As part of the UK government’s remodelling of the British economy, UK businesses are being encouraged to widen their export base. Given the intransigent economic problems in the Eurozone, traditionally the UK’s biggest export market, there are sound economic reasons for doing so.
George Osborne, the Chancellor of the Exchequer, has championed the role of British manufacturers and, in the 2011 annual budget speech, envisaged a Britain “borne aloft by the march of the makers”. This would mean re-focussing efforts on high-growth export markets, such as the BRIC countries of Brazil, Russia, India and China, along with what the Confederation of British Industry identified as the “Next Eleven” in its November 2011 report “Winning overseas: boosting business export performance”. Namely Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, South Korea, Turkey and Vietnam.
Yet this re-focussing of UK exports could lead to companies being exposed to increased levels of corruption. Andrew Kakabadse, a professor of international management development at Cranfield University, has claimed that in two-thirds of the world, what are euphemistically called “transactional costs”, would need to be incurred in order to obtain and do business. Professor Kakabadse estimates that approximately 80% of deals outside of Europe and the US encounter instances of corruption and bribery.
Ernest & Young’s 12th Global Fraud Survey lends some weight to these claims. The survey found that bribery and corruption was more pervasive in rapid-growth markets. For example, in Brazil, 84% of respondents reported that corruption was widespread. The findings for the Far East also gave cause for concern. In Indonesia, 60% of respondents considered the making of cash payments to secure business as acceptable, whilst in Vietnam, 36% of respondents felt it was acceptable to misstate a company’s financial performance.
Europe has also been proven to be far from corruption free. Recently, Siemens signed a £261.4 million settlement with the Greek Government, in relation to allegations that Siemens bribed public officials to obtain a number of communications and security contracts.
The Ernst & Young survey also found that the current economic climate has weakened compliance with the anti-bribery legislation that is in place. The responses revealed, after years of cost-cutting, relatively labour-intensive measures were less frequently cited as anti-bribery and anti-corruption (“ABAC”) controls in the respondents’ businesses, This perception of ABAC controls weakening because of the global economic recession is further strengthened by another Ernst & Young report, seen and reported on, by Construction News. This found that half of financial workers and executives in the UK real estate and construction industries stated that their firms were willing to cut corners on ABAC controls because of the economic climate. This was exacerbated by construction companies often bidding on large state-run infrastructure projects in high-risk economies. These are areas which are particularly susceptible to instances of what Professor Kakabadse refers to as “transactional costs”.
Given that it is an offence for British firms to offer bribes whilst operating abroad, or to bribe a foreign public official, under the UK Bribery Act 2010, these indications of ABAC controls weakening are worrying. If George Osborne’s “march of the makers” is not only to be successful but also legal, UK manufacturers and exporters will need to ensure robust ABAC controls are in place to avoid convictions under the UK Bribery Act.