Corruption likely as crisis bites: Transparency

By Kylie MacLellan

LONDON (Reuters) - Companies and their employees are more likely to resort to poor business practices, cutting corners and corruption to try and survive the global economic crisis, watchdog Transparency International warns.

Business leaders will focus less on issues of corporate responsibility and integrity as their companies struggle to keep afloat, with worries such as job cuts more pressing said Jermyn Brooks, Director of TI's private sector program.

"For the business world, when the economic parameters get tight there is a much stronger temptation to focus on survival ... regardless of what that means in terms of perhaps cutting corners," Brooks told Reuters in a telephone interview.

"In conflict situations where there is either a civil disturbance or a breakdown in government that nearly always goes hand in hand with increased levels of corruption and so lesser breakdowns like an economic crisis by analogy will probably involve a greater level of corruption," he said on Tuesday.

A report by Berlin-based Transparency in December into leading international exporting countries said firms from emerging economic powers Russia and China were most likely to use bribes when doing business abroad, but Brooks said nowhere was immune to dubious practices.

Brooks said some firms might also unwittingly encourage corrupt practices among their employees by providing them with the wrong incentives.

"If you are only concerned to remunerate your employees based on sales effectiveness or perhaps the lowest possible prices on the purchasing side, but you don't bother about whether they are really concerned to conduct that business in line with your standards and values, then you can be buying problems," he said.

KEEPING UP STANDARDS

In such a climate, Brooks said, it was more important for firms to ensure their anti-corruption systems were effective and their values training kept up-to-date to make sure there is not a loosening of standards.

Companies operating in weaker emerging market economies, where corruption was more widespread, should avoid simply using local conditions as an excuse, with senior management needing to take a tough line.

He also expected that as the financial crisis continued to expose corporate fraud scandals -- such as the Madoff and India's Satyam Computer Services cases -- it would become apparent corrupt activities were not just a consequence of the crisis, but have also played some role in causing it.

U.S. financier Bernard Madoff is accused by authorities of running a worldwide fraud that they say may have cost investors $50 billion.

Satyam's founder and chairman quit last week, confessing the company's profits had been falsely inflated for years. His brother and the former chief financial officer are being held in custody, with the scandal hitting Indian stocks and currency.

Analysts say economic downturns often reveal corruption that had been left unnoticed during boom times, with firms sometimes also paying more attention to the bottom line and being keener to call in investigators. Losses can also simply become too big to hide.

(Reporting by Kylie MacLellan, Editing by Peter Apps)