Even in our law-abiding, transparent country, graft happens. In some countries, it’s the cost of doing business
Federal politics are transfixed by apparent managerial indiscretion yet again.
SNC-Lavalin – whose officials have been found guilty of corruption in the past – faces criminal prosecution with consequences that could cripple it if found guilty. The company would face a ban on federal contracts for years, and such a ban could be honoured by municipalities and provinces as well.
The firm is already shut out of World Bank tenders due to a graft-tainted bridge contract it completed in Bangladesh.
Construction can be an ethical quagmire in North America. For generations, bid-rigging and kickbacks have been a risk when projects are put out to tender. The larger the project, and the more government is involved, the likelier the temptations to cheat in the name of profit. Since cost overruns are all too common, the opportunity to hide illicit payments is very real.
Even in our law-abiding, transparent country, graft happens. So it should come as no surprise that in countries where the rule of law is weak, greedy officials are brazen and there’s little or no transparency, many deals are riven with corruption.
Transparency International compiles an index ranking nations according to their degree of corruption. It’s a good if inexact guide to how hard a company doing business in a nation has to work to maintain ethical standards.
Similarly, the World Bank’s ease of doing business rankings includes corruption in its calculations.
Companies, therefore, can be forewarned before attempting to do business in these hazardous realms.
Some of the riskier countries are relatively modern and advanced, such as South Africa, Turkey and Mexico. Sometimes relatively poor ones are comparatively honest, such as Bhutan and Botswana. However, in general, the richer the nation, and the more democratic it is, the less likely it is to have endemic or severe corruption.
Companies that must have a physical presence in a country are more likely fall to victim to graft-seekers, or to themselves take advantage of vulnerable local officials. So mining, oil and gas, construction and engineering firms are more likely to get into trouble.
Companies are usually aware of these risks, as are astute investors. And in many countries, it’s not entirely possible to invest or operate without giving out some money. But if payments become too large, too obvious, too unjustifiable, too frequent or even seemingly eternal, then the company’s investment returns plummet and legal risks escalate.
It wasn’t inevitable that SNC-Lavalin would succumb to temptation or even that it would be caught. But the larger and more frequent such schemes are, the higher the risk of being discovered.
If Canada is not immune, then it’s as unlikely any country is.
But should employment-destroying legal penalties be applied if only a few employees or shareholders were in a position to know about malfeasance?
The world is not a transparent, honest theme park with virtuous characters spreading progress through murky environments.
By Ian Madsen
Ian Madsen is a senior policy analyst with the Frontier Centre for Public Policy.