Chiawen Kiew is the Associate Director for Investigations at the Office of the Chief Compliance Officer of the European Bank for Reconstruction and Development (EBRD). Based in London, Kiew oversees the workflow of about 30 ongoing investigations and advises the Bank on identifying and responding to allegations of corruption, fraud, and other misconduct in EBRD-financed projects. He also advises the Chief Compliance Officer on international policy concerning anti-corruption measures as well as enforcement practices of other multilateral development banks. The EBRD is active on three continents and almost 40 countries with a 2019 target of $10 billion in investments. Kiew spoke to CIPE’s Frank Brown.
In your work, why are small- and medium-sized enterprises (SMEs) so important and challenging? Based on your experience, what is the most effective way to engage them?
The EBRD has a mandate to assist its countries of operation to transition from a centralized economy to a market-based economy. This mandate involves engaging with market actors of all sizes. Given that SMEs form a large part of the economy in many of the EBRD’s countries of operations – sometimes upwards of 80% of the economy – the EBRD’s transition goals must necessarily be inclusive of this economic sector.
Even so, it can be challenging to engage effectively with SMEs because they are a very diverse and diffuse community of enterprises with a varied risk profile. SMEs are often concerned with the immediate financial impact of business decisions, and it can therefore be difficult to convince them of the benefits of anti-corruption and business integrity compliance programs, which may not necessarily have a direct, discrete, and identifiable financial impact. Given the diverse anti-corruption risk profiles, it is also difficult to design bespoke programs for SMEs that are cost-effective yet responsive to their needs. A lot of publicly available guidance is targeted towards large multinational companies and may be too cumbersome for an SME to adopt.
I find that SMEs are responsive to the needs of business partners in their supply chains because usually these business partners face the same corruption risks as the SME and can exert influence on the SMEs to change. These business partners may also be more successful in convincing the SME of the benefits of an anti-corruption or business integrity program because of a longstanding business relationship.
As we know, in the markets where the EBRD is active, new laws are not adequate to change businesses’ behavior. So, what else needs to be done? What role can large international companies play?
There needs to be more done to improve the investment and business climate holistically. This involves a “bottom-up” approach to help businesses understand their role in improving the business climate by not participating in corruption or fraud.
While a lot has been done to raise awareness among businesses of the importance of an anti-corruption compliance program, there still remains a gap in capacity about how to adopt and implement a business integrity program. Specifically, with respect to SMEs, I believe that governments can develop a more convincing case for business integrity programs by going through SMEs’ supply chain business partners, who are often multinational corporations (MNCs) who more aware of anti-corruption risks and may have compliance programs.
MNCs have the economic clout through their supply chains to request that their SME business partners adopt or enhance compliance programs and/or could assist their SME business partners in implementing such programs. MNCs with top-notch compliance programs are already conducting third-party due diligence, and this would be a logical extension of that process: Instead of simply stopping to do business with a company that has an unacceptable risk profile, work with that company to have it adopt an effective compliance program.
What has the EBRD done to implement good business integrity in its clients and countries of operation?
The EBRD is particular among the multi-lateral development banks for its focus on private sector financing, which makes up between two-thirds and three-quarters of EBRD’s operations. As a result, the EBRD has a track record of working with the private sector on a number of initiatives, including improving business integrity. Specifically, in its operations, the EBRD has supported the implementation of anti-corruption programs through its pre-transaction due diligence and approach to debarment. For instance, when the EBRD encounters a potential client that has a less than ideal integrity profile, instead of simply declining to work with that company, the EBRD will assist that company to implement reforms to its compliance program. To help ensure that the company follows through on its integrity commitments, the EBRD makes its financing conditional on the company achieving compliance-related targets. Where a client has fallen short of our expectations, in appropriate circumstances, the EBRD seeks to impose a non-conditional debarment coupled with conditions that the company will improve its internal controls and implement an anti-corruption or business integrity program. Naturally, whether a non-conditional debarment is available will depend upon the severity of the misconduct and our assessment of whether the company has a genuine willingness to reform.
What are the benefits of EBRD’s more holistic, contextual approach to debarment?
We think that such an approach has a genuine positive impact on the business environment as a whole. We have found that companies who have adopted the compliance requirements tied to conditional non-debarments genuinely reform and return to the marketplace as an example for other companies. We have heard that some of these companies receive positive feedback from potential clients and have even gained a competitive advantage. Competitors to these companies have even started implementing such programs themselves because they realize that they are at a disadvantage without a proper compliance program.
Frank Brown is the Director of the Anti-Corruption and Governance Center