Samsung Verdict, Corporate Governance, and the Fight Against Bribery and Corruption: Five useful lessons for Africa (Part I)
On August 25, 2017, Lee Jae-yong, vice chairman of Samsung Electronics Co. and the heir to the Samsung empire, was convicted of bribery and sentenced to five years in prison. Lee’s conviction immediately sent shockwaves throughout the corporate world. To put Jae-yong’s verdict in context, Samsung powers the South Korean economy and is, without doubt, South Korea’s greatest economic success. Samsung contributes about a fifth of South Korea’s gross domestic product. Most South Koreans eat, live and breathe Samsung. As Chico Harlan put it in a recent article in The Washington Post, “[s]o sprawling is Samsung’s modern-day empire that some South Koreans say it has become possible to live a Samsung-only life.” Harlan adds that in South Korea, Samsung “acts more as a do-everything monolith,” building roads and oil rigs, operating hotels and amusement parks, selling insurance, and making one of the world’s best-selling smartphones. According to Zahra Ullah, writing for CNNtech, in South Korea, Samsung’s businesses “reach deep into many parts of people’s lives, from the cradle to the grave.”
What can countries in Africa learn from the Samsung verdict? This question is important because although some countries in Africa have stepped up their anti-corruption efforts, few countries have succeeded in changing the culture of bribery and corruption in the continent. Furthermore, few countries have attempted to prosecute let alone convict business titans engaged in bribery or the public officials that accept the bribes. Moreover, penalties for bribery and corruption are generally weak in most jurisdictions in Africa and rarely reach corporations and other business entities. Rarely do judicial penalties consist of mandatory dissolution of a business, complete or partial cessation of a business operation, or disqualification of a business from receiving government-sponsored incentives, loans, and subsidies.
Bribery undermines accountability and transparency in the management of public affairs, is a major impediment to sustainable development, and is a threat to national and continental security. According to Alexandra Wrage the founder and president of TRACE International, Inc., “[b]ribery undermines security when police, military, customs officials and border guards can be bought. Bribes are paid to ensure building inspectors look the other way, health officials approve unsafe products, toxic waste is disposed of inappropriately, and government contracts are awarded for inferior products at inflated prices.” According to Australia’s Attorney-General’s Department, foreign bribery “is a threat to democracy and the rule of law, corrosive of good governance and an impediment to economic development.”
Bribery is not only bad for a country but is also bad for businesses and is particularly harmful to small- and medium-sized enterprises. Bribery introduces uncertainly and lack of predictability in the marketplace and increases the cost of doing business for everyone. Bribery can have a damaging effect on a firm’s reputation and frequently create regulatory headaches and significant legal risks for businesses. One study found that bribery negatively affected a firm’s operations across four dimensions of competitiveness: its external business relations, its interaction with regulators, its public reputation, and the morale of its employees.
What can countries in Africa learn from the Lee/Samsung saga?
Five lessons at least:
• When it comes to fighting bribery and corruption, there should be no “sacred cows” whatsoever. No individual should be considered too big to jail and no business should be considered too big to fail. South Korea’s recent bribery scandal has brought down many of the country’s political and business elites and the very future of the chaebols – conglomerates that dominate South Korea’s economy – presently hang in the balance. South Korea’s first female president, Park Geun-hye, was impeached in December 2016, and has since been formally indicted on corruption charges.
• The fight against bribery and corruption must go beyond tracing and recovering stolen public assets to prosecuting individuals and businesses that are implicated in bribery. In April, Shin Dong-bin, chairman of Lotte Group, a South Korean conglomerate that consists of over 90 business units and employs over 60,000 people, was indicted on bribery charges. In June, Choi Soon-sil, a close friend and unofficial adviser of Park Geun-hye, was sentenced to three years in prison for corruption. Eike Batista, a Brazilian oil and mining magnate, is presently under house arrest (after spending two months in prison) and is awaiting trial for bribery. Batista will stand trial with Sergio Cabral, the ex-governor of Rio de Janeiro, who allegedly took $16.5million in bribes from the former billionaire.
• Effective fight against bribery and corruption requires strong domestic institutions including stricter domestic and foreign bribery laws, effective corporate governance laws, strong and independent anti-corruption authorities, and a very strong judiciary. Anti-bribery law must be made to apply to companies, regardless of their corporate or legal form. Furthermore, civil liability should explicitly extend to the directors, officers, employees and agents of corporate entities who commit, participate, or aid in the commission of bribery. Laws currently used to fight the corruption scandal in South Korea include: the Act on Anti-Corruption and the Establishment and Operation of the Anti-Corruption & Civil Rights Commission, the Improper Solicitation and Graft Act, the Financial Transaction Reports Act, the Proceeds of Crime Act, and the Government Procurement Act.
• It is not enough to promulgate laws criminalizing bribery. Bribery laws must be effectively enforced. In this regard, it is imperative that countries in Africa adopt legislative and other measures to create, maintain and strengthen internal accounting, auditing and follow-up systems as regards custom and tax receipts, custom administration, procurement, and the management of public goods and services.
• Efforts to tackle bribery must go hand in hand with effects to address other systemic corporate wrongs including tax evasion, money laundering, insider trading, and other anti-competitive business practices. In the Samsung saga, Mr. Lee, along with four other Samsung executives, were charged on five offences: bribery, illegally transferring assets overseas, embezzlement, concealing criminal proceeds, and perjury.
Countries in Africa must take the lead in efforts to stamp out bribery and corruption in the continent and must not depend other countries to prosecute their white collar criminals. A growing number of developing countries and emerging economies are stepping up their fight against bribery and corruption. Underway in Brazil is a sweeping corruption investigation that has yielded multiple convictions and has resulted in jail terms for many business and political titans in the country.
Responsible businesses in Africa must take steps to identify and mitigate the risk of bribery and must implement credible anti-bribery programmes. Launched in 2003 by Transparency International and Social Accountability International, the Business Principles for Countering Bribery (Business Principles) assists companies in the design and implementation of effective anti-bribery policies. The Business Principles declares that “[t]he enterprise shall prohibit bribery in any form whether direct or indirect” and “shall commit to implementing a Programme to counter bribery.” Addressed to companies, the Organization for Economic Cooperation and Development’s Good Practice Guidance on Internal Controls, Ethics, and Compliance, offers useful guidance to companies desiring to establish effectiveness of internal controls, ethics, and compliance measures for preventing and detecting the bribery.
Ultimately, the Samsung verdict teaches that it is never too late for a society to embark on an effective fight against corruption. Park Geun-hye is South Korea’s first democratically-elected president to be forced from office. In June, Brazil’s President Mechel Temer became the first sitting president in the country’s history to be indicted on multiple charges including charges of accepting millions of dollars in bribes from the chief of JBS, the world’s biggest meat processor.
Uche Ewelukwa Ofodile