ISO 37001 Standards Critical as South Asia Governments Prioritise Anti-Bribery Compliance 

By Zafar Anjum MSc, CFE, Intl. Dip. (Fin. Crime)
Group Chief Executive, CRI Group

Introduction

When addressing compliance issues, anti-bribery and anti-corruption measures must be placed near or at the top of the priority list for most organisations in the South Asia region. Laws and regulations are changing at a rapid pace, with many companies struggling to keep up with the latest compliance requirements. In fact, many South Asia governments are trying to improve on spotty records of prevention and enforcement when it comes to bribery and corruption in both their private and public sectors. Recent high-profile investigations in the South Asia region alone have demonstrated that regulators today see the problem of bribery and corruption as not just a legal issue but a societal one. That’s why implementing a standard like ISO 37001 – Anti-bribery Management Systems can be invaluable to organisations that aim to have a comprehensive approach to compliance in this area. ISO 37001 can be used by any organisation, large or small, and it specifies a series of measures to help prevent, detect and address bribery. These include adopting an anti-bribery policy, appointing a person to oversee anti-bribery compliance, training, risk assessments and due diligence on projects and business associates, implementing financial and commercial controls, and instituting reporting and investigation procedures.

Bribery: A Persistent Problem With a Shifting Enforcement Landscape

Globally, bribery and collusion appear to be decreasing slightly – but they remain steady in the South Asia (also referred to as the Asia Pacific) region.[1] Other than Singapore, a perennial high performer in combating corruption, a majority of countries in the region are on the bottom half of the Transparency International Corruption Perceptions Index (CPI) spectrum, with Indonesia and Thailand tied at No. 96, Philippines at No. 111, and Cambodia trailing at No. 161.[2] This reputation for poor performance on the global stage of anti-corruption measures has spurred government initiatives in several jurisdictions to make new headway in efforts to combat bribery and corruption. Awareness of bribery and corruption is peaking and government leaders, by and large, do not want the perception of being on the wrong side of progress on this issue: “Corruption is one of the main obstacles to sustainable economic, political and social development, for developing, emerging and developed economies alike. Overall, corruption reduces efficiency and increases inequality. Estimates show that the cost of corruption equals more than 5% of global GDP (US$ 2.6 trillion, World Economic Forum) with over US$ 1 trillion paid in bribes each year (World Bank). It is not only a question of ethics; we simply cannot afford such waste”.[3]

China has been waging a fight against corruption that has resulted in hundreds of arrests and prosecutions, including some powerful members of the Communist Party, “as part of the campaign to crack down on ‘tigers and flies’. Southeast Asia is also seeing countries boost their efforts, particularly in Vietnam, but also to varying degrees in the Philippines, Cambodia, Indonesia and others. Farther East, South Korea experienced recent high profile corruption scandals, which led to massive public protests and the swift impeachment and prosecution of its President, Park Geun-hye”.[4] It was also South Korea two years ago that passed the sweeping Improper Solicitations and Graft Prohibition Act, better known as the “Kim Young Ran Law” after the former Supreme Court justice who proposed the Act.[5]

The 1MDB Scandal as a Bellwether

This emerging landscape of stricter laws and increased prosecutions is evident in some of the recent high profile investigations in the South Asia region – perhaps best exemplified by the 1MDB case in Malaysia. Malaysia’s state-owned investment fund, 1MDB, was supposed to attract foreign investment. Instead, it “spurred criminal and regulatory investigations around the world that have cast an unflattering spotlight on financial deal-making, election spending and political patronage under former Prime Minister Najib Razak. The figures are mind-boggling: A Malaysian parliamentary committee identified at least $4.2 billion in irregular transactions related to 1MDB. In May, Najib was ousted from power in a general election as the scandal fueled a voter backlash that ended his party’s 61 years of rule. As the investigations continue, Najib faces trial on corruption charges and U.S. prosecutors have implicated at least three senior Goldman Sachs Group Inc. bankers in a multiyear criminal enterprise”.[6]

The 1MDB case has implications that spread far beyond Malaysia and the South Asia region. In the U.S., federal prosecutors announced that one of the implicated former Goldman Sachs bankers had pleaded guilty, with bribery and money laundering charges lodged against a second banker as part of the investigation. U.S. prosecutors “also brought charges against the Malaysian businessman they believe stole some of the money: Jho Low, who spent millions of dollars on gifts to celebrities like the actor Leonardo DiCaprio and the model Miranda Kerr. The money was used to buy a Picasso painting, diamond necklaces and Birkin bags as well as to pay for the Hollywood blockbuster ‘The Wolf of Wall Street.’”.[7]

Cases like the 1MDB scandal demonstrate that the “long arm of the law” is getting longer – with legislation like the Foreign Corrupt Practices Act (FPCA), UK Bribery Act 2010 and other laws on the books, countries can prosecute companies doing business overseas and even those principal actors in foreign organisations if they run afoul of anti-corruption laws. In Malaysia, the Malaysian Anti-Corruption Commission (Amendment) Act 2018 was passed in April of this year – with a provision on corporate liability. The amended act (formerly the Malaysian Anti-Corruption Commission [MACC] Act 2009) gives more power to the MACC in fighting corruption in the private sector, as it includes penalties for firms that can now be held liable if their employees commit bribery.[8]

ISO 37001:2016 for Anti-Bribery Management

The International Organization for Standardization (ISO) issued the ISO 37001 Anti-Bribery Management System standard in 2016 to help organisations worldwide increase and measure their efforts against bribery and corruption. These include adopting an anti-bribery policy, appointing a person to oversee anti-bribery compliance, training, risk assessments and due diligence on projects and business associates, implementing financial and commercial controls, and instituting reporting and investigation procedures. The ISO 37001 standard specifies requirements and provides guidance for establishing, implementing, maintaining, reviewing and improving an anti-bribery management system. The system can be stand-alone or can be integrated into an overall management system. ISO 37001 addresses the following in relation to the organisation’s activities:

• bribery in the public, private and not-for-profit sectors;
• bribery by the organization;
• bribery by the organization’s personnel acting on the organization’s behalf or for its benefit;
• bribery by the organization’s business associates acting on the organization’s behalf or for its benefit;
• bribery of the organization;
• bribery of the organization’s personnel in relation to the organization’s activities;
• bribery of the organization’s business associates in relation to the organization’s activities;
• direct and indirect bribery (e.g. a bribe offered or accepted through or by a third party).

The ISO 37001 process helps companies or government organisations reduce the risk of bribery by establishing, implementing, maintaining and enhancing internal anti-bribery and anti-corruption systems. When administered by an accredited provider of ISO training and certification, the protocol can:

• Provide needed tools to prevent bribery and mitigate related risks
• Help an organisation create new and better business partnerships with entities that recognize ISO 37001 certified status, including supply chain manufacturing, joint ventures, pending acquisitions and co-marketing alliances.
• Potentially reduce corporate insurance premiums
• Provide customers, stakeholders, employees and partners with confidence in the entity’s business operations and ethics
• Provide a competitive edge over non-certified organizations the organisation’s industry or niche
• Provide acceptable evidence to prosecutors or courts that the organization has taken reasonable steps to prevent bribery and corruption.

As the ISO documentation states, “Conformity with (ISO 37001) cannot provide assurance that no bribery has occurred or will occur in relation to the organization, as it is not possible to completely eliminate the risk of bribery. However, (the standard) can help the organization implement reasonable and proportionate measures designed to prevent, detect and respond to bribery. With this in mind, It’s important to note that ISO 37001 certification, on its own, is not a “safe harbour” from prosecution should bribery or corruption be discovered. Significantly, ISO certification is, as the latter bullet above explains, a potential mitigating piece of evidence to regulators or even prosecutors and the courts that the entity has taken meaningful steps in its efforts to prevent bribery and corruption.

Which brings us back to the question of “which organisations need ISO 37001?” When it comes to expanding global reach, the South Asia region is an undeniably attractive market. And historical rankings in the CPI and other corruption indexes might give the impression of a “Wild West” atmosphere where bribery is part of the cost of doing business – and in some jurisdictions, this is still true. Yet multinational laws and increased enforcement across the board and an increasing emphasis on compliance tell a different story – that “given the serious consequences of prosecution – including operational, reputational and financial loss and damage – companies operating in this region must remain vigilant and be committed to implementing robust anti-bribery and corruption compliance programmes. Whilst real progress has been made in some jurisdictions, a ‘culture of compliance’ is often missing in some jurisdictions and businesses. When it comes to compliance, act early and frequently. Given the reality of self-reporting and extraterritorial reach, it is simply too late to consider remedial action at the point when a serious breach is found”.[9] In this climate, “check box” standards won’t suffice. ISO 37001 requires participating organisations to fully demonstrate their implementation of internal processes, policies and controls throughout an extensive evidence-based, multi-stage audit.

Conclusion

It is critical that any organisation doing business in the South Asia region have a proper, comprehensive strategy to prevent and detect bribery and corruption, and remain in compliance with all regulations – on the local, regional, and international levels. The ISO 37001 – Anti-bribery management systems standard is an established, tried and tested program to address those issues head-on through a comprehensive program of training and certification. The training process is tailored to the organisation, while still following the developed curriculum and documented best practices. Certification requires the demonstration that processes have been implemented effectively, with follow-up evaluations. Developments the South Asia region and worldwide have demonstrated that there isn’t time to wait to implement controls and compliance procedures – the next investigation and/or prosecution may be too late. The harm caused by bribery and corruption to an entity’s reputation, investments and business can be far-reaching and long-lasting.

Sources

1. Danielle Keeton-Olsen, “Why Foreign Businesses Will Put Up With Some Corrupt Practices In Southeast Asia,” Forbes,

< https://www.forbes.com/sites/daniellekeetonolsen/2018/01/12/why-foreign-businesses-will-put-up-with-some-corrupt-practices-in-southeast-asia/#673e13902fe3> (accessed 2 Nov. 2018).

2. “Corruption Perceptions Index 2017,” Transparency International, 2018.

<https://www.transparency.org/news/feature/corruption_perceptions_index_2017 > (accessed 11 Nov. 2018).

3. OECD, The rationale for fighting corruption, 2014

<http://www.oecd.org/cleangovbiz/49693613.pdf> (accessed 2 Nov. 2018)

4. Alejandro Salas, Asia and the Pacific’s corruption scorecard: Fighting corruption needs long-term political commitment in the region, Policy Forum, 2018,

<https://www.policyforum.net/asia-and-the-pacifics-corruption-scorecard/> (accessed 2 Nov. 2018).

5. “A year on, anti-corruption law changes South Korea’s graft-prone culture,” Straits Times, 2017,

<https://www.straitstimes.com/asia/east-asia/a-year-on-anti-corruption-law-changes-south-koreas-graft-prone-culture (accessed 2 Nov. 2018).

6. Shamim Adam , Laurence Arnold , and Yudith Ho, “The Story of Malaysia’s 1MDB, the Scandal That Shook the World of Finance,” Bloomberg, 2018,

<https://www.bloomberg.com/news/articles/2018-05-24/how-malaysia-s-1mdb-scandal-shook-the-financial-world-quicktake> (accessed 3 Nov. 2018)

7. Matthew Goldstein, Alexandra Stevenson and Emily Flitter, “Goldman Sachs Ensnarled in Vast 1MDB Fraud Scandal,” The New York Times, 2018,

<https://www.nytimes.com/2018/11/01/business/goldman-sachs-malaysia-investment-fund.html> (accessed 3 Nov. 2018)

8. Bernama, “Revised MACC Act 2009 to come into force in 2018,” The Straits Times, 2018.

< https://10times.com/abac-malaysia> (accessed 11 Nov. 2018).

9. Koi, Dr. KM. “ISO 37001:2016 – Management Tool to Address Corporate Liability Provision,” ABAC Summit 2018, Kuala Lumpur, Malaysia, 25 Sept. 2018.
10. “Anti-Bribery Anti-Corruption Summit.”

< https://10times.com/abac-malaysia> (accessed 11 Nov. 2018).

11. ISO 37001:2016.

< https://www.iso.org/iso-37001-anti-bribery-management.html> (accessed 8 Nov. 2018)

12. Faustino Taderera, Risk Management in International Business: Exposure, Hedging, Due Diligence, LAP Lambert Academy, London, 2010, p. 87.
13. Maurice Burke, Wataru Kawai and David Gargaro, Global Investigations Review, 2017

<https://globalinvestigationsreview.com/benchmarking/the-asia-pacific-investigations-review-2018/1147518/anti-corruption-enforcement-in-the-asean-region> (accessed 4 Nov. 2018)

[1] Danielle Keeton-Olsen, “Why Foreign Businesses Will Put Up With Some Corrupt Practices In Southeast Asia,” Forbes,

<https://www.forbes.com/sites/daniellekeetonolsen/2018/01/12/why-foreign-businesses-will-put-up-with-some-corrupt-practices-in-southeast-asia/#673e13902fe3> (accessed 2 Nov. 2018).

[2] “Corruption Perceptions Index 2017,” Transparency International, 2018.

<https://www.transparency.org/news/feature/corruption_perceptions_index_2017 > (accessed 11 Nov. 2018)

[3] OECD, The rationale for fighting corruption. 2014

<http://www.oecd.org/cleangovbiz/49693613.pdf> (accessed 2 Nov. 2018)

[4] Alejandro Salas, Asia and the Pacific’s corruption scorecard: Fighting corruption needs long-term political commitment in the region, Policy Forum, 2018,

<https://www.policyforum.net/asia-and-the-pacifics-corruption-scorecard/> (accessed 2 Nov. 2018).

[5] “A year on, anti-corruption law changes South Korea’s graft-prone culture,” Straits Times, 2017, https://www.straitstimes.com/asia/east-asia/a-year-on-anti-corruption-law-changes-south-koreas-graft-prone-culture (accessed 2 Nov. 2018).

[6] Shamim Adam , Laurence Arnold , and Yudith Ho, “The Story of Malaysia’s 1MDB, the Scandal That Shook the World of Finance,” Bloomberg, 2018,

<https://www.bloomberg.com/news/articles/2018-05-24/how-malaysia-s-1mdb-scandal-shook-the-financial-world-quicktake> (accessed 3 Nov. 2018)

[7] Matthew Goldstein, Alexandra Stevenson and Emily Flitter, “Goldman Sachs Ensnarled in Vast 1MDB Fraud Scandal,” The New York Times, 2018,

<https://www.nytimes.com/2018/11/01/business/goldman-sachs-malaysia-investment-fund.html> (accessed 3 Nov. 2018)

[8] Bernama, “Revised MACC Act 2009 to come into force in 2018,” The Straits Times, 2018,

< https://www.nst.com.my/news/2016/10/178559/revised-macc-act-2009-come-force-2018> (accessed 11 Nov. 2018).

[9] Maurice Burke, Wataru Kawai and David Gargaro, Global Investigations Review, 2017, <https://globalinvestigationsreview.com/benchmarking/the-asia-pacific-investigations-review-2018/1147518/anti-corruption-enforcement-in-the-asean-region> (accessed 4 Nov. 2018).