Corruption fight takes front seat

More businesses in the Gulf region are strengthening internal controls to stamp out corporate fraud, bribery and other corruption.

Saudi Arabia prosecuted several officials linked to the mismanagement of property and land-use planning that was blamed for leading to a high number of casualties in flooding in Jeddah in 2009. Susan Baaghil / Reuters
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Whistle-blowing was a relatively new concept to the Middle East when Al Habtoor Group set up a hotline in 2008 to clamp down on staff wrongdoing.

The company hired the professional services giant KPMG to run an anonymous phone number that employees could ring to report suspected corruption, fraud and other crimes.

Senior management then investigated the tips and took action if necessary.

"It was a difficult sell when we set up, as no one was doing it in the region," said Venkataraman, the head of corporate governance and risk management at Al Habtoor. "It's not meant to be foolproof but acts well as an insurance policy. Of the 40 to 60 calls we get a year, one or two turn out to be fraud or other wrongdoings and the management can respond."

More businesses in the region are following Al Habtoor's example by strengthening internal controls to stamp out corporate fraud, bribery and other corruption.

More and more local firms were adopting the hotline system, first pioneered in the United States, said Robert Chandler, a partner at Ernst & Young who oversees fraud investigations across the Middle East.

"The mere presence helps," said Mr Chandler.

"Out of 100 calls, 99 per cent will be sour grapes, but if one is a call about a case of small fraud that could lead to large fraud, then the hotline pays for itself."

Other firms are also overhauling human-resource policies by, for example, making it mandatory for staff to declare gifts given for work-related matters.

Mr Chandler said that gift-giving, ingrained in business culture in the region, was a "grey area" but that declaring gifts was a sensible step.

Ernst & Young gauged business people's assessment of internal fraud controls in its survey released yesterday on bribery, corruption and fraud in the Middle East.

Nearly two thirds of respondents considered the controls in their workplace to be either effective or very effective.

More than a third were less impressed.

Governments in the region have also begun to beef up measures against corporate corruption.

Historically, most laws in this field have tended to be geared towards stopping crimes among government officials.

Dubai introduced a law in December 2009 handing out jail sentences of up to 20 years for anyone found guilty of obtaining Dh10 million (US$2.7m) or more in public money illegally. Lower sentences were imposed for smaller amounts.

Saudi Arabia last year set up a national commission to fight corruption.

The matter has been in sharper focus after floods that killed 123 people in November 2009 in Jeddah. King Abdullah ordered the prosecution of several officials linked to alleged mismanagement of property and land-use planning that was blamed for causing a high number of casualties.

Firms also run the risk of falling foul of international rules, primarily the United Kingdom's Bribery Act, introduced last year, and the US Foreign Corrupt Practices Act.

"While firms have to comply with laws across the GCC that seek to stop corruption, US and UK legislation is the benchmark for complying with anti-corruption," said Adam Vause, a dispute-resolution lawyer at Norton Rose who specialises in corruption cases.

But respondents to Ernst & Young's survey were sceptical about how much difference legislation could make.

More than a third of respondents said they thought anti-corruption laws would have no impact on the way in which business was conducted in the Middle East.

rjones@thenational.ae