Executives Must Prepare for SE Asia Corruption Risks

As economies in the West remain shaky, Southeast Asia beckons investors. But alongside some of the world’s fastest growing economies is the risk of corporate corruption in a region where winning deals still sometimes means greasing the right wheels. Last month, the French engineering giant Alstom SA pleaded guilty to U.S. charges that the company bribed officials in Indonesia, and agreed to pay a record criminal penalty of $772 million.

Western companies can be lured into bribe schemes when they see local competitors clearing bureaucratic hurdles with greater ease, Jeremy Douglas, who leads the United Nation’s regional Office on Drugs and Crime for Southeast Asia and the Pacific told R&C Journal. UNODC works with countries in the region to strengthen anti-corruption laws. But Mr. Douglas said that in practice, compliance with those laws is uneven across the region. To navigate the pitfalls, Western companies need to establish firm ties to home country embassies and seek assistance through diplomatic channels if demands for bribes are shutting them out of business, he said.

This interview has been edited for clarity and length.

How do Western companies get themselves into trouble in the region? 

Mr. Douglas: This is an incredibly competitive business environment. There’s a lot of business growth in Southeast Asia. The region is lowering barriers between states in Southeast Asia to allow the freer, faster flow of people and goods. You have 6%,7%, 8% growth in these countries compared to much [more sluggish economic growth] in Europe or North America.

Western companies see that and they enter the region with the intention of making big profits for their investors. And executives from the West may not be attuned to the business environment they are coming into. But they may see there are companies from East Asia that are much more attuned with the culture of the region and are able to get their projects moving very quickly. And they start to wonder why they aren’t able to do so.

What we see in the region is that bureaucracies and government structures tend to be highly personalized. People are ensconced in key positions i.e. government procurement positions, or people in the position to give government contracts, let’s say building a power plant. [These officials] are in powerful positions to ease up administrative procedures and accelerate red tape and issue licenses.

So companies can be drawn into scenarios where they are paying facilitation fees or their intermediaries are paying facilitation fees. [Much of] Southeast Asia doesn’t have a lot of the regulatory structure–the checks and balances you have in the [U.S. or Canada] so companies come in and run into very powerful persons in those structures, and they know if they can influence these officials, they can get what they need to win business.

Is it feasible for companies to take advantage of the opportunities in the region without getting trapped by corruption? Or is there work that an ethical company is going to just get shut out of?

Mr. Douglas: I would hope that’s not true. I’d hope companies don’t feel like they are shut out of business if they aren’t willing to go down that road.

It’s a matter of being better informed and companies having a much better understanding of the places they are going into. There is a tendency when a country opens up like Myanmar for people to come and rush in. And they see companies from other countries do things very quickly, and there is a is a tendency to try to play the game. But that can lead them to get caught up in scenarios that may be unhealthy for the company. But if they come in and they are better informed they understand the systems in the country, they should be able to avoid these scenarios.

There is an unevenness in the region. It’s very different in different states. All the countries in the region set up systems to be compliant with the U.N. Convention Against Corruption, which means they put in place legislation and policies, which will set the ground for proper processes in countries. But it is very uneven, frankly.

On one extreme you have Singapore where there are all the checks and balances in place and you are not going to have this problem. On the other hand you have Laos, which is in the bottom 10% of nations worldwide in terms of budget–so there is extreme variability. A company coming into Laos isn’t going to have the environment they have in Singapore. In between Laos and Singapore, you have countries like Thailand with its own complexities.

So executives are going to have to educate themselves and then decide if they should enter a particular country.

But in practice what can companies do if they run into a corruption problem?

Mr. Douglas: When companies are exploring a business environment [in the region] it’s really important to be linked in with their home embassies and business chamber efforts. That can help gain an understanding of the environment that they are looking to operate in and help them understand how the governments work. They also need to make sure they have their diplomatic channels set up working for them. If there is an issue, you are bidding on something and you have a sense that you are being shut out, it’s important for you to communicate back to your embassy on those problems. Obviously Canada and the U.S. don’t want to have an unfavorable business environment for their companies. By using those avenues you are encouraging your home government to make anti-corruption a priority.

Source: The Wall Street Journal