Corruption: hiding in plain sight?

TRANSPARENCY International warns that just because a company has an anticorruption programme, it doesn’t mean that it isn’t corrupt —  it’s just less likely to be.

This week, the organisation released “Transparency in Corporate Reporting”, a survey analysing 124 of the world’s largest publicly traded companies with a combined value of $14-trillion (about R154-trillion) — many of which either operate in South Africa or are listed on the JSE, including SABMiller and BHP Billiton. It found that 97% state publicly that they are committed to complying with all laws, including anticorruption laws.

But only 45% actually prohibit “facilitation payments“— jargon for bribes. Although low, this is an improvement on the 20% that prohibited these payments in 2012.

Tesco ranked 16th out of 124, the beleaguered UK retailer making a strong showing in terms of anticorruption programmes and organisational transparency. The ranking contrasts sharply with claims that the retailer overstated its recent figures on trading profit. Pending legal action has added to the group’s woes and has hit Tesco’s share price hard.

Walmart also has a fairly high ranking, despite recent allegations of bribery in Mexico and South America.

Despite these anomalies, Transparency International “believes that public reporting by companies on their anticorruption programmes allows for increased monitoring by stakeholders and the public at large, thereby making companies more accountable”.

David Lewis, the head of South Africa’s Corruption Watch, agrees that formal compliance programmes do correlate with better company performance. But he says: “They are no guarantee of better performance … there has to be the will.”

South African companies need to be more active, he says. “If companies want to do something, they need to have more than a compliance programme, they need to be seen to be taking strong action when something happens,” he says.

The latest report, the second of its kind by Transparency International, assesses the disclosure practices of companies with respect to their anticorruption programmes, company holdings and the disclosure of key financial information on a country-by-country basis.

Ben Elers, a programme director at Transparency International, says that one of the reasons companies in the financial sector and extractive industries have performed relatively well in the latest survey is the introduction —  or pending introduction — of laws aimed at improving transparency.

In the US, the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, which has yet to come into force, will require country-level reporting of all payments to governments by US extractive companies. Similar legislation is expected to be enacted in the EU next year.

In the financial sector, new reporting requirements have been put in place that will require EU credit institutions and investment firms to report on profits made, taxes paid and subsidies received for each financial year at each geographic location.

The absence of similar regulatory action aimed at information technology companies may explain why Apple, Google and Amazon rank so poorly in the survey.

Elers says it is ironic that companies controlling so much of the world’s information flow are so unwilling to declare information about how their own organisations operate.

The poor overall performance of country-by-country reporting is attributed to the fact that this is a comparatively new agenda. Elers is confident that in time things will improve on this front.

One reason why it will improve is the concerted move by tax authorities across the globe to clamp down on transfer pricing, which allows companies to attribute profits to low-tax countries such as Bermuda, Ireland, Mauritius and Luxembourg. Inadequate country-by-country disclosure has enabled the practice of transfer pricing to go largely undetected.

On the local front, Lewis warns that corruption in the public sector invariably involve people operating in the private sector. The head of Corruption Watch says: “There is a growing risk of contagion within the private sector.”