• The Fight against Corruption Remains on the Middle East Agenda
  • June 27, 2012
  • Law Firm: Norton Rose Canada LLP - Montreal Office
  • As France plans to withdraw its troops from Afghanistan by the end of this year, Afghanistan still lacks stability and combating corruption remains on top of the agenda. Looking at the corruption perception index (CPI) published by Transparency International, ranking countries according to their perceived levels of public sector corruption, Afghanistan has continuously been rated as one of the world's most corrupt countries. In the CPI’s most recent edition, Afghanistan ranks 180th among the 183 countries covered by the index worldwide.

    In April this year, the heads of government of the G8 urged Afghan President Hamid Karzai to tackle corruption issues by enacting reforms as the government’s new anti-corruption unit set up in November 2009 has so far failed to improve the situation. In some jurisdictions, the need to pay bribes for simple services remains a huge obstacle for small businesses and potential new investors without political influence. Businesses without the right connections are unable to bypass dubious regulatory requirements and face increased risks and costs of conducting business.

    Corruption is not only a problem in Afghanistan it also affects the wider Middle East (along with other regions). The US Securities and Exchange Commission (SEC) and the UK Serious Fraud Office (SFO) are increasingly using their extraterritorial powers to bring enforcement actions in relation to corruption involving countries in this region.

    A recent example is the U.N. Oil for Food scandal, where the humanitarian relief programme that was put in place post the Gulf war to enable Iraq to exchange oil for essential goods and services was used as a means to facilitate kickback payments. The subsequent investigation and report into the programme has led to numerous cases concerning companies in various sectors including automobiles, manufacturing and pharmaceuticals.

    Companies commonly use intermediaries accustomed to the local culture to help secure business. Whereas this may be an effective approach to win contracts, the legal risks involved for the company are considerable as it may in certain circumstances be held liable for corrupt acts committed by the intermediary it has engaged.

    Increased compliance checks and due diligence, and clear anti-corruption policies and training provide the best protection against such risks and should be a prerequisite for a company’s dealings with intermediaries or agents. Companies should consider introducing procedures such as agent vetting, payment stream reviews, effective investigation protocols and whistle blowing hotlines to facilitate the reporting of concerns.

    Companies need to be prepared to invest in compliance or risk being penalised by authorities. This may entail not only substantial fines and other pecuniary consequences but also loss of market reputation. Preventing, detecting and monitoring are crucial for any adequate compliance regime, even more so in higher-risk jurisdictions.

    A recent survey on bribery and corruption in the Middle East has highlighted that whilst bribery has always been a problem, as it is in other areas in the world, regional companies are now recognising that they need to address the issue. Adopting the right culture to tackle bribery appears to be a significant but necessary challenge.