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By Stephanie Bandyk

Corruption is a destructive tax on business that hampers entrepreneurship and economic development. In the last two decades significant progress has been made in making the fight against corruption a top priority for governments and businesses worldwide.

Yet many challenges remain, including spreading best practices in anti-corruption compliance beyond large companies to smaller firms in global value chains. The launch of CIPE’s new guide on anti-corruption compliance for mid-sized companies in emerging markets, held yesterday in Washington, DC, at the OpenGov Hub, focused on ways to boost third party compliance in difficult environments.

The panelists included: Sandy S. Merber, General Electric’s Executive Counsel for International Trade Regulation and Sourcing; James Koukios, Senior Deputy Chief of the Fraud Section in the Criminal Division of the U.S. Department of Justice; and Hank Walther, FCPA Attorney at Jones Day, as well as CIPE’s own Value Chain/Anti-Corruption Program Team Lead Frank Brown and Director of Multiregional Programs Anna Nadgrodkiewicz.

As Brown noted from CIPE’s experience, small and medium-sized enterprises (SMEs) have unique, underserved needs when it comes to compliance because they lack financial resources to hire a consulting or law firm to help them create a compliance program. Smaller firms also find it harder to walk away from a corruption-tainted deal since their very existence may depend on it. “Large enterprises are able to invest $3 million in a project only to realize [there is] no way to compete with integrity and then walk away”, noted GE’s Sandy S. Merber, “in fact, that’s something GE likes to do because it shows [a clear] commitment to integrity.”

Considering that cost-benefit analysis does not always align ethics with the most competitive business strategy, the panelists addressed why firms, especially SMEs, should buy into anti-corruption compliance programs. Speaking to the challenges of working with smaller firms in emerging markets, Merber noted that past engagement in corruption can reduce a firm’s credibility when dealing with multinationals. Additionally, what often begins as a short-sighted move to advance profits via bribes quickly unravels into a downward cycle of harassment by government officials for more bribes. Such a business model is not sustainable.

Hank Walther from Jones Day emphasized that in order to stay abreast of corruption in emerging markets, corporations and their local third parties must continually apply compliance measures that are equally sophisticated to combat ever-evolving corruption techniques. Compliance infrastructure is not just an annual training or signed document but rather a daily focus on due diligence and follow-up – starting top down with a firm’s executives.

James Koukios highlighted the role of the private and public sectors in working together to “dry up corruption on the supply side” and discussed the U.S. Department of Justice’s recommendations for putting in place and applying robust anti-corruption compliance programs. CIPE’s new guidebook, as Anna Nadgrodkiewicz explained, aims to convey such recommendations and internationally recognized best principles so that businesses around the world have tools to translate anti-bribery commitments into action  Working with business associations and chambers, CIPE outlines the elements of effective compliance programs in a way that SMEs can adapt and helps put them into practice through training local businesses in countries ranging from Kenya to Ukraine.

Still, the demand-side for corruption remains. To this end, CIPE also works with government leaders, think tanks, and civil society groups to reform laws, regulations, and practices that are conducive to corruption or even create incentives for it. Changing the acceptance of bribery and corruption ultimately comes down to building a strong ethical culture within companies and societies. A culture that embodies doing things right, rather than simply striving to do the right thing, can work on both demand and supply sides to fight corruption.

Stephanie Bandyk is a Program Assistant for Global Programs at CIPE.