- TISL report considers venality in the pvt. sector, in particular in its nexus with the public sector
Corruption in Sri Lanka, for the most part, has been seen as a public sector problem. Amidst large-scale corruption scandals in the public sector, the role that the private sector plays in facilitating corruption has often been ignored. Research however indicates that the private sector often functions as the ‘supply side’ of corruption, according to a recent research report which sought to map the corruption-related risks that exist in the private sector.
Titled ‘Corruption Risk Mapping Research: A Study on Sri Lanka’s Private Sector’ and issued by Transparency International Sri Lanka (TISL) last week, the research project had revealed the existence of a high probability of corruption occurring when the private sector engaged with the public sector. The respondents had opined that women were at a higher risk of being solicited for sexual bribes in exchange for jobs, promotions, or even to provide a service, while it has also been observed that men were also subject to sexual harassment and corruption within their workplace, in some industries.
Risks of corruption
The research had sought to document the private sector’s alleged experiences of corruption, regarding which the report said that the private sector’s experience of corruption can broadly be understood as occurring between private-to-public and private-to-private actors.
The report added: “There was a common allegation that companies that had regular interactions with the public sector faced a higher risk of corruption. Several allegations detailed the occurrence of corruption when dealing with the Customs, the Inland Revenue Department, and the Excise Department. Even in industries that did not directly deal with these public sector institutions, respondents had heard of anecdotal cases of corruption in relation to these institutions. Respondents also alleged that there was an increased vulnerability to corruption when bidding for government contracts. The public procurement process was alleged as being rife with corruption, with private sector entities engaging in corrupt activities such as bribery, conflicts of interest, and favouritism.”
Another key finding of the research is that there is a prevalence of private-to-private corruption in Sri Lanka. Noting that the forms of these corrupt transactions may vary from industry to industry, it was explained that some common forms included the expectation of kickbacks and commissions, the offering of gratification and favours in exchange for business, nepotism and favouritism.
The research had also revealed certain gendered aspects of corruption: “In certain sectors, women were seen as being vulnerable to sexual bribery and other forms of sexual harassment. Interestingly, the research also revealed that there were some sectors in which males were more vulnerable to these non-financial forms of corruption.”
The research findings showed that generally, respondents believed that corruption within the private sector was less than corruption within the public sector. However, some respondents had indicated that this perception may be a result of a weak understanding of corruption or due to the normalisation of corrupt activities as a part of doing business. According to the TISL report, most respondents had opined that the procurement and sales departments of a company were most vulnerable to corruption, whilst other respondents were of the view that corruption could occur at any level of the company structure regardless of departments, designations, or ranks.
Several risk factors that created vulnerabilities to corruption had been identified throughout the research: “The weak implementation of the law was seen as a risk factor as it limits the law’s deterrent effect. Similarly, the interaction with public sector institutions was seen as a key risk factor. In this regard, the politicisation of the public sector was alleged as encouraging corruption within these institutions and in their interactions with the private sector. Industries that had weak regulators or were not regulated at all were alleged to have a higher risk of engaging in corruption. Several risks were identified within the company structure as well. These include the adoption of profit-motivated corporate cultures, the imposition of strict budgetary pressures and targets, and the failure to adopt strong governance-related controls. It was also revealed that new companies were at a higher risk of engaging in corruption, due to the lack of support services for entrepreneurs. They were also likely to engage in corruption to gain a competitive advantage over their competitors, thereby creating an unequal playing field.”
Several companies had identified the risk of corruption and taken steps to mitigate the risk. Companies that act as local agents for foreign companies have adopted strong internal controls and anti-corruption measures as mandated by their foreign parent companies. Several industry-specific chambers of commerce have also started adopting measures to combat corruption, and this includes the adoption of voluntary codes of conduct, advocacy activities, and awareness raising and training programmes for their membership.
“The negative effects of corruption are undeniable. It impedes market competition, deters foreign investment, creates serious reputational risks and introduces significant social harms to society,” the report noted, explaining that several respondents had given anecdotal evidence of the impact that corruption has had on their businesses such as exclusion from new markets or the forced winding up of operations due to their inability to compete if they adopted a zero-tolerance approach to corruption.
According to the TISL report, respondents believed that companies that refrain from corrupt activities do so due to their own ethical principles and to maintain a clean image. It added that the Sri Lankan context has changed, placing a greater urgency on companies to exhibit a higher standard of transparency, accountability, and integrity: “The Sri Lankan public over the past two years has demonstrated a greater outrage over the impact of corruption, which shows that the anti-corruption appetite of the public has increased. This has created an impetus for companies to adopt behavioural changes in favour of stronger anti-corruption programmes and policies. Companies are therefore, for the first time, feeling the pressure of having to be accountable for their actions socially, at least if not legally and politically. The public, investors, shareholders, and consumers must seize this momentum to impose a sense of urgency upon companies and ensure that they adhere to the higher standard of integrity that the general public is calling for. Corporate transparency and integrity are essential to secure public trust in an era where consumers are placing an increasing importance on transparency in business.”
The way forward
In light of its findings and observations, the research report presented a number of recommendations for the private sector and the Government.
A key recommendation issued for the private sector is establishing strong, robust compliance-related programmes. In this regard, the report said that robust compliance programmes should focus on improving processes and systems within a company, rather than individuals. It noted that companies which have proper systems and processes in place are better geared to prevent corruption regardless of the employee turnover.
As per of this recommendation, the report highlighted the importance of anti-bribery and corruption policies and codes of conduct, regarding which it explained that these policies need to be entrenched within the organisational culture, and need to focus not only on preventing large-scale corruption, but rather on creating a culture of integrity in which all unethical practices are eliminated.
“The adoption of a stringent anti-bribery and corruption policy will prevent, at an individual level, employees from engaging in practices that could harm the organisation. The introduction of a policy must be supported by awareness programmes and regular training, to ensure that all employees and third parties that deal with the company are aware of the policy,” it said, adding that companies should introduce processes to conduct investigations pursuant to complaints, formal inquiries and disciplinary processes.
Stressing on whistle-blowing policies, the report said that it is essential that anti-bribery and corruption policies include effective whistle-blower mechanisms which are applicable across a company.
“Whistle-blower policies should guarantee the protection of the whistle-blower and ensure that they will be free from reprisals. When implementing whistle-blower policies, companies should be mindful of practical considerations to ensure the anonymity and confidentiality of the complainant. Whistle-blowing complaints should be escalated and dealt with promptly whilst maintaining open lines of communication with the whistle-blower. Furthermore, internal and external messaging on whistle-blowing channels should encourage employees to report any incidents that make them feel uncomfortable, or which they feel is unethical. Mechanisms must also be introduced to allow for persons outside of the organisation to engage in whistle-blowing. These may include dedicated hotlines for customers which grant them direct access to the Chief Executive Officer of the company, or a dedicated ombudsperson.”
Conducting regular corruption-related risk assessments was also recommended, which the report said would help understand the nature and extent of risks within a company’s operations. It said that formal processes should be introduced for assessing and monitoring the risks to which companies are exposed to in an on-going manner.
In addition, for the private sector, the report presented recommendations pertaining to audit and compliance-related control, introducing strong procurement controls, having strong accounting controls, and ensuring independent boards of directors.
Among the recommendations presented for the Government are, strengthening the regulatory authorities. Adding that it has been recommended that the regulatory authorities entrusted with the regulation of the private sector need to be regulators with teeth, the report added that in this context, the regulatory authorities should be strengthened, and that the scope of their role should be expanded to enable them to monitor the private sector. They should also be strengthened to enforce penalties for non-compliance with standards set by the regulators, the report added.
With regard to taking steps to promote digitalisation and digitisation within public sector institutions, it was recommended to focus on digitising documentation processes and the adoption of digital systems. The TISL report noted that digital systems offer superior transparency, thereby reducing fraud and corruption, and significantly reducing risks inherent in paper trails.
Further recommending improvements to good governance within the public sector, the report said: “Weak governance within the public sector poses a significant risk of corruption. There needs to be political will from the very top if corruption is to be reduced in Sri Lanka. Appointments to key regulatory authorities should not be politicised but based on merit. This is imperative to ensure that appointees continue to hold office regardless of government changes. It was also suggested that the expertise of regulatory authorities need to be improved. Further steps must be taken to strengthen the monitoring and implementation related capacity of public sector institutions. The introduction of effective whistle-blower policies for public sector institutions will instil a degree of fear in the officers who solicit bribes, thereby acting as a deterrent to corruption. Steps must also be taken to promote cooperation between the law enforcement agencies and the relevant private entities.”
More recommendations were presented to improve government procurement practices and to create a conducive business environment.
Moreover, both the private and public sectors were recommended to take initiatives to raise awareness with the aim of strengthening anti-bribery and corruption-related efforts.