As Corruption Risk Rises in Emerging Markets, Confidence in Diligence Programs Lags: Deloitte Survey
NEW YORK, Oct. 29, 2012 — Most executives (71 percent) say compliance and integrity-related risks in emerging markets increased during the past two years, yet they lack confidence in their companies’ diligence programs, according to Deloitte’s latest Look Before You Leap survey.
When entering into mergers or acquisitions, just 38 percent of executives indicate that they are extremely or very confident that their company has effective processes to identify and mitigate compliance and integrity risks, while 34 percent have the same level of confidence for Greenfield investments. In third party relationships, respondents similarly lack confidence in controls when engaging vendors (40 percent) and third party agents (36 percent).
“What our clients often find most challenging is really knowing who they’re doing business with,” said Wendy Schmidt, global service line leader of Business Intelligence Services for Deloitte Financial Advisory Services LLP (Deloitte FAS). “Particularly with regard to third party relationships, such as distributors or agents, companies are looking for a cost-effective way to gather information on large numbers of payment recipients to mitigate risk and to prevent and detect fraud and corruption.”
The top challenges respondents say their companies face in identifying and mitigating compliance and integrity risks with third parties in emerging markets are inadequate staffing or budget (15 percent), lack of required skills and knowledge among the company’s employees (12 percent), conducting timely and sufficient due diligence (12 percent), adequately verifying information provided by business partners and third parties (11 percent) and lack of senior management commitment (11 percent). Also high on the list of emerging markets concerns are the potential for bribery among government officials (40 percent) and commercial kickbacks (26 percent).
“The 2010 UK Bribery Act’s provisions around both commercial bribery and bribery of government officials as well as continued enforcement of the Foreign Corrupt Practices Act (FCPA), will keep corruption as a leading issue for multi-national company executives for years to come,” said Chris Georgiou, partner in FCPA Consulting for Deloitte FAS.
More than half of respondents (56 percent) report that the UK Bribery Act prompted their companies to perform more detailed compliance and integrity risk assessments.
“Anti-corruption compliance programs often uncover risks that scuttle deals,” said Clint Stinger, principal in Anti-money Laundering Consulting for Deloitte FAS. “But, we don’t see the appetite or pursuit of emerging market deals slowing in the future.”
During the next two years, 41 percent say their companies are likely to complete one or more M&A deals in emerging markets and 28 percent say their companies are likely to make one or more Greenfield investments in emerging markets.
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About the Survey
Deloitte’s fifth Look Before You Leap survey was conducted online with 126 respondents between May 10 and May 25, 2012. Respondents represented a cross-section of industries, including financial services (29 percent) and manufacturing (25 percent). Respondents’ annual company revenues ranged from up to $500 million (40 percent) to $500 million to $5 billion (30 percent) to more than $5 billion (28 percent). Professionals surveyed were from companies headquartered in the U.S. (71 percent), Europe (9 percent), Asia (7 percent) and Canada (7 percent). Titles for those surveyed included C-suite positions (29 percent), executive vice president/senior vice president (4 percent), as well as directors, department heads and managers (45 percent).
As used in this document, “Deloitte” means Deloitte Financial Advisory Services LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.