Assessing private sector bribery risks

The near universality of bribery is captured in many stories, but my favorite is the joke made by former NY governor Al Smith, who, upon seeing a student reading a book in law library, supposedly said, “There is a young man studying how to take a bribe and call it a fee.”  The appeal of this story for  me is based largely upon my being a lawyer, but I imagine every business and profession has its own timeless tales about this ancient form of evil. However, what is relatively new under the sun is the expectation that business organizations no longer treat bribery as an inescapable facet of human nature (let alone a joke) but, rather, attempt to mitigate bribery risks using the same management skills  and sense of resolve that they would bring to other business challenges.

With respect to public-sector corruption, this has become reasonably well understood in recent years based on the strict enforcement of the Foreign Corrupt Practices Act.  The UK Anti-Bribery Act has had a somewhat similar effect for private sector bribery.   But, in allocating C&E resources to mitigating corruption risks,  it is important to recognize certain general distinctions between the two.

First, the economic impact of corruption in the former type of cases is likely to be passed on to the public itself, not borne by the victim organization in the transaction.  In other words, more than private sector corruption, the public sector species involves negative externalities, which suggests that economic incentives are less likely to lead organizations in the latter sphere to undertake strong anti-corruption self-protection measures than is true for those in the former.  And that relative degree of defenselessness, in turn, presumably translates into a higher likelihood of corruption (at least with respect to large-scale corrupt acts – the realm of gray-area gifts/entertainment and  other “soft” conflicts of interest is another matter).

Second, and again speaking as a very general matter, public sector corruption is likely to be more impactful than the  private sector kind because it frequently threatens efforts that are necessary for the well-being of society as a whole (e.g., the administration of justice, tax collection, environmental protection, product safety).  Indeed, public sector corruption can help delegitimize the very idea of governmental action, which can have harmful consequences of various kinds. Perhaps in recognition of these relatively unique harms public sector corruption seems to be treated more harshly than is the private sector variety.

On the other hand, the very fact that corruption seems to be more likely and impactful in the public sphere can be lulling with respect to private sector corruption, and mislead companies into concluding that they need to do virtually nothing in regard to the latter.  Therefore, it is important to include private sector corruption in C&E risk assessments, taking into account, among other things, the C&E standards of customers and other private sector organizations with which your company deals,   relevant geographic culture, the organizational culture of the parties in question,  the controls of such organizations and pertinent  industry culture.

Note that these sorts of risk assessments can be challenging because the sources of private sector corruption risk are less well articulated in governmental compliance standards than is true with public sector risks.  Indeed, compared to often surprisingly “well-lit” public sector corruption risks, private sector ones tend to hide in dark corners.  But that makes a strategic approach to risk assessment all the more important. In other words, while for many companies devoting the bulk of one’s anti-corruption efforts to public sector risks makes sense,  it also creates an enhanced obligation of using private sector anti-corruption resources in a thoughtfully targeted way.