Why anticorruption efforts are relevant?

The UAE has made some notable strides in curtailing business malpractices, including deeming ‘corruption’ a statutory crime and outlawing the payment of a bribe in the general course of business, both in the public and private sectors. This commendable effort on the part of the UAE has not gone unnoticed by Transparency International, the leading barometer of corruption perception globally.

In their latest Corruption Perceptions Index released last week, they ranked countries and territories around the world on their perceived levels of public sector corruption. It is noteworthy that the UAE has improved its index rating by one position per year over the last three years — we are currently ranked 25th out of 174 countries surveyed, enjoying a ranking better than several members of the European Union and in a position where we are perceived as the least corrupt of all Gulf Cooperation Council states.

There is however sometimes a disconnection between perception and reality and, we in the UAE need to be continually alert in our efforts to ensure that our good reputation is not tarnished. Perceptions can change in an instant, negating efforts and intent to become a corruption free society. The recent FIFA scandal, where allegations of lobbying for votes in the form of cash, gifts and lavish hospitality were levelled against Qatar in its bid for the staging of the 2022 FIFA World Cup, is a case in point that can damage corruption perceptions of the Middle East.

The UAE needs to be mindful that it is publically seen as doing enough to ensure that corruption in the tendering process is curtailed. We also need to ask the question of whether we have done enough in the private sector to quell bribery and corruption, particularly within Family Owned Groups.

In a recent Economic Crime Survey conducted in the Middle East, it was noted that fraud was reported by 21% of organisations surveyed, compared to 37% globally, with only 5% of fraud being detected by internal audit; 22% by tip-offs and 16% by chance. It is clear from client interaction at workshops and seminars that greater effort needs to be taken in areas of fraud prevention and detection.

From our forensic work experience, KPMG have noted that there is often a lack of appreciation between executive management’s belief in the existence of mitigating controls designed to prevent fraud in the workplace and reality. Controls are often overlooked by those involved in day-to-day operations through customs and practices unknown to management. When we investigate economic crime, we frequently find that the best of controls have been overridden or worse, that internal controls are either non-existent or inept.

Companies need to develop fraud risk management programs that are robust and preventive in nature, before they become a victim of corruption, the cost of which can be devastating. If 37% of frauds are detected by tip-offs and chance, it is important to ensure that an independent objective and preferably anonymous Fraud Hotline is in place, providing vendors, employees and others an opportunity to report economic crime and instances where they have been prevailed upon to pay a bribe.

In a recently conducted fraud investigation at an international company, the vendor when confronted, indicated that there was no reporting mechanism in place to report the bribe and further he did not know who within the company he could trust in making the report or whether in reporting the incident, he would be prejudiced in doing so. Had the company received an early tip off, the company would have saved millions in bribe money. Stakeholders of business need to appreciate that the cost of corruption is very often to their bottom line, as transactions are seldom in the best interests of their business. Bribes are generally factored into the price of vendors goods, alternatively the goods supplied are of a lesser quality than the ones ordered.

It is reliably learnt that the UAE State Audit Institution has drawn up a new anticorruption law, which will hopefully address some of the shortfalls in the UAE Federal Law no 3 of 1987, the “Criminal Code” that primarily governs bribery. One of the next steps the UAE, as a signatory to the United Nations Convention against Corruption (ratified by Federal Decree No 8 of 2006), should take is to criminalise the payment of bribes to Foreign Officials which is currently not an offence. The passing of legislation in this regard will greatly enhance the UAE’s standing on corruption within the International Anti-Corruption stage.

Murray Stewart is Director of Forensic Consulting at KPMG.