decisions around compliance resource allocation can be informed by an examination of underlying factors that contribute to a higher-risk environment, such as the frequency and nature of government interactions, societal attitudes toward bribery, the government’s willingness and ability to deter and prosecute corruption offenses, governmental transparency, and the role of civil society and the press. Monitoring insurgent or terrorist groups operating in the area is also useful, as they often supplement their income through “shakedowns” for protection money that can pose a threat to transport.
- Cargo-specific risk: Different assets carry varied levels of exposure to bribery risk. For example, transport personnel moving perishable goods are under pressure to deliver to their destination in a timely manner, making them an obvious target for bribe demands at border crossings. A container ship of personal protective equipment or other medical supplies—a valuable commodity in the context of COVID-19—may be an attractive candidate for in-kind bribe demands by customs officials. Considering the cargo-specific risk in concert with geographic and other risk can also point to vulnerabilities.
- Nature of government touchpoints: Anti-corruption efforts cannot be a one-size-fits-all response. Adapting controls and monitoring to different types of government touchpoints can minimize bribery risk. Consider routes to market, sales channels, border crossings, customs checks, licenses and permits to operate, tax-related interactions, and which contractors and subcontractors are conducting interactions on behalf of your company. Assessing which functions might require more scrutiny can help with efficient allocation of available compliance resources. Keep in mind that risks may be situational in nature: For example, China recently introduced extensive new customs regulations around personal protective equipment exports.
MINIMIZING BRIBERY RISK
Bribery risk in transportation supply chains is variable, especially in the context of the COVID-19 pandemic, and anti-bribery compliance programs must follow suit. It is important to keep in mind that bribery can occur at any stage in a supply chain, and companies can be held responsible for violations by third-party service providers and intermediaries, and even subcontractors of those. Compliance programs must extend to all business partners to effectively minimize risk exposure. Companies should take precautions and adjust anti-corruption measures to the risks, but the following measures serve as a good foundation for a compliance program.
Third party due diligence
Even in high-pressure crisis situations, vetting third parties - agents, consultants, distributors, customs brokers, freight forwarders - is critical. New business partners should be thoroughly vetted, including any subcontractors they employ. Additional precautions should be put in place for higher-risk relationships, including continued monitoring and spot audits.
When it is necessary to engage partners quickly, looking for pre-vetted third parties - including TRACE Certified entities that have undergone reputational checks, been screened against sanctions lists and completed required anti-bribery training - can help speed up the onboarding process.
When doing business in foreign markets, it is prudent to engage with local law firms to ensure a full understanding of local anti-corruption laws and other applicable regulations. Understanding the local legal environment can make it more difficult for government officials to find pretexts to extract bribes. But make sure to engage only with reputable firms, rather than lawyers offering to serve as local “fixers.”
Because the number of interactions with government officials positively correlates with the risk of encountering bribe demands, companies should take advantage of e-government services wherever possible. Using publicly available platforms such as the TRACE e-Gov Portal, a comprehensive database of links to country-level e-government services and resources in more than 100 jurisdictions, can reduce employees’ and third parties’ exposure to arbitrary demands by public officials.
Training and company culture
On-the-ground decisions in response to bribe demands must be made quickly, and often in different time zones, making training and awareness of company policies critical for all employees and third parties in the field. Scenario-based training is ideal. An employee who has had the chance to work through a specific situation in training is more likely to respond appropriately. Online multilingual anti-bribery training makes it easy to get new employees and third parties up to speed quickly. While annual training should be standard, regular refresher courses can help to keep anti-bribery policies and best practices top-of-mind between training cycles.
A consistent culture of compliance can also help to mitigate the risk of violations, and maintaining a steady message of zero tolerance is especially important during times of crisis. The anti-bribery policy and code of conduct should be well understood throughout the organization and among third parties. Senior management should continue to emphasize the importance of compliance through frequent communication and unwavering commitment.
Approval and recording processes
Anti-corruption laws often expressly require companies to keep accurate books and records, and there should be adequate approval and record-keeping procedures in place throughout the supply chain. Consider which areas might carry heightened risk and require more monitoring, how financial flows can be better accounted for, and where additional checks and balances might be beneficial.
Reporting and helpline procedures
Adequate channels for asking questions and reporting concerns, bribe demands, and compliance violations are critical to sound operations. All employees and third parties throughout the supply chain should be aware of reporting mechanisms, including helplines, hotlines and other channels of communication, and there should be express protections for whistleblowers.
COMPLIANCE IN TIMES OF CRISIS
As the transport industry adjusts to the pressures of the COVID-19 pandemic, companies are wise to maintain vigilance and continue to prioritize anti-bribery compliance measures. The sudden need for greater flexibility, expedited new business relationships and quickly shifting supply chains may present additional risks, but adequate compliance measures undertaken now can prevent legal, financial and reputational damage later.
There is little reason to believe that anti-corruption enforcement authorities will be more lenient in light of the crisis. Some business operations are likely to be more closely scrutinized, given that many ongoing operations are benefiting directly or indirectly from a significant increase in government spending. Banking on enforcement authorities being too distracted to prosecute foreign bribery cases may prove to be a reckless business plan. Conducting high-level risk assessments before entering new markets or opening new routes, thoroughly vetting new business partners, promoting compliance throughout the organization, and installing additional precautions where necessary protects companies, individuals and communities.
Corruption contributes to lost cargo, lost revenue and lost trust. Given the increased and urgent demand for certain products like medical supplies, along with disrupted supply chains and the potential for closer scrutiny, adequate anti-bribery compliance measures are a critical part of any effective COVID-19 crisis response playbook.
TRACE is a globally recognized anti-bribery business association and leading provider of shared-cost third party risk management solutions. Members and clients include over 500 multinational companies headquartered worldwide. TRACE is headquartered in the United States and registered in Canada, with a presence on five continents. For more information, visit www.TRACEinternational.org.