Bribery and corruption growing in NZ

Domestic bribery and corruption in New Zealand is a growing problem but companies are not recognising the risk, new research shows.

About 270 public and private sector organisations across New Zealand and Australia were surveyed by Deloitte to find nearly a quarter, 23%, of respondents had experienced one or more instances of domestic corruption in the past five years.

Of these, more than half occurred in the past 12 months, with the highest amount reported in the energy and resources, government and public and financial services sectors.

“That almost one in four organisations report an incident is a significant level of corruption. There is no longer any excuse for complacency against this risk,” Deloitte New Zealand forensics partner Barry Jordan says.

“Apart from the legal ramifications, which can include heavy fines or even jail time, the reputational damage from corruption can have serious long-term flow on effects on an organisation’s bottom line.”

The most common types of domestic corruption were undisclosed conflicts of interest, supplier kickbacks and personal favours. Just over a quarter of the reported incidents were from organisations with more than 5000 employees, with no industry immune.

“Corrupt behaviour is more prevalent than most people think,” says Deloitte Australia forensic partner Frank O’Toole.

“We assume that because we’re Australians or New Zealanders that we behave in a right and proper way. Even a cursory read of media reports, however, reveals enough material to challenge this assumption.”

On Tuesday, Auckland man Johnson Yuejun Li appeared in the Auckland District Court accused of trying to bribe an Auckland Council resource consent officer over an application to subdivide a Hillsborough property. He will next appear in court on April 14.

The Serious Fraud Office is also taking former NZ Wine Company boss Peter Scutts through the courts for allegedly accepting about $65,000 in secret rewards for procuring contracts. Mr Scutts, also former chief executive of the Auckland Blues, denies this.

‘Grease’ payments an offshore risk
Companies with offshore exposure are also at risk, with energy, resources, manufacturing and engineering sectors reporting the most incidents, including facilitation or ‘grease’ payments to secure a routine government action.

Deloitte says for some organisations, making offshore facilitation payments has been seen as a necessary cultural evil, but this justification is fast losing credence as countries such as China and India crack down.

Of organisations operating in high-risk jurisdictions, 34% experienced offshore bribery and corruption in the past five years, up from 21% in 2012. Just 31% had a comprehensive understanding of relevant legislation.

The research highlights significant levels of foreign bribery, and yet it appears that many companies are still not recognising this risk, SFO chief executive Julie Read says.

“A large percentage of respondents do not have adequate systemsto identify foreign bribery risks. Neither have they carried out foreign bribery and corruption risk assessments. This is surprising given the success of Kiwi companies overseas, in jurisdictions identified by Transparency International as high risk, and where UK, US and NZ legislation all apply.

“We see the potential for an increase in foreign bribery cases given this profile and would encourage all companies trading in international markets to be proactive in taking steps to identify and respond to risks of foreign bribery in their organisations. Any potential offences identified should then be reported to the SFO.”

Domestic corruption is usually discovered through management review, internal controls and tip-offs from employees.  However, for organisations with more than 5000 employees, the top discovery method is hotline tip-offs.