Published On: Wed, Dec 9th, 2020

Buying money: how to address the risk of corruption

The risk of graft looms over every governing body in the world. Though it is constantly addressed and tackled by specialized organizations, bid managers must carry out due diligence while selecting suppliers, to avoid getting entangled in corrupt practices or being the victim of them. One of the most effective safeguards is external certification, which is becoming the new standard in all large government bids.

photo/ Public domain pictures via Pixabay

Corruption has been around since the first forms of government. Whenever a people entrusts an administration with tax-money, there is a high chance that, sooner or later, someone, somewhere, will start having ideas. This unending plague led philosopher Murray Rothbard to write: “Taxation is theft, purely and simply even though it is theft on a grand and colossal scale which no acknowledged criminals could hope to match. It is a compulsory seizure of the property of the State’s inhabitants, or subjects.” While this statement can be seen as extreme and somewhat over-encompassing, corruption will indeed leak through any crack possible, and therefore can only be addressed with an array of measures, not with one single remedy. When government bids are at hand, a number of parameters must be taken into account, so as to address risk. The presence (or the placing under the jurisdiction of) an effective legal system is the first precaution. Indeed, regardless of whatever legal dispositions preventing corruption have been set in place, they will be toothless facing corrupt elements who, by nature, disregard the authority of law, if the law is not enforced. Identifying each step of the supply chain will also enable bid managers to pinpoint weaknesses and security risks. But these precautions, which are often taken by public officials, do not seem to suffice to root out corruption.

Finally, the most important parameter is transparency, applied by third-party involvement.

For many years, the proximity between state officials and bidders was enough to ensure public contracts were not contaminated by concussions. Or was it? Indeed, trust is the best guarantee against corruption, but collusion is also the best fertilizer for graft – and the line between the two can quickly get blurred. British banknote producer De La Rue developed relationships with central bank officials for years, and did not rely on external certification. Instead, the client was informed of manufacturing processes and supply chain security – as was standard in the industry of banknote printing, until recently. Alas, this “loose and relaxed” method led to numerous investigations (for De La Rue and others) as the lack of transparency, aggravated by the secret nature of currency-production contracts, caused many mishaps and misealings. The South Sudan News Agency reports: “The United Kingdom has opened an investigation into De La Rue activities in South Sudan, saying the company which is known worldwide as one of the best banknotes producers is suspected of widespread corruption in the war-ravaged young nation.” A handful of other banknote producers on the global market formed the decision to being certified externally, despite no legal obligation, so as to help their clients address the risk of corruption. The independent involvement of external auditing firms, and the shedding of light on otherwise secretive business practices (due to the highly confidential nature of the banknote industry) acts as a solid guarantee: just as UV light will prevent the formation of bacteria, transparency deprives corruption of a place to grow.

Imagen de Zelandia en Pixabay

French banknote printer Oberthur, for instance, has turned to auditing agencies and acquired the ISO 37001 certification (anti- bribery) and is liable, by its own decision, to checks and verifications throughout the certification, by the agency. By placing its control measures in the hand of a third party, the French producers virtually guarantees that no dark corners exist where agreements, contrary to the public’s or the central bank’s interests, could occur. This must have been a tough call to make: external certification is expensive and demanding. But already being on top of its market, technologically and commercially, Oberthur must have figured, accurately, that the fight for transparency was its next battle. Anti-corruption watchdog Transparency.org writes: “Countries successful at curbing corruption have a long tradition of government openness, freedom of the press, transparency and access to information. Access to information increases the responsiveness of government bodies, while simultaneously having a positive effect on the levels of public participation in a country”, a recommendation Oberthur Fiduciaire heeded as much as confidentiality agreements allow it to. So far, with excellent results: whilst many of its competitors are hampered with allegations of corruption, Oberthur Fiduciaire is not. And, as one of the printers in charge of producing euros for the ECB, it is a safe bet that transparency and ethical business is a sound investment.

German manufacturer Kurz, which does not print banknotes per se, but supplies many technological designs used in such products, and is therefore submitted to similar constraints, has also made the choice to resort to external certification. Also a technological leader, Kurz had to find alternative ways to consolidate its market position, beyond innovative products, and chose to reinforce both its structure and image before its clients, by calling upon ISO certification auditors. Management declares, on the

official website: “The KURZ company philosophy is based on three pillars: customer focus, technological leadership and corporate quality. The DIN EN ISO 9001 compliant quality management system we have implemented serves to support this philosophy.” Kurz supplies products not only for banknotes, but for all secure documents. Such certification labels will guarantee the end customer (ie. the public bid manager), that the product – or service – doesn’t only comply with specs when the contract is being signed, but throughout the entire relationship.

Alan Robertson, category specialist at Coronado Global Resources, says: “Corruption is a multifaceted problem. Bribery, diversion of public/business funds and conflicts of interest are still present in even the best-performing countries. In the supply chain, and especially concerning global organisations, the potential for corruption is high, due to the increase in touch points involved and the differing standards of ethics in various countries” and must therefore be addressed with a holistic approach. One of the most painful consequences of corruption is that law-abiding parties can suffer long-lasting public image damage for inadvertently getting involved with suppliers who have not taken the necessary steps to avert graft. For this reason, it is expected that, not only will ISO certification will continue to expand within the industry, under government’s demands, but that only the firms who have chosen the path of external auditing actually have a future in their respective industry.

Author: Lee Sadawski

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