Global Enforcement Wave Hits Private Firms Hardest

Anti-bribery and corruption enforcement efforts are picking up worldwide, with private firms more likely to be targeted, while large, state-owned enterprises are getting off easier, according to a report by Moody’s Investors Service.

“Although SOEs are particularly susceptible to corruption, private companies are more likely to be the target of enforcement efforts because governments are unlikely to take aggressive action against large, strategically important SOEs,” says Moody’s vice president Christian Plath. “The costs associated with an investigation and strengthening compliance processes will initially pressure the credit profile of these companies, but longer term, they will benefit by having stronger controls in place.”

Approximately two-thirds of disclosed foreign bribery cases around the world occur in just four sectors, Moody’s says, citing data from 1999 to 2014 from the Organization for Cooperation and Development (OECD). Sectors most vulnerable to corruption are: extractive industries (such as oil and mining); construction; transportation and storage; and information and communications.

Companies with weak internal controls, compliance and governance generally are less likely to detect and report internal malfeasance, leaving them more vulnerable to stiffer fines and penalties, according to the report.

Multilateral agencies such as the OECD, the United Nations, the G20, the World Bank and the World Economic Forum all have ongoing programs to combat international bribery and corruption. The United States has prosecuted the largest number of foreign bribery schemes in recent years, followed by Germany and South Korea.

Brazil’s new Clean Companies Act, which went into effect early last year, is a significant milestone in that country’s anti-corruption efforts, Moody’s says. “The recent corruption scandal at Petrobras had a significant negative impact on the Brazilian engineering and construction sector in general,” the report states.

China’s anti-corruption campaign will be largely positive for the state and SOEs, enhancing transparency and encouraging discipline in investment decisions, the Moody’s report states. Ultimately, all of these efforts will be only as good as their enforcement, it adds.