Q&A: Combatting the global scourge of corruption with analytics

In May this year, David Cameron convened the first Anti-Corruption Summit in London. Leaders of specific countries were invited and at the end of the summit countries signed commitments to fight corruption in their respective countries.

In the aftermath of the summit, we caught up with Sundeep Tengur, Banking Fraud Solutions & Financial Crimes Specialist at SAS, to learn how organisations can use data analytics to fight corruption.

Why is it important for businesses of any size to fight corruption?

Corruption is an insidious problem that exists in all countries around the globe and involves the use of public or private office for illegitimate gains. It is often linked to other illegal practices or financial crime such as influence peddling, bribery, fraud and money laundering. It is very important that all businesses, regardless of size or stature, contribute to the fight against corruption. The consequences of corruption reach far beyond the deed itself. Its side-effects inherently contribute to wider negative outcomes, experienced regardless of the scale of corruption; lack of confidence in institutions, accrued inequalities, social injustice and diminished democracy.

For businesses, corruption introduces additional costs that impinge on growth, performance and productivity. On a wider scale, it undermines sustained economic progress and the operation of free markets. The onus is therefore on individuals and businesses alike to deter and report corruption. In the UK, as per the Bribery Act (2000) and in addition to commercial liability for failing to prevent corruption, businesses are required to adopt a risk-based approach to mitigate their bribery and corruption risks. Businesses are key players in the fight against corruption as the financial burden on society ultimately affects consumers and businesses themselves.

Eversheds recently released research revealing stating that 80 per cent of executives have seen bribes and corruption in their firms. Why is corruption this common?

Corruption is multi-faceted. Usually derived from wider socio-political issues, corruption is wide-reaching and is generally symptomatic of restrictive environments where bureaucracy and inefficiency rule over fair opportunities, management stability and transparency in business. It is therefore not surprising to find that corrupt practices are common. Whilst there are many drivers to corruption, the increased competitive landscape due to globalisation is one key contributor. Businesses resort to setting higher targets to remain profitable and this exerts pressure on individuals to exhibit exceptional performance against heightened competition.

Also, business practices on a global scale aren’t always on a level playing field; in many countries, offering a tip (a bribe, strictly speaking) or a ‘baksheesh’ is part of the local culture for conducting business. Corruption in those cases, however, does not always manifest itself as often depicted in the movies; a suitcase full of unmarked bills, a brown-bag left at a counter or a wire transfer to the Cayman Islands. Instead, it can be far subtler and seemingly normal; a pair of tickets for a highly-sought sporting event, lavish dining in a fine restaurant or flying a business partner in first class to a meeting. Corruption is intimately linked to greed and power and does not always involve the exchange of monetary assets; it can occur through trading favours. As per the old adage, “scratch my back and I’ll scratch yours”.

Would you say that there is a culture of corruption in some companies?

Many organisations have a lot to do to curb corruption in the workplace, especially when financial benefits are involved. These organisations typically have weak controls around good governance and often fail to monitor employee behaviour. Senior management may also opt to cast a blind eye on corrupt practices as long as these benefit the organisation and contribute to larger bonuses. The perceived impunity of such illegal acts can quickly become the norm if left unchecked and sets dangerous precedents that can have severe legal and reputational repercussions.

Another factor that contributes to this culture of ‘laissez-faire’ is the lack of awareness around the risks behind bribery and corruption. Many organisations do not have clearly defined and comprehensive policies around managing corruption risks and even when they do, these are not always effectively communicated across the business. This culture of condoning or normalising corrupt practices is often cascaded down from the top. The message from the senior leadership team needs to be unequivocal: corruption should not be a justified means to achieve any business objective.

The same study showed that 59 per cent of executives didn't believe their anti-bribery and corruption policies worked effectively. How can companies design anti-bribery and corruption policies that do work?

There is often a sizeable disconnect between written policies and business practices. Executives need to adopt a strong and yet pragmatic stance to eliminate corruption within their organisations. The first step is obviously to define robust policies and ensure these are widely and repeatedly communicated across the organisations. One of the challenges in the fight against corruption is to define what’s acceptable or not. Those policies should, therefore, reflect the culture of the organisation and set the tone for what is acceptable to the business, minimising or ideally eliminating those ‘grey areas’.

The following step is to monitor activities and channels prone to corruption within the organisation, especially if the company operates in countries where corruption is common. Similar to other business operational risks such as credit risk and fraud, the risk of corruption is one that needs to be monitored and managed. Employees need to receive and acknowledge regular training to ensure that there are no gaps in upholding the anti-corruption values within the business. As part of a holistic approach to tackling the problem, preventive actions such as screening electronic communications for keywords or sentiment indicative of corrupt practices can prove to be an effective deterrent.

Furthermore, anti-corruption measures should be equally as important as other topics of compliance – it should be subject to regular internal audits, reviews and ideally be managed by a dedicated steering committee.

What advice would you give to a company when it comes to fighting corruption?

There is no magic recipe to overcome corruption. The solution lies in adopting a holistic approach to tackling the issue, consolidating the relevant data and involving all the stakeholders to ensure a consolidated effort in the fight against corruption, including industry experts and solution vendors.

One of the key reasons why many organisations struggle to combat corruption, is either because they have not yet implemented robust technology systems and processes, or because they have only implemented simple rules-based solutions that can be easily circumvented. To create a viable solution within their business operations, organisations first need to have the ability to analyse high volumes of data quickly, to intervene and to prevent the malpractices before they happen is critical. Businesses must start with enhancing their data quality as well as collating and linking different data types coming into the organisation, such as electronic communications or data from expense claims systems, in order to succeed in the fight against financial crime and corruption. The use of data analytics in this space is often understated but could yield significant value for organisations wishing to adopt a superior approach to monitoring and detection.

Furthermore, with regulatory changes on the horizon both at a local and European level, businesses are called upon to do more to improve their Customer Due Diligence (CDD) process to identify the legal persons they do business with. Some customers or business partners carry more risk than others, for example, Politically Exposed Persons (PEPs). A PEP is an individual who is or has been entrusted with a prominent function. Many PEPs hold positions that can be abused for the purpose of laundering illicit funds or other offences such as corruption or bribery. Likewise, organisations will require full disclosure around the Ultimate Beneficiary Owners (UBOs) of the companies or trusts they do business with. As the ‘Panama Papers’ will attest, these checks are important as many schemes operate behind shell companies, where the real owners are masked behind other nominees, often to hide the proceeds of crime and corruption. New industry directives put heavy emphasis on employing a risk-based approach to tackle financial crime at every level, hence the importance of a holistic approach.

Lastly but crucially, people at the head of organisations should lead by example and nurture a culture of zero-tolerance towards corruption and other forms of financial crime within their organisation, not only through policies but also enforced in the way that day-to-day business is conducted.

With accrued government scrutiny on financial crime, businesses found cutting corners will be exposed and potential fines and reputational damage may undermine their very ability to exist in the future.

Image source: Shutterstock/DenisFilm