x Abu Dhabi, UAE Thursday 20 July 2017

Corruption 'rife among Middle East companies'

Two thirds of business executives in the Middle East believe corruption is widespread. Backhanders and bribes are often used to win contracts and deals, according to a survey.

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
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

Two thirds of business executives in the Middle East believe corruption is widespread.

Backhanders and bribes are often used to win contracts and deals, according to a survey commissioned by the international audit firm Ernst & Young (E&Y).

The research found that a fifth of respondents felt it was not possible to conduct business in the region without engaging in bribery or other forms of corruption.

"Too often, organisations in the region confront fraud only after the event and lack adequately robust controls to prevent it occurring," said Michael Adlem, a partner for fraud investigation and dispute services at E&Y, in the report.

"As a result, losses are often significant and reputation damage immense," he said. "Middle East organisations can no longer wait for corruption to occur before taking action."

The survey was conducted in conjunction with Perpetuity Group, a crime and security researcher in the United Kingdom. The report quizzed 66 finance directors and senior fraud and risk managers in 64 major organisations in the UAE, Jordan, Kuwait, Egypt, Qatar, Saudi Arabia and Bahrain.

Two thirds of respondents said fraud and bribery were also a "major problem" in the Middle East. But only 14 per cent believed that corruption was an issue in their companies.

"I have been offered money or items from suppliers," said one respondent. "Team members have been approached as well. Occasionally, problems are created that become miraculously solved. This is common with government and private organisations."

In a separate global survey on bribery and corruption, E&Y found 39 per cent of respondents around the world thought corruption was widespread in their markets. The figure was 22 per cent in Western Europe and 14 per cent in North America. That survey involved almost 1,700 respondents.

"I think bribes are paid all over the world, obviously in some countries more than others," said Mr Adlem. "But again, my advice is: do not pay them, otherwise you could get caught up in criminal action and the fines could be a lot more than what you make off a small contract."

Both US and UK authorities have clamped down on corruption by companies that are registered in those countries or have subsidiary operations there.

Fines can now reach hundreds of millions of dollars if companies or their employees are caught breaking the law.

"The increasing globalisation of anti-corruption law means a firm in the Middle East does not just have to have a footprint in the US or UK for them to be liable there," said Adam Vause, a dispute resolution lawyer at Norton Rose who specialises in corruption cases.

"It could be something as insignificant as transferring funds and clearing them through New York," said Mr Vause.

In a high-profile case last year, the American healthcare and pharmaceutical group Johnson & Johnson paid US$70 million (Dh257.1m) to settle criminal and civil charges under the United States' Foreign Corrupt Practices Act after the J&J subsidiary DePuy was caught bribing public-sector doctors in Greece. A former DePuy executive, Robert Dougall, was jailed in the UK for a year as a result.

In the Middle East, the most common types of corruption are backhanders and "facilitation payments", which are paid to third-party agents to secure services or speed up processes, according to the E&Y survey.

"Actually, [I use facilitation payments] as a tool for preventing corruption, because by using agents I have shuffled the problem away to someone else," said one respondent. "I do not perceive that I have been corrupt if they have been corrupt on my behalf. If he gets me business for half a million, then how he does it is not my business."

Many respondents indicated that bribery and facilitation payments were just part of the culture of the Middle East to ensure business was conducted more smoothly.

E&Y gave an example of a facilitation payment as a situation where a country's customs might speed up the process of clearing goods into the country if an unofficial extra fee was paid.

Mr Adlem said Saudi Arabia had proved to be proactive in the last year in combating corruption.

"Some of the big Saudi companies are really taking this stuff seriously," he said. "Big Saudi companies are in a strong position. They can actually demand that their suppliers have these [bribery and fraud prevention] systems in place. What they have is the financial clout."

rjones@thenational.ae

tarnold@thenational.ae