France Cracks Down on Corruption with New Law

Bienvenue, Sapin II

The introduction of Sapin II adds to the growing list of laws aimed to reduce corporate corruption. While these laws are important and beneficial, they cannot improve corporate culture to the extent that high-quality ethics and compliance programs do. To that end, every organization should prioritize internal ethical culture while complying with the law.

By now, the enactment and June 1 effective date of France’s Sapin II is probably old news for compliance professionals. So far, commentary on the new anti-corruption law has largely consisted of interpretation of the requirements for implementation, including the expectations, risks, implications and ramifications for noncompliance. All are very important topics for discussion.

Having now worked in the ethics and compliance industry for almost two decades, I have been witness to the enactment of several other anti-corruption laws around the world. There is value to these efforts, despite the challenges they pose. Still, it strikes me that in the midst of the attention to compliance, it is important to take a moment and consider the nature of the problem that Sapin II, and other laws like it, aim to address. It is also valuable to recognize that the corporate initiatives that will actually alleviate the problem do not come from mere compliance with the Law, Sapin II or otherwise.

The Problem

Today, nearly 10 percent of the world’s population is living in poverty (less than $1.90 per day). That encompasses over 700 million people. Many of them do not have running water or sanitation, let alone access to the electricity and internet connectivity that is allowing you to read this article. People in poverty are at higher risk for depression and illness and face a higher likelihood of an early death. While a number of thought leaders have argued that poverty is a problem that can be eradicated, corruption is one of the leading reasons this horrid situation is allowed to persist.

The World Bank estimates that 20 to 40 percent of funds intended for private sector projects in developing economies is stolen through high-level corruption. That hinders the provision of food, water and medical attention, as well as infrastructure projects, such as building roads and bringing electricity to people who need it.

In developed economies, corruption is equally problematic for corporations. Bribes, kickbacks and other corrupt activities are responsible for hindering fair competition, deterring domestic and foreign investments and increasing transaction fees. It is estimated that the cost of doing business today is 10 percent higher than it needs to be simply because of the prevalence of corrupt activity. According to the Ethics & Compliance Initiative’s (ECI’S) 2016 Global Business Ethics Survey (GBES), on average 17 percent of business employees around the world observe some form of corruption happening in their workplace each year, including the giving and receiving of bribes, kickbacks and other inappropriate gifts.

The Solution

The good news is that corruption can be dramatically reduced, and efforts like Sapin II are important contributors to the solution. ECI’s research has shown that when an organization has a high-quality ethics and compliance program in place, acts of misconduct like engaging in corruption are reduced by as much as 34 percent. Sapin II insists on some of the elements that are central to a high-quality program, including the following:

• A code of conduct, or other form of written standards;
• Training of employees on what actually constitutes corruption;
• Risk assessment to determine areas of greatest exposure;
• Systems for employee reporting/raising of concerns;
• Protections for employees who take steps to report (internally or externally); and
• Discipline of employees for violating the code of conduct.

Yet even the best efforts to implement the above pale in comparison to the effect of a strong ethical culture in an organization. And unfortunately, culture can’t be legislated.

Strong ethical cultures are the result of several activities and commitments:

• Communication of a set of core values that are intended to guide employee decisions and actions;
• Leadership efforts to consistently talk about the importance of integrity and to model the conduct they expect from the workforce;
• Supervisors’ reinforcement of the core values and the messages senior leaders are communicating;
• Encouragement and reinforcement that management wants employees to raise concerns and reports of suspected corruption;
• Systems in place to fairly and consistently investigate reports of wrongdoing; and
• Accountability of employees, regardless of the level, when they engage in corruption.

When corporations – and government entities – prioritize the establishment of an internal ethical culture, corrupt activity is reduced by as much as 68 percent.

From a corporate perspective, it is easy to get caught up in responding to the requirements now that Sapin II is in effect. And to the extent that the new law encourages and reinforces the need for high-quality ethics and compliance programs, it is a good thing. Yet it is important for leadership to not lose sight of the importance of the culture of the organization, in addition to compliance with the law.

Sapin II does make important strides in France to send a message that corruption will not be tolerated, and the problem must be addressed. To that end, bienvenue Sapin II (welcome, Sapin II).