Corruption — the world’s third largest ‘industry’
The biggest issue facing business today is how to grow in a low growth economy. This is the challenge facing the G20 leaders when they meet in Brisbane later this week.
Against that backdrop, corruption has a staggering impact on economic growth. At $3 trillion or around 5 percent of global GDP, if corruption were an industry, it would be the world’s third largest. The OECD views corruption as a major obstacle to sustainable economic, political, and social development. KPMG shares this view, with the firm a leading anti-corruption voice through the B20 Anti-Corruption Working Group (ACWG).
The AWCG is led by Michael Andrew, KPMG’s former Global Chairman. As part of the AWCG, I’ve worked with Michael and other ACWG members to help shape recommendations for the B20 on how to combat corruption – and inform the G20 on this important issue.
The ACWG recognises that there are differences in the way regulators and enforcement agencies deal with corruption. To date, much of the enforcement focus has come from the United States and, more recently, from the United Kingdom. It is also noteworthy that China has significantly stepped up its enforcement actions, and recent leadership changes in India and Indonesia have occurred on platforms that have emphasised the need to address corruption.
The ACWG also recognises that business has adopted varying approaches to eradicate corruption from their culture and supply chains. Acknowledging and incentivising business to act responsibly is important to reduce the supply of corruption. Self-reporting of corruption has the potential to make a significant impact. Businesses need to be prepared to report violations to the authorities and work with them on resolution rather than wait to be detected, and should be encouraged to do so, for example by reduced penalties. This will encourage a more productive partnership between governments and business.
The three priority recommendations of the ACWG relate to:
- Harmonising regulation and incentivising responsible business – this recognises the importance of corporate responsibility in addressing the supply side of corruption and the importance of self-reporting.
- Enforcing regulation – there are globally accepted anti-corruption frameworks, such as the OECD Anti-Bribery Convention and the UN Convention, which G20 governments should commit to enforce, as this will help create a level playing field and reduce the complexities in current regulatory approaches.
- Taking a global approach to beneficial ownership transparency – with more transparency it becomes more difficult for the recipients of bribes and other corrupt payments to hide behind legal entities and remain anonymous, which should help reduce the demand side of corruption.
Other ACWG recommendations include measures to combat corruption at the border, as this represents a significant barrier to trade, and measures to address corruption in public infrastructure projects. Current estimates indicate that corruption can add up to 25 per cent to the cost of these projects – eradicating corruption would have a significant impact.
The G20 Summit in Brisbane thus presents an ideal opportunity to progress these and other measures to deal with the pressing issues of global corruption.
Gary Gill is a Chartered Accountant, and a partner of KPMG in Australia, where he leads the firm’s Forensic practice. He has spent a thirty-year career with KPMG in Australia, Canada, the United Kingdom, and Southern Africa.