Introduction

Small and medium-sized enterprises defy precise definition; descriptions vary widely, especially as to size. Perhaps it is best to describe them for this chapter as those companies that lack institutionally separate structures and staff to develop and maintain all of the elements of a formal compliance programme.

However, for purposes of anti-corruption, national laws, international conventions and the ICC rules do not differentiate between the duties of large companies and small and medium-sized companies. Although there may be some recognition that SMEs’ programmes can be effective, though less elaborate, because of the smaller size of the company, the basic requirement remains that every company’s anti-corruption compliance programme must be designed to prevent, detect and correct problems.

This chapter seeks to point out some of the advantages SMEs have, as well as some of the difficulties they may face, in complying with anti-corruption laws and regulations. It is not intended as a roadmap for creating a comprehensive compliance programme. Rather, it is meant to demonstrate how, in a practical way, SMEs, with limited resources, can develop effective anti-corruption compliance programmes that could prevent problems having costly, disruptive and even ruinous consequences.

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There are many sources of information for anti-corruption compliance; in fact, most relevant subjects are covered by the chapters in this book. There are also web- sites, both private and governmental, books, periodicals, organizations and consultants, too many sources, one might argue, for the beleaguered SME, already feeling overburdened by the incessant flow of new regulations and requirements. (“When”, they might ask, “do we run our business?”) Unfortunately, regulators and enforcers are generally unsympathetic to such complaints, especially in the face of violations.

RELEVANT PROVISIONS OF THE ICC RULES AND THE OECD CONVENTION

Part I of ICC Rules states: “All enterprises should conform to the relevant laws and regulations of the countries in which they are established and in which they operate, and should observe both the letter and the spirit of these Rules of Conduct” (emphasis added). The OECD Convention, in Article I, makes it unlawful for “any person” to offer, promise or give pecuniary or other advantage … to a foreign public official” (emphasis added).

The challenge

How do SMEs observe national laws implementing international conventions, which prohibit domestic and foreign bribery of public officials as well as private-to-private corruption?

Corporate culture

Corporate culture is the most important variable in the success of an anti-bribery compliance programme. On the positive side, small companies have the advantage of cohesiveness compared to large companies, which have more disparate and far- flung operations.

Experts have highlighted that one of the most important elements in successful anti-corruption programmes is the tone set at the top. Many SMEs are still run by the owner or the owner’s family, and their employees are generally more likely to identify personally with the code of ethics of a smaller company and its leadership, including when these “codes” have not been formalized in a document. The CEO (“the tone at the top”) should make it clear to employees that bribery, extortion and other forms of corruption are prohibited, and they should implement effective procedures to prevent such risks.

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Resources

SMEs do not have large staffs of specialists to assign to full-blown anti-bribery programmes. However, the necessity to develop an effective scaled-down programme should ensure that the programme is more closely tailored to the SME’s specific circumstances, including identified risks, such as the use of agents. The programme should, therefore, be both relevant and efficient for smaller companies.

Procedures and processes

Unlike large companies, SMEs do not have extensive systems for complying with the whole panoply of local and international rules and regulations governing all aspects of their operations, nor do they generally have systems for communicating, training and monitoring. Because they are smaller, they can operate more informally. However, they do have the advantage of less management turnover; the staffs know whom to call, which facilitates compliance with confidential reporting requirements. An SME’s general approach should be to encourage discussion of sensitive matters, regardless of whether a formal whistleblowing process is in place. However, care needs to be taken to maintain some written records to be able to defend the SME in case of later investigations.

Virtually all SMEs have routines and controls to deal with other compliance issues, such as accounting, employment law and environmental rules. Consequently, there should already be a framework on which to build anti-corruption compliance. Because that framework is less elaborate and less bureaucratic, it should be easier to adapt for anti-corruption compliance.

Disadvantages

In spite of some advantages, there is no question that SMEs face difficulties in attempting to comply with national laws implementing international conventions. A smaller number of employees mean less flexibility in assigning responsibilities to accommodate a compliance programme’s developing demands: conducting training and performing monitoring and follow-up activities. It also means that the documentation of instructions, decisions and actions is often less elaborate than that in a larger company. Any lack of documentation, even in a simple form, represents a significant risk should there be later involvement by investigators.

In addition, many SMEs are publicly traded and listed and therefore must com- ply with applicable securities regulations and audit requirements. These activities are frequently outsourced to legal and accounting firms, so that extensive procedures and processes are not “embedded” in the SME’s infrastructure.

Moreover, because few SMEs are highly visible, they may not have had the awareness-raising experiences that their well-known larger counterparts have had that would help them avoid “getting into trouble”. Therefore, they may not have [Page113:] developed the vigilant and informed culture that would motivate them to prevent problems. Suggestions for overcoming inertia and any resistance on the part of upper management may be found in Section II of the Transparency International USA “Toolkit for SME’s”, at http://transparency-usa.org.

Finally, SMEs may be more inclined to use agents to effect sales and address administrative and logistical matters, because volume in a given country or region may not warrant the costs of basing company employees in that area. Reliance on agents presents more risks for SMEs, because agents are more difficult to train and control (see Chapter 4). Furthermore, agents are more likely to be focused on simply get- ting the next order and not on longer-term company concerns. This makes screening of agents and monitoring any facilitation payments more important and also more burdensome.

Checklist for selecting an agent

In choosing an agent, the SME should:

  • Appraise the integrity and reputation of prospective agents and their partners, in particular through contact with diplomatic representatives from their governments and others, such as ICC national committees, TI national chapters or business federations;
  • Perform a due diligence investigation on prospective agents, which can be done free of charge by internet search;
  • Include provisions in contracts whereby the agent agrees explicitly not to pay bribes;
  • Ensure that any payment made to any agent represents no more than an appropriate remuneration for legitimate services rendered by the agent and is paid directly to the bank account of the agent, not in cash;
  • Determine the customary commission for similar sales in the country where the agent is working.
  • Verify the effective presence of the agent in the country in which its services are rendered.

Meeting the challenge

SMEs can ill afford any problem in this area. While an anti-corruption enforcement action may be a temporary, albeit expensive and traumatic experience for a large enterprise, it could easily threaten the very survival of an SME. In addition, lack of an effective programme, or any misstep in this area, could cause an SME to lose its best customers by being “blacklisted”.

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SMEs must meet the challenge. Clearly, the international climate has changed. The World Bank blacklist of companies predominantly contains SMEs. The OECD monitoring of enforcement has raised awareness and is encouraging more vigorous enforcement. In the past, OECD suggested that the US government was not sufficiently raising the awareness of SMEs, notwithstanding a table of cases showing prosecution of a substantial number of them. OECD reviews can be expected to continue to make sure that enforcement authorities are aware that problems in this area are not limited to large companies. Furthermore, because of increasing globalization, an increasing number of SMEs are entering unfamiliar markets.

These companies may not have local business experience and are more likely to get into difficulties. Consequently, prosecutors may find it easier to focus on them.

Suggested actions

In view of the changing business environment for SMEs, following are some suggestions upper management should consider when confronting issues of bribery and other forms of corruption:

Look for opportunities to sensitize employees to the need for a programme to combat bribery by initiating some of the following steps:

  • Allocate time on management meeting agendas to raise and discuss the subject;
  • Determine the most likely areas of exposure, by country and by function, within the enterprise (e.g., marketing and sales);
  • Circulate news clippings about enforcement actions and relevant law changes in countries of business activity;
  • If expansion into other countries is contemplated, include a corruption survey in the country risk assessment process;
  • Circulate the Transparency International Corruption Perception Index and
  • Bribe Payers Index, highlighting relevant countries’ rankings;
  • Enlist legal, finance, human resources and risk management as natural allies, pointing out the benefits related to each;
  • Gather information from operating departments for their views on the risks and the success or failure of other programmes.

  1. Assess current compliance systems and procedures, be they financial, environmental or other. In doing so:

  • Make sure a provision on anti-bribery regulation is in the company’s international code of conduct or compliance policies;
  • Make sure the company’s accounting practices can accommodate financial requirements, such as those of the national laws implementing international conventions against foreign bribery;[Page115:]
  • Use environmental and safety monitoring and auditing to provide a template for analogous anti-bribery procedures;
  • Trace the company’s “order-to-cash” (sometimes called “order-to-remittance”) process; the staff tracking this are frequently those that can most effectively monitor compliance with an anti-corruption policy;
  • If the company is ISO certified, use some employees who are familiar with analysing and documenting procedures and who can be helpful for training.

Create policies and training materials, including the following:

  • Check materials used by enterprises of similar size and nature;
  • Draft a simple summary policy suited to the enterprise’s size and activities;
  • Prepare several Frequently Asked Questions and common “close-call” factual examples, especially concerning business gifts and entertainment;
  • Summarize enforcement actions, emphasizing the impact on companies and their management. Some of the consequences include jail sentences, fines, blacklisting and extensive (and expensive) compliance programmes imposed by the government when violations are discovered;
  • Consider translating these materials into the local languages used b by employees in different locations; this has been found to be highly effective, not only in enlisting cooperation, but in building good intra-company relationships;
  • Include information for reporting concerns internally as well as a “hot-line” so that potential problems can be caught and resolved early. External hot-line providers are cost-effective and frequently assist with printing materials and developing internal procedures.

Sketch out the outline of the programme:

  • Enlist a trusted, high-level person to act as compliance or ethics officer and publicize this appointment throughout the company;
  • Have a simple procedure to log complaints and reports of concern, including follow-up to the originator indicating resolution of the problem or the action taken;
  • Ensure that Human Resources conducts routine background (agency) checks on all applicants for employment, where legally permitted.

Implement by obtaining the governing body ’s (e.g., Board of Directors’) authorization to:

  • “Implant” monitoring and auditing of compliance onto existing financial or environmental audit procedures;[Page116:]
  • “Cascade” the policy and training materials, starting with CEO’s/President’s/Managing Director’s staff, and then conduct “train the trainers” for all managers, so the material is disseminated throughout the organization, preferably in presentations by managers to their staff in relevant functions;
  • Encourage open access to lawyers and compliance personnel to encourage reporting;
  • Rigorously enforce whistle-blower protection; news of retaliation against whistle-blowers travels fast in an SME;
  • Where feasible, use the senior staff as a compliance review committee to oversee the programme and ensure consistent discipline throughout the organization;
  • Conduct training periodically, keep sessions short and target the most sensitive functions; use inexpensive, commercially available training materials in various media.

When mergers, acquisitions and joint ventures are involved:

  • Include enquiry of commercial practices in due diligence;
  • If unacceptable practices are found, determine the difficulty of eliminating them and investigate any impact on revenue, as well as on the acquisition, merger or joint venture project itself or its pricing.

More detailed guidance on creating and tailoring an anti-corruption compliance programme can be found on major international websites such as those of the UN Global Compact, the World Bank, the OECD, as well as on ICC national committee websites such as that of the Austrian National Committee. Managers can also consult NGO websites, such as that for Transparency International (especially the French and US national chapters).

Conclusion

Size the programme realistically, to one that can be implemented and maintained. A “paper” programme (one with the right words on paper, but not communicated or enforced) can be used by prosecutors as evidence that the company knew the standard, but did not meet it when it failed to follow its own policies. A well-designed and enforced programme is an SME’s best protection against liability. Either it will prevent serious problems or, in case of a “rogue” employee or agent, will provide an effective defence for the company which has taken all reasonable precautions.

Phyllis A. Erikson, is retired Vice President, General Counsel and Secretary of J.M. Huber Corporation.

François Georges, who formerly headed Electricité de France’s (EDF) compliance, is Chairman of ICC France’s Commission on Anti-Corruption.