Identifying Bribery Risk in Emerging Markets

Identifying Bribery Risk in Emerging Markets

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December 01, 2015

Companies are increasingly turning to emerging markets for new growth opportunities as developed markets become saturated. When we hear the term emerging markets, we typically think of the BRIC countries – Brazil, Russia, India, and China – but other countries such as South Korea, Mexico, Indonesia, Turkey, Saudi Arabia, and Iran may also qualify. The economies in these countries are growing, but are not yet as large, liquid, or accessible as those in more mature markets.

Although emerging markets present the potential of high reward, it comes with a high risk of corruption. Emerging markets may be particularly risky due to a variety of factors: high levels of government interaction for companies wishing to do business there (e.g., licenses); lack of government transparency; poor civil rights records; or failure to enforce anti-bribery laws. For example, Brazil presents a higher risk of corruption because of a high level of government interaction, while China has a higher risk due to considerations such as poor government transparency and restricted freedom of the press.

This means a company planning to do business in an emerging market should do its homework before beginning operations in order to identify and then mitigate areas of risk. The company should strive to understand not only the legal framework, but also the culture of the country. A country's laws can contribute to an increased risk of bribery, for example, by requiring use of a local agent to bid on projects, but language and cultural differences can also present barriers. Policies and training should be translated into the local language so that local employees and third parties are able to understand the content. In addition, these materials may also need to be localized. For example, the commonly used due diligence term “red flag” won’t resonate in China, where it has a totally different connotation. It is also important to know whether the company’s policies banning certain actions are contrary to engrained local customs so that appropriate compliance measures can be directed at those touch points. Once a company has identified the bribery risk in a particular emerging market, it will be able to take actions tailored to mitigate that risk.

For more on this topic, please see the following resources:

India: Draft Bill on Prevention of Bribery
Is it Time to Get Serious about the Iranian Market?
Corporate Ties to Political Parties: Implication of the Clean Companies Act

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