The Sharjah-based Pearl Initiative has launched a three-year anti-corruption campaign funded by an $880,000 grant from Germany’s Siemens Integrity Institute.

The programme will work with some of the largest companies in the region, both local and international. Through the anti-corruption and bribery standards the initiative has put in place, it can pressure suppliers, subcontractors and business partners to apply the same standards in their own firms.

“What we want to do now is put a clear incentive mechanism and a methodology in place by which companies start to have a framework to implement this in the region,” says Imelda Dunlop, executive director of the Pearl Initiative. “And they’re really encouraging their suppliers and their value chain to do the same.”

Tightening standards

The launch comes less than a year after France-based Alstom agreed to pay a $772m fine to the US Department of Justice (DoJ) under the Foreign Corrupt Practices Act (FCPA). The alleged violations in several countries included channelling bribes through third parties related to public officials in Saudi Arabia’s electricity sector, while recording them as consultants. The lack of compliance procedures in the company were one reason cited by the DoJ for the size of the fine.

It is the second-largest fine under the FCPA. The largest was an $800m fine Siemens agreed to pay in 2008, which led to the creation of the Integrity Institute.

Globally, the France-headquartered Organisation for Economic Cooperation and Development (OECD) is joining the US in enforcing anti-corruption laws much more stringently, wherever the activity takes place.

Increasing activity

“Companies in this region and everywhere are getting much more used to actively being more rigorous about the questions they’re asking companies and the evidence they’re acquiring before a big deal is done or a corporate partnership is embarked upon,” says Dunlop.

“So they’re not just asking for the policy, they’re wanting to know exactly what training you are doing, what your whistle-blowing mechanism looks like, if it’s completely independent, if the anonymity of the whistle-blower is protected, and if you are ensuring there’s no retaliation. What was a one-question, tick-the-box prior anti-bribery and corruption policy is now much, much more rigorous.”

As well as multinationals under pressure from global legal frameworks, important local clients such as Saudi Aramco and Saudi Basic Industries Corporation (Sabic) are implementing anti-corruption and bribery policies.

Wider benefits

The Pearl Initiative also argues that reducing corruption benefits the entire economy. The Washington-based World Bank estimated that corruption was the equivalent of 5 per cent of world GDP in 2005, and increases the cost of doing business by 10 per cent, while decreasing foreign investment by 5 per cent.

The initiative is bringing companies together in round-tables to raise awareness of the issues they face, and discuss the best compliance methods for the region.

“What we’ve seen over the past four years is that there’s definitely an increasing openness to talking about these issues,” says Dunlop. “All around the world it’s necessary for business leaders to come together and say: ‘Actually, corruption is not good for business; it’s not good for any of us; it’s not good for innovation, for competitiveness.’ There is no advantage to be gained for our economies and our businesses as a whole if we don’t have a level playing field.”

Quantifying corruption

Corruption is, by nature, underestimated in data, which is mainly based on perception surveys. The Middle East does not rank worse than other regions in these surveys, with no GCC country ranked below 70 in Berlin-based Transparency International’s Corruption Perception Index.

A survey by the US’ PwC from 2014 found that 21 per cent of businesses in the Middle East said they were victims to economic crimes in the previous two years, compared with a global average of 37 per cent.

Of these, 6 per cent said they had lost between $5m and $100m, and 6 per cent more than $100m. About 71 per cent said they were victims of assets misappropriation – predominantly by internal employees, 35 per cent accounting fraud and 33 per cent procurement fraud.

The Pearl Initiative has begun collecting data on the anti-corruption procedures companies have in place.

Integrity ranking

It will publish the GCC Integrity Indicator in 2016, showing how well businesses plan to deal with corruption. In theory, it will bring them financial as well as reputational rewards, and encourage others to raise their standards.

“The companies that are absolutely leading the way are the ones who will see the competitive advantage, because once their reputation is that they are at the leading edge, then they will be the type of organisation that businesses want to work with, and that employees want to work for,” says Dunlop.

“So as part of this collaborative action, we want to develop and publish a methodology by which companies can measure and disclose the level of their implementation of anti-corruption practices.”

The Pearl Initiative is also working with GCC universities to improve education around anti-corruption and compliance. They are working towards creating a generation of business leaders aware of how to comply with anti-corruption standards.

Current activities are focused in the GCC, but the initiative hopes to broaden to the rest of the Middle East in the future.