EY-FICCI report on bribery and corruption released

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22 July 2013 Mumbai: EY, the global professional services organization, and FICCI today released their report, 'Bribery and corruption: ground reality in India' at the FICCI Executive Meet in Bengaluru. The report highlights that corruption – real or perceived, is having a detrimental impact on the economy, thereby underscoring the need for greater enforcement of laws as also for corporate leaders to place anti-bribery and anti-corruption high on their agenda

Arpinder Singh, Partner & India Leader – Fraud Investigation and Dispute Services, EY says, “Through this report, we set out to ask corporate India their perception about corruption. Although many organizations demonstrate their awareness of the risks involved and have intensified their anti-corruption compliance initiatives lately, the results indicate there is still much to be done.”

The survey is based on responses from 200 senior executives in a range of corporate functions such as internal audit and finance, legal and compliance, vigilance and risk management. Both Indian enterprises and multinational organizations formed part of the respondent profile.

Bribery and corruption pose a significant challenge, with 83% of the survey respondents saying that it can negatively impact FDI.  While two-thirds of the respondents were optimistic that new regulations such as the Companies Bill 2012 will make a difference and help in reducing fraud, bribery and corruption, there is a consensus on the need for greater enforcement of laws, with 89% agreeing to better implementation of laws.

Although corruption spans across all sectors, Infrastructure and Real Estate; Metals and Mining; Aerospace and Defense; and Power and Utilities turned out to be perceived as most vulnerable to corruption. More than a majority of the survey respondents from PE firms said that a company operating in a sector which is perceived as highly corrupt, may lose ground when it comes to fair valuation of its business, as investors bargain hard and factor in the cost of corruption at the time of transaction.

According to Dr. Alwyn Didar Singh, Secretary General, FICCI, “Empirical evidence suggests that high levels of corruption are associated with lower levels of investment. Corruption invariably increases transaction costs and uncertainty in an economy. The results of the Survey indicate that it is extremely important that anti-bribery and anti-corruption be on the agenda of senior executives and a comprehensive bribery and corruption risk assessment is done before undertaking any project.”

As many as half the respondents said that their companies have lost business to their competitors due to the latter’s unethical conduct.  The most worrisome aspect of this revelation, says the report, is the impact this could have on the losing parties, who under increased pressure to ‘deliver’ may indulge in corrupt practices the next time to win business.

As jurisdictions around the world increase enforcement of laws and regulations to combat bribery and corruption, multinational organizations are under increasing pressure to improve their anti-bribery and anti-corruption compliance programs. About 77% of the survey respondents felt that the Managing Director (MD) of a company should be held accountable for bribery and corruption issues. As a step towards combating bribery and corruption, companies are looking at undertaking robust compliance programs. This comes out in the survey, where more than 90% of respondents said that their company has an anti-bribery and corruption policy, standalone or covered under the code of conduct policy.

Three-fourths of the respondents were of the opinion that companies should self-report cases of bribery and corruption to the appropriate authorities. However, in reality very few cases are reported, says the report, with most of the companies taking cognizance only after they are investigated at the global level. 

Adds Arpinder,  “While the government  is doing its bit to improve the business environment, private sector too has a significant role to play. Though many companies show awareness of the risks and have intensified their anti-corruption compliance initiatives, companies must ensure high level of transparency in business conduct and take a steadfast long-term view on their conduct.”

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About the survey

This survey was conducted from March to May 2013 via an online questionnaire, which was hosted on Ernst & Young LLP’s website in India. We received over 200 responses from senior executives in various business functions. The principal respondents belonged to business functions such as Internal Audit & Finance, Legal & Compliance, and Vigilance & Risk Management.

Our respondents represented a mix of Indian enterprises with domestic operations, as well as Indian and foreign multinationals in the US and the UK, whose annual incomes range from INR50 billion to INR100 billion. They operate in a wide range of industries. The majority of our respondents were from banking and financial service institutions, and the technology, media and entertainment, and manufacturing sectors.

In order to gauge investors’ viewpoint on the flow of investments to India, we interviewed respondents from 15 Private Equity (PE) firms through an online medium.

The survey has been supported by a secondary research conducted by our team on bribery and corruption cases reported in media from October 2011 to September 2012. The impact of some large scams, including 2G, Commonwealth Games and mining, was however outside its purview.

About EY

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This news release has been issued by EYGM Limited, a member of the global EY organization that also does not provide any services to clients.