Recent reports indicate that corrupt businesses cost billions of euros, while at the same time harming trade, development and consumers
New York / Berlin, 23 September 2009 - The widespread scale of bribery-based corruption, cartels that set prices at undue levels and gain an unfair influence on public policies, has cost billions of euros and obstruct the way to sustainable economic development, according to the latest report released today by Transparency International (TI).
The Global Corruption Report 2009: Corruption and the Private Sector (RGC) indicates that corruption practices are a destructive force that weakens loyal competition, strangles economic growth, and ultimately compromises the whole existence of the business. Only in the last two years companies have been forced to pay fines totaling billions of euros as a result of corruption practices. Costs extend to gaining a low morale among employees, losing customer confidence, and removing potential business partners.
"Supporting a culture of corporate integrity is essential to protecting investment, increasing commercial success and ensuring stability sought by poor and wealthy countries, all the more so at a time of overcoming a historic crisis," said Huguette Labelle, TI Chair.
The report presents data on cases of managers, majority shareholders, or other actors inside corporations who abused the power they were entrusted with for personal gains to the detriment of employers, employees or society as a whole. Only in developing or transition countries, the data presented by the RGC estimates that the value of bribes, understandings and plotting between corporations and corrupt politicians or government officials amounts to a total of $ 40 billion annually.
The research in the report also shows that half of the international business executives questioned estimate an increase in corruption costs of at least 10 percent. Finally, it is the citizens who pay: consumers around the world have experienced an increase in costs of about US $ 300 billion as a result of 300 private international cartels discovered between 1990 and 2005.
Another point of interest in the report is the way in which the uncompromised economic power of companies and business sectors translates into disproportionate or excessive leverage mechanisms over the political decision maker. Failure to regulate this influence becomes the basis of a cleptocratic system and where any development path is stopped. Lobby efforts often lack transparency and tend to move beyond the system of checks and balances on which firms rely on strategic decision-making. For example, in 2008, nearly one-third of the 100 companies rated Standard & Poor's indicated that the Board of Directors
Another practice documented in the report, that of Revolving doors between the public office and the private sector, provides an easy way to understand fraudulent procurement, in which uncompetitive offers and opaque procedures lead to huge losses and services and misleading goods.
The degree and multiplicity of facets under which corruption in the private environment manifests itself is quite eclipsing the few companies that have effectively put in place systems to stop abuse of power for illicit gains. Approximately 90% of the top 200 business companies worldwide have already adopted a business ethics code, but less than half of them report monitoring compliance, according to the RGC.
Many of the countries at the end of the list of TI's Annual Perceptions of Corruption Index - measuring the perception of corruption in the public sector in over 170 countries - are not just the victims of corrupt and neonate governments, but also of large companies treats with great openness the possibilities to enter into corrupt agreements with these governments. The existence of these relationships, which can be described as tangled fabrics that involve much more than simple bribes, is possible because companies are convinced that these illegal practices will escape unpunished.
"To base a company or potential funds on personal relationships and unpredictable systems or simply operating from the shadows without any supervision or accountability is a way to guarantee failure," Labelle said.