Anti-bribery & Corruption in CEE: Non-compliance has a cost

Anti-bribery & Corruption in CEE

Enforcement of anti-bribery and corruption laws within Central and Eastern Europe is gathering pace. Organizations need to ensure they have adequate ABC compliance programs in place to reduce the risk of fines and penalties. This report discusses the implications for organizations operating in Central and Eastern Europe of a recent KPMG global survey on ABC compliance.

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Anti-bribery & Corruption in CEE: Non-compliance has a cost

Regulators in Central & Eastern Europe (CEE) are starting to wake up in terms of enforcing anti-bribery and corruption (“ABC”), which means that if CEE enterprises want to remain competitive, they will need to ensure that they have adequate ABC compliance programs in place, or it could cost them.

According to recently released analysis from KPMG entitled “Anti-Bribery and Corruption in CEE: Rising to the challenge in the age of globalization”, the region's ABC compliance is sorely lacking. KPMG's paper paints a portrait of ABC compliance in CEE, challenges faced to mitigate the risks, and areas for improvement for the region's enterprises.

In the context of the survey, 93 CEE-based entities are operating in jurisdictions that have local anti-bribery & corruption legislation akin to the FCPA and UK Bribery Act, insofar as the prosecution of cross border bribery of foreign officials is concerned, but these jurisdictions lag behind the US, UK and some other countries in the enforcement of these laws.

Meanwhile, the OECD and other bodies have indicated that the CEE signatories to the Convention on Combatting Bribery of Public Officials exhibit very low compliance. Nevertheless, there are other pressures on the CEE-based entities that are there to implement or strengthen internal ABC compliance programs:

  1. Business partners in highly regulated jurisdictions are requiring CEE-based entities to at least comply with the business partner’s ABC compliance program in order to do business with them;
  2. Foreign investors want to evaluate the target company’s ABC compliance program during the due diligence process;
  3. The increase in cross-border business and reliance on external third parties such as agents and distributors means that a further level of risk has been added.

So what is at stake for these businesses if they fail to respond to these pressures? For one, multinationals are obliged now to implement rigorous ABC compliance programs and to do business in an ethical manner, with a focus on third party risk, meaning if you want to do business with UK-, and US-listed companies, you need to demonstrate that you have active compliance programs in order to secure business with these entities.

Non-compliance can also have an adverse effect on investment opportunities. Upon looking at the level of compliance with ABC legislation, training, etc., foreign investors could potentially walk away from a deal, because of risks that they may perceive as too high.

Moreover, cross border trade means that almost no one is purely concentrating on one market, and local entities must now have a compliance program in place to protect business partners in other jurisdictions.

Finally, KPMG's report shines the light on data and analytics as a tool for detection and prevention of ABC issues.

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