1

Table of Contents
LxecuLlve Summary ŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦ 2
ulsLlngulshlng CorrupLlon and 8rlbery ŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦ 2
lacLors LhaL laclllLaLe CorrupLlon ŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦ 2
coottoct 5lze ooJ locotloo ŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦ 2
compooy´s coootty of Otlqlo ooJ íxpetleoce ŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦ 3
Who ls vulnerable Lo CorrupLlon? ŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦ 3
1let 1/ 1let 2 5oppllets Ŷ 1be lltst cottoptloo 1oocbŴlolots ŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦ 3
Otlqlootloq lltms Ŷ 5mollet compooles os Molo 1otqets ŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦ 4
1let 1/ 1let 2 veoJots Ŷ cottoptloo ooJ costomet 1oocbŴlolots ŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦ 3
Consequences of CorrupLlon ŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦ 3
ultect costs ŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦ 3
loJltect costs ŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦ 6
WorsL ÞracLlcesť LŴWasLe ln Chlna and SouLheasL Asla ŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦ 6
8esL ÞracLlcesť Lmergency ÞrocuremenL ŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦ 7
8ecommendaLlons for CombaLLlng CorrupLlon ŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦ 8
5bottŴ1etm lmplemeototloo ŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦ 8
looqŴ1etm lmplemeototloo ŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦ 9
Concluslon ŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦ 9
Works ClLed ŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦŦ 10








2

ecutive Summary
CorrupLlon ln Lhe global supply chaln ls a problem LhaL ls growlng larger and more complex wlLh
each new lnLernaLlonal Lrade dealţ ouLsourclng opporLunlLyţ and global emergencyŦ 1hls paper seLs ouL
Lo deflne whaL consLlLuLes supply chaln corrupLlonţ who ls lnvolvedţ and how Lhe supply chaln ls
affecLed when corrupLlon occursŦ Lxamples of besL and worsL pracLlces are also presenLed as well as
shorLŴLerm and longŴLerm recommendaLlons Lo baLLllng corrupLlonŦ 8esearch was obLalned from several
research papers as well as anLlŴcorrupLlon organlzaLlon webslLesŦ
istinguisbing Corruption and Bribery
CorrupLlon can be deflned and dlsLlngulshed from brlbery malnly Lhrough dlfferences ln scopeŦ
CorrupLlon ls offlclally deflned as Lhe mlsuse of enLrusLed auLhorlLy for prlvaLe beneflL (8ashekaţ
2011ť38)Ŧ lL ls a Lerm LhaL encompasses a broad range of behavlors and acLlons LhaL can range from
brlng anLlŴcompeLlLlve Lo ouLrlghL lllegalŦ 8rlberyţ on Lhe oLher handţ ls one of Lhe prlmary mechanlsms
for creaLlng corrupLlonŦ A brlbe ls deflned as money or favor glven or promlsed ln order Lo lnfluence Lhe
[udgmenL or conducL of a person ln a poslLlon of LrusL (WebnoLe 1ţ MerrlamŴWebsLerť 2011)Ŧ lL ls also a
dlsLlngulshlng facLor beLween grand and peLLy corrupLlonŦ Crand corrupLlon occurs when subsLanLlal
amounLs of moneLary or oLher rewards are lnvolved Lo lnfluence hlghŴlevel offlclalsŦ ÞeLLy corrupLlon
encompasses monles pald Lo lowerŴlevel offlclals ln an organlzaLlon for much smaller sums (8ashekaţ
2011ť 38)Ŧ Many companles and governmenLs have laws ln place speclfylng Lhe maxlmum value of
corporaLe glfLs and donaLlons because of brlbery concernsŦ 8rlbery creaLes corrupLlon by glvlng
preferenLlal LreaLmenL Lo vendorsţ suppllers or oLher acLors ln a buslness relaLlonshlp who pay off publlc
or prlvaLe offlclals ln poslLlons of powerŦ lL ls Lhe mosL wldespread and damaglng corrupLlon agenLŦ
actors tbat acilitate Corruption
1he llkellhood of corrupLlon ls affecLed by many facLors LhaL exlsL ln global buslness lnLeracLlonsŦ
1here are several crlLlcal facLors LhaL musL be addressed by a flrm when assesslng global corrupLlon rlskŦ
Contruct Slze unJ Iocutlon
1he slze and locaLlon of a buslness conLracL can affecL how corrupL Lhe supply chaln may
becomeŦ lL ls reasonable Lo assume LhaL Lhe larger a conLracL becomes Lhe more people are lnvolvedţ
poLenLlally leadlng Lo more people suscepLlble Lo brlbes (SchulLzţ 2008ť 321)Ŧ ConLracL slze also has a
slgnlflcanL effecL on who auLhorlzes a conLracLŦ A large conLracL lmplemenLed by a mulLlnaLlonal flrm
mlghL seek approval from an execuLlve sLaff ln an lndusLrlallzed naLlonţ somewhaL lsolaLed from ºonŴ
3

LheŴground" brlbery concernsŦ A mldŴslze or smaller buslness would rely on Lhlrd parLles more ofLenţ
Lhereby lncreaslng Lhe rlsk of corrupL lndlvlduals approvlng lnflaLed or unnecessary conLracLsŦ
1he locaLlon of a conLracL also has lmpllcaLlons for corrupLlng lnfluencesŦ 1he ablllLy Lo send
parLs of whole supply chaln ouLslde of a parenL organlzaLlon's lmmedlaLe markeL has allowed Lhe global
supply chaln lnfrasLrucLure Lo be much more flexlbleŦ LnLlre supply chaln sysLems can be offloaded from
lndusLrlallzed naLlons Lo developlng onesţ buL Lhls has also engaged more companles ln locaLlons where
brlbery ls assumed and Lhere are very few legal or punlLlve opLlonsŦ
Compuny´x Country of Orlgln unJ Fxperlence
1he orlglnaLlng counLry of Lhe cenLral flrm ls also lmporLanL Lo conslderţ as well as Lhelr level of
experlence ln deallng global corrupLlon lssuesŦ Agaln large mulLlŴnaLlonal corporaLlons have Lhe
advanLageŦ 1hey are usually based ln lndusLrlallzed naLlons LhaL can provlde Lhe resources necessary Lo
learn abouL a dlfferenL culLure or pollLlcal cllmaLeŦ uŦSŦ and oLher WesLernŴorlenLed flrms also have Lhe
legal asseLs aL Lhelr dlsposal Lo flnd Lhelr way Lhrough Lhe maze of Lrade law and anLlŴcorrupLlon pollcles
ln Lhe hosL counLry and abroadŦ
Cn Lhe opposlLe end of Lhe specLrumţ flrms ln developlng counLrles musL be aware of global
anLlŴcorrupLlon sLandardsŦ lnconslsLencles ln global anLlŴcorrupLlon pollcy and hyperŴLurbulenL markeL
envlronmenLs ln supplyŴchalnŴcrlLlcal counLrles can lead Lo a masslve awareness gap of anLlŴcorrupLlon
laws and besL pracLlcesŦ 1hese companles also may come from a counLry where corrupLlon and brlbery
are slmply local buslness norms LhaL buslness leaders feel can be scaled up Lo Lhe global Lrade levelŦ As
developed counLrles become developed counLrlesţ Lhese buslness norms wlll become more
sLereoLyplcal Lhan LyplcalŦ Poweverţ culLural dlfferences can sLlll lead Lo serlous mlsundersLandlngs
when deallng wlLh flrms ln lndusLrlallzed naLlons wlLh sLrlcL anLlŴbrlbery pollclesŦ
bo is Vulnerable to Corruption?
All sLages of Lhe supply chaln sysLem are vulnerable Lo corrupLlonŦ Poweverţ Lhe severlLy and
scope of poLenLlal corrupLlon varles LhroughouL Lhe supply chaln processŦ
ler Ź, ler ź Suppllerx - e Flrxt Corruptlon oucolntx
Suppllers aL Lhe beglnnlng of Lhe supply chaln are Lhe mosL suscepLlble Lo brlbes and oLher
forms of corrupLlonŦ 1he prlmary reason ls LhaL 1ler 1 and 1ler 2 suppllers are Lhe mosL llkely supply
chaln componenLs Lo be ouLsourcedŦ 1he ma[orlLy of ouLsourclng remalns lnslde Lhe hosL counLry and/or
4

wlLhln Lhe parenL organlzaLlonŦ Poweverţ an ouLsourced suppller flrm ls usually ln a dlfferenL geographlc
reglon Lhan Lhelr procurlng agenLţ maklng Lhem suscepLlble Lo ma[or dlfferences ln markeL condlLlonsŦ
As suchţ procuremenL fraud ls one of Lhe mosL slgnlflcanL classlflcaLlons of corrupLlonŦ A 2009 survey of
729 senlor execuLlves found LhaL Lhe average corporaLe loss due Lo fraud was $8Ŧ8 mllllonţ wlLh 20Ʒ
comlng solely from procuremenL fraud (L8nţ 2010ť 3)Ŧ ÞrocuremenL fraud ls noL llmlLed Lo over prlced
goods and preferenLlal conLracLsŦ 1hls Lype of farŴreachlng suppller corrupLlon can lead Lo lgnorlng
safeLy requlremenLs and coverlng up worker's compensaLlon llablllLlesŦ Local and semlŴlocal
governmenLs can be lnvolvedţ Lradlng brlbes for favorable land raLes or evadlng LaxesŦ ÞrocuremenL
fraud can lead Lo many unfavorable ouLcomes beyond hurLlng producL quallLy and company lnLegrlLyŦ
Companles of all slzes should be aware of how vulnerable suppllers and suppller relaLlonshlps can be Lo
corrupLlonŦ
Orlglnutlng Flrmx - Smuller Compunlex ux Muln urgetx
1he orlglnaLlng companles (ln Lhe mlddle of Lhe supply chaln sysLem) are more or less
vulnerable Lo dlrecL corrupLlon dependlng on Lhe organlzaLlon's slzeŦ As menLloned prevlouslyţ small and
mldŴslzed companles can have a much harder paLh Loward baLLllng corrupLlon because of Lhe large
resource dlsparlLy beLween Lhemselves and large mulLlŴnaLlonal corporaLlonsŦ Smaller flrms are
prlmarlly faced wlLh compromlslng Lhelr due dlllgence over lLs value proposlLlonŦ uue dlllgence ln Lhe
supply chaln lncludes duLles such as audlLlng LhlrdŴparLy suppllers and vendorsţ dolng employee and
company background checks before flnallzlng conLracLsţ drafLlng corporaLe anLlŴcorrupLlon pollclesţ and
pursulng llLlgaLlon when Lhose pollcles are brokenŦ 1hese acLlvlLles can become unsusLalnable ln small
and mldŴslze buslness envlronmenLsţ howeverŦ 1he flrsL challenge ls Lhe lack of bargalnlng powerŦ
Smaller buslnesses mlghL lndeed be able Lo seL cerLaln anLlŴcorporaLlon pollcles and oLher due dlllgence
proceduresţ buL Lhose measures wlll probably be meanlngless lf Lhey are negoLlaLlng a conLracL wlLh a
LhlrdŴparLy suppller Lwlce Lhelr slze (Wrageţ 2010ť 3)Ŧ A small flrm mlghL analyze Lhelr opLlons and
declde Lhe mosL effecLlve soluLlon would be Lo pay Lhe brlbe raLher Lhan lose even Lhe opporLunlLy of a
conLracLţ leL alone Lhe acLual conLracLŦ 1he second challenge ls Lhe scale of Lhe global markeLplace
versus Lhe approprlaLe due dlllgence resourcesŦ 1oday's lnformaLlon Lechnology sysLems enable flrms of
almosL any slze Lo sell goods and servlces around Lhe worldŦ WhaL l1 hasn'L solved ls a way Lo effecLlvely
monlLor hundredsţ Lhousandsţ or mllllons of lndlvldual LransacLlons ln a buslness cycle and perform
corrupLlon due dlllgence on every one (Wrageţ 2010ť 3)Ŧ 1he largesL flrms ln Lhe world are unable Lo
commlL enough resources Lo Lhls problemţ so smaller buslnesses flnd lL compleLely lmpracLlcalŦ 1he
3

Lhlrd challenge for smaller companles ls poLenLlal corrupLlon hldden ln oLher sLages of Lhe supply chaln
sysLemŦ Large corporaLlons usually have Lhe ablllLy Lo walk away from LhlrdŴparLy suppllers and vendors
lf corrupLlon and brlbery concerns come Lo llghL Ŷ Lhls does noL mean LhaL Lhey always doţ [usL LhaL Lhe
buslness as a whole would noL be crlLlcally LhreaLened lf Lhese Lhlrd parLles were cuL looseŦ Smaller
companles have no such luxuryŦ lf corrupLlon comes Lo llghL once a good or servlce has already made lLs
way Lhrough suppller sLeps of Lhe supply chalnţ Lhese companles cannoL afford Lo sacrlflce Lhe suppller
relaLlonshlpŦ 1hey can Lry Lo lncrease Lhelr due dlllgence ln Lhe nexL supply chaln cycleţ buL even LhaL ls
no guaranLee LhaL Lhey can sever LhaL relaLlonshlp and sLlll malnLaln Lhelr buslness (Wrageţ 2010ť 3)Ŧ
Small and mldŴslze buslnesses are exLremely vulnerable because corrupLlon can affecL everyLhlng from
Lhelr key buslness relaLlonshlps Lo Lhelr ablllLy Lo malnLaln Lhelr buslness as a golng concernŦ
ler Ź, ler ź VenJorx - Corruptlon unJ Cuxtomer oucolntx
vendor corrupLlon has lLs own seL of unlque challengesţ buL Lhey are sllghLly less damaglng Lhan
aL oLher supply chaln levelsŦ 1helr corrupLlon concerns are usually locallyŴbasedţ slnce vendors have Lhe
closesL and mosL frequenL Louch polnLsŦ 8rlbery and oLher corrupLlon meLhods aL Lhls sLage can
preferenLlal LreaLmenL Lo a cerLaln producLţ cusLomerţ or buslness ln lleu of paymenLs of money and
oLher glfLsŦ lL can also lnclude colluslon beLween buslnesses Lo shuL ouL rlvals or Lo palnL cerLaln
producLs ln a negaLlve llghL Lo favor anoLherŦ
Consequences of Corruption
CorrupLlon ln Lhe supply chaln has a dramaLlc effecL on buslness cycles and proflLablllLyţ noL Lo
menLlon Lhe damage done Lo macroeconomlcţ soclalţ and pollLlcal sysLemsŦ ln 2009 Lhe uŦn esLlmaLed
Lhe global cosL of publlc and prlvaLe corrupLlon Lo be approxlmaLely $1Ŧ6 Lrllllon (L8nţ 2010ť 2)Ŧ Many
effecLs of corrupLlon spread far beyond slmply loslng money or markeL share for Lhe affecLed
organlzaLlonŦ
lrect Coxtx
1he sum LoLal of supply chaln corrupLlon above lncludes boLh dlrecL and lndlrecL cosLsŦ 1he mosL
dlrecL cosL ls obvlously flnanclal cosL Lo buslnessesŦ As menLloned prevlously (see º1ler 1/ 1ler 2
Suppllers") Lhe dlrecL flnanclal cosL of corrupLlon per large corporaLlon reaches lnLo Lhe mllllons of
dollars each yearŦ 1he money spenL on llLlgaLlon and due dlllgence ls also losL when eLhlcal companles
are compelled Lo follow anLlŴcorrupLlon pracLlces and Lhelr suppllersţ vendorsţ and dlsLrlbuLors are noLŦ
6

lnJirect Costs
1here are several oLher adverse lmpacLs ouLslde of flnanclal lossŦ Cne of Lhe largesL lndlrecL
corrupLlon cosL ls Llme spenL deallng wlLh corrupLlonť Lhe mllllons of dollars spenL each year by large
flrms on anLlŴcorrupLlon pollcles pales ln comparlson Lo Lhe opporLunlLy cosL of dedlcaLlng so many
resources Lo a nonŴcrlLlcal buslness funcLlonŦ lnnovaLlon and creaLlvlLy can be hlndered and even losL lf
Loo many people are consLanLly lnvolved wlLh lmplemenLlng anLlŴcorrupLlon acLlvlLlesŦ
AnoLher key lndlrecL cosL ls Lhe added legal llablllLy placed upon companlesŦ noL only are
companles uLlllzlng a global supply chaln expecLed Lo adhere Lo anLlŴcorrupLlon due dlllgenceţ Lhey can
now poLenLlally become legally llable Lo corrupLlon ln ad[acenL areas of Lhe supply chalnŦ 1he assoclaLed
cosLs of llablllLy Lle closely wlLh compllance cosLs as well as add an exLra layer of uncerLalnLy Lo suppller
engagemenLŦ uncerLalnLyţ wheLher relegaLed Lo lnLernal supply chaln lssues or Lhe economlc cllmaLe as
a wholeţ ls one Lhe blggesL fears of an lnnovaLlve and growLhŴorlenLed companyŦ 1hls new llablllLy can
also lead Lo lrreverslble damage Lo a company's repuLaLlon lf evldence of corrupLlon comes Lo llghL
before belng dlffused or correcLedŦ Small and mldŴslze flrms are especlally suscepLlble Lo lrreverslble
damage Lo Lhelr repuLaLlon ln Lhe buslness communlLyŦ Companles may now become even more
susplclous of suppllers lf Lhey musL now worry abouL belng held responslble for Lhlrd parLles' uneLhlcal
acLlonsŦ
1he flnal lmporLanL lndlrecL cosL Lo conslder ls Lhe cosL borne by people lnvolved ln Lhe supply
chalnŦ 1hls mosL noLably becomes a facLor concernlng workers ln developlng naLlonsţ worklng ln enLlLles
aL Lhe beglnnlng of Lhe supply chalnŦ 1ler 1 and 1ler 2 suppllers can cause slgnlflcanL damage Lo worker
healLhţ worklng condlLlonsţ and Lhe envlronmenL lf Lhey are under Lhe lnfluence of corrupLlonŦ 1he wellŴ
belng of workers and Lhe lmmedlaLe envlronmenL around lndusLrlal zones should noL be used as
collaLeral damage ln suppllers' and dlsLrlbuLors' corrupLlve acLlonsŦ
orst Practices: aste in Cbina and Soutbeast Asia
1he human cosL of corrupLlon ls readlly apparenL ln Lhe eŴwasLe exporL markeLŦ up Lo 80 percenL
of Lhe world's eŴwasLe ls senL Lo Chlna or oLher souLhŴeasL Aslan counLrlesţ slnce lL can be over 10 Llmes
cheaper Lo recycle elecLronlcs ln Lhose counLrles Lhan ln Lhe uŦSŦ or Lurope (Callaugherţ 2010ť 1)Ŧ Slnce
Lhe uŦSŦ alone generaLes over 2Ŧ3 mllllon Lons of eŴwasLe per yearţ Lhere are slgnlflcanL savlngs Lo be had
by ouLsourclng Lhe Leardown and recycllng of old elecLronlcs (Callaugherţ 2010ť 1)Ŧ Poweverţ Lhe
lneffecLlveness of anLlŴcorrupLlon pollcles ln Lhe supply chaln are readlly apparenL ln Lhe healLh and
sLandard of llvlng degradaLlon seen ln ouLsourced recycllng workersŦ 1he Culyu reglon of Chlna ls
7

especlally devasLaLed by Lhe afLereffecLs of eŴwasLe corrupLlonŦ Lven Lhough Chlna banned Lhe lmporL of
eŴwasLe ln 2000ţ Culyu clLlzens sLlll use acld baLhs ln buckeLs Lo release preclous meLals from lmporLs
elecLronlcsţ senL over Lhe Chlnese border Lhrough brlbes (Callaugherţ 2010ť 2)Ŧ Peavy meLal
conLamlnaLlon levels are four Lo slx hundred Llmes greaLer Lhan whaL lnLernaLlonal healLh sLandards
allow (Callaugherţ 2010ť 2)Ŧ 1he people of Lhls Chlnese provlnce are paylng a hlgh prlce for boLh Lhe
WesL's rapld Lechnologlcal change and Lhe lack of punlLlve acLlons agalnsL corrupLlonŦ
1he reasons Lhe eŴwasLe lndusLry ls especlally vlcLlmlzed by corrupLlon sLems from Lwo areasŦ
1he flrsL ls lack of experlence on Lhe parL of WesLern eŴrecycllng companlesŦ 1he concepL of elecLronlcs
recycllng ls relaLlvely new Ŷ Lhe supply chaln mechanlsms lnvolved are very recenL developmenLsŦ
Companles such as uell and 8esL 8uy are known for Lhelr elecLronlcs knowledge buL noL necessarlly Lhelr
knowledge of Lhe recycllng supply chalnŦ 1hese organlzaLlons may slmply be lgnoranL of Lhe slLuaLlon
unLll lL ls Loo laLeţ or Lhey may Lurn a bllnd eye and noL feel llable for Lhe work of Lhlrd parLlesŦ
1he second reason corrupLlon ln eŴwasLe ls so rampanL ls Lhe complex sLrucLure of Lhe supply
chaln lLselfŦ 1he eŴwasLe lndusLry relles on a slgnlflcanL number of mlddleŴmen Lo geL old elecLronlcs lnLo
Chlna and oLher Aslan counLrlesŦ 1he more LhlrdŴparLy faclllLaLors are lnvolvedţ Lhe hlgher Lhe posslblllLy
for brlbery and corrupLlonŦ 1he facL LhaL Lhls ls an lllegal acLlon makes corrupLlon a requlremenL of dolng
buslnessŦ 1he addlLlon of many Lhlrd parLles also makes Lracklng shlpmenLs lncredlbly dlfflculLŦ uell may
hand off Lhelr shlpmenLs Lo a seemlngly repuLable suppller ln a counLry wlLh eLhlcal recycllng lawsţ only
Lo have LhaL suppller pay off an assoclaLe Lo Lake Lhe shlpmenL Lo rural Chlna and recycle lL Lhere for half
Lhe cosLŦ LŴwasLe companles musL Lake corrupLlon serlously or rlsk endangerlng more lnnocenL llves as
well as Lhelr repuLaLlon as an ecologlcally responslble lndusLryŦ
Best Practices: mergency Procurement
Lmergency procuremenL pracLlces durlng dlsrupLlve world evenLs show how companles can
beneflL from baLLllng supply chaln corrupLlonŦ 1he poslLlve effecLs of Lhese pracLlces are especlally
noLeworLhy because of Lhe hyperŴLurbulenL naLure of dlsasLersŦ 8ellef agencles are faced wlLh a number
of corrupLlon's faclllLaLlng facLorsţ buL on a helghLened scaleŦ Lmergency procuremenL agenLs requlre
speedţ accuracyţ and cosLŴeffecLlveness ln Lhelr purchasesŦ ?eL Lhey are faced many Llmes wlLh
unfamlllar locaLlonsţ loosened or nonŴexlsLenL flnanclal conLrolsţ and pollLlcal upheaval lnherenL Lo Lhe
naLure of human and naLural dlsasLersŦ 1he bullŴwhlp effecL ls aL lLs mosL exLreme ln emergency
slLuaLlons as wellţ creaLlng masslve swlngs ln demand for a greaL varleLy of goods and servlcesŦ
8

ÞreparaLlon and sLandardlzaLlon are Lhe pracLlces emergency agencles sLrlve Lo achleveŦ lL ls
reasonable Lo assume LhaL procuremenL of supplles wlll be more effecLlve before a dlsasLer occurs Ŷ
LhaL ls why many organlzaLlons such as Lhe unlLed naLlons sLockplles numerous supplles ln reglonal
warehouses along wlLh slgnlng longŴLerm suppller agreemenLs Lo meeL any flucLuaLlons ln demand
(SchulLzţ 2008ť 323)Ŧ 1hls preparaLlon LacLlc malnly applles Lo largeŴscale procuremenL purposesŤ smaller
orders are worked ouL Lhrough collecLlve bargalnlng aL Lhe local level wherever posslble Lo reduce cosLsŦ
1he oLher beneflclal pracLlce ls sLandardlzaLlon of procured supplles and sLandardlzed anLlŴ
corrupLlon proceduresŦ 8uylng sLandard supplles allows for cosL savlngs on volumeŤ lL also cuLs ouL Lhe
mlddleŴmen for Lhe mosL common lLemsŦ ÞrocuremenL offlcers Lhen know exacLly how much a cerLaln
supply cosLsţ ellmlnaLlng a poLenLlal exaggeraLed prlclng scheme found ofLen ln corrupL supply chaln
sysLemsŦ
SLandardlzaLlon also applles Lo Lhe anLlŴcorrupLlon pollcles puL ln placeŦ Agencles llke unlCLl
creaLe deLalled manuals on anLlŴcorrupLlon procedures LhaL are dlsLrlbuLed Lo boLh employees and
suppllers (SchulLzţ 2008ť 326)Ŧ 1hls sLrengLhens Lhe agencyŴsuppller relaLlonshlp by lnsurlng all parLles
lnvolved are aware of Lhe code of conducLŦ Successful rellef organlzaLlons also creaLe conslsLenLţ
enforceable punlLlve acLlons for person lnvolved ln corrupLlonŦ 1he punlshmenLs can range on severlLy
employmenL and conLracL LermlnaLlon Lo economlc sancLlons levled upon a Lhlrd parLy or governlng
bodyŦ ConslsLency ls crlLlcalť lf punlshmenL ls fragmenLedţ Lhe opporLunlLles for corrupLlon lncreaseŦ
Lmergency procuremenL ls one supply chaln caLegory where Lhe lmporLance of Lackllng brlbery and
oLher corrupLlve acLlons ls meL wlLh commlLmenL and organlzaLlonŦ
ecommendations for Combatting Corruption
Sorterm Implementutlon
Companles can Lake a cue from emergency procuremenL lnlLlaLlves ln order Lo Lake lmmedlaLe
acLlon on corrupLlon and brlberyŦ 1he mosL lmporLanL flrsL sLep ls Lo creaLe an enLerprlseŴwlde anLlŴ
corrupLlon pollcyŦ 1hls pollcy should lay ouL Lhe code of conducL expecLed of boLh employees of Lhe
organlzaLlon as well as suppllers and vendorsŦ Companles can also lmplemenL a due dlllgence process ln
Lhe shorL Lerm Lo monlLor buslness acLlvlLy for poLenLlal corrupLlonŦ 1hls malnly lnvolves assesslng Lhe
corrupLlon rlsk of suppllers Lhrough background checksţ culLural and geographlcal analyslsţ and assesslng
Lhe polnLs of conLacL beLween suppllers and governmenL enLlLles Lo gauge confllcLs of lnLeresL (unţ
2010ť 23)Ŧ 1hls lnformaLlon can be obLalned Lhrough embasslesţ Lrade assoclaLlonsţ and flnanclal
9

servlces Ŷ Lhese avenues can help palnL a beLLer plcLure of Lhe lndlvldual suppllers and Lhe overall
buslness envlronmenLŦ Companles can also requlre suppllers and vendors Lo agree Lo codes of conducL
ln wrlLlngŦ 1hls can help mlLlgaLe some of Lhe corrupLlon llablllLy a company may face from oLher Lracks
of Lhelr supply chaln sysLemŦ 1hese shorLŴLerm sLeps can asslsL a flrm looklng Lo harness a global supply
chaln laylng a sLrong foundaLlon agalnsL corrupLlon and brlberyŦ
Iongerm Implementutlon
llrms LhaL have esLabllshed Lhelr shorLŴLerm goals for prevenLlng corrupLlon should lmplemenL
cerLaln lnlLlaLlves Lo ensure fuLure successŦ CusLomerŴsuppller engagemenL should be a chlef concern so
LhaL lnformaLlon flows more freely LhroughouL Lhe supply chaln (unţ 2010ť 16)Ŧ Modern l1 sysLems can
harness a wealLh of daLa Lo hlghŴvalue cusLomersţ repuLable vendorsţ and capable suppllers on whaL
demand needs musL be meL a cerLaln polnLŦ SmooLhlng Lhe bullŴwhlp effecL creaLes less demand
boLLlenecksţ whlch ln Lurn can lessen Lhe urgency of maLerlals acqulslLlonŦ A suppller LhaL has more Llme
Lo acqulre Lhe needed maLerlals has less lncenLlve Lo bend Lhe rulesŦ CusLomerŴsuppller engagemenL
also lnpuLs sLraLeglc awareness ln Lhe supply chaln by forclng suppllers Lo recognlze corrupLlon
vulnerablllLles (unţ 2010ť 2)Ŧ 1hls awareness becomes even more lmporLanL when Lhe orlglnaLlng flrm
and repuLable vendors are lncluded ln Lhe lnformaLlon exchangeŦ lnformaLlon sharlng on
supply/demand flucLuaLlons and corrupLlon concerns Lhereln can acL as boLh a defenslve and offenslve
measureŦ lL ls defenslve for Lhe orlglnaLlng flrm because lL allows Lhem Lo sLay ln conLacL wlLh suppllers
on a perslsLenL baslsţ promoLlng LransparencyŦ lL ls also an offenslve acLlon because Lhe sharlng of
markeL lnformaLlon ln[ecLs a level of LrusL ln Lhe suppller relaLlonshlp LhaLţ over Llmeţ can hopefully Lurn
a poLenLlally adversarlal suppller relaLlonshlp lnLo a collaboraLlve oneŦ CusLomerŴsuppller engagemenL
spannlng all elemenLs of Lhe supply chaln can creaLe a susLalnable fronL agalnsL corrupLlon lf Lhe efforL ls
puL forLh for Lhls Lype of communlcaLlonŦ
Conclusion
Companles wllllng Lo engage ln global supply chaln managemenL should become lnLlmaLely
famlllar wlLh supply chaln llnks vulnerable Lo corrupLlon as well as Lhelr lnLerŴorganlzaLlonal mlndseL
Loward deallng wlLh corrupLlon slLuaLlonsŦ 1hls Lype of organlzaLlon can succeed lf Lhey leverage Lhe
power of Lhelr own company aLLlLude Loward prevenLlngţ sLopplngţ and punlshlng corrupLlonŦ 1hey can
also add value Lo Lhelr supply chaln sysLem by acLlvely enhanclng communlcaLlon beLween suppllersţ
vendorsţ and cusLomersţ all ln Lhe servlce of ellmlnaLlng cosLs assoclaLed wlLh corrupLlonŦ
10

orks Cited
8ashekaţ 8enon CŦ ƍLconomlc and ÞollLlcal ueLermlnanLs of Þubllc ÞrocuremenL CorrupLlon ln
ueveloplng CounLrlesť An Lmplrlcal SLudy lrom ugandaŦƍ !ournal of Þubllc ÞrocuremenL (2011)ť
33Ŵ60Ŧ
Callaugherţ !ohnŦ LŴwasLeť 1he uark Slde of Mooreƌs LawŦ 2010Ŧ
ƼhLLpť//wwwŦflaLworldknowledgeŦcom/pub/gallaugher/41147#webŴ41147ƽŦ
L8n CorpŦ Managlng CorrupLlon 8lsks Among Suppllers and ulsLrlbuLorsŦ Conference 8eporLŦ new ?orkť
L8n CorpŦţ 2010Ŧ
MerrlamŴWebsLerŦ MerrlamŴWebsLer Cnllne ulcLlonaryŦ 2011Ŧ ƼhLLpť//wwwŦmerrlamŴ
websLerŦcom/dlcLlonary/brlbe?showƹ0ƎLƹ1319073107ƽŦ
SchulLzţ !esslca and 1lna SoreldeŦ CorrupLlon ln Lmergency ÞrocuremenLŦ Case SLudyŦ Cxfordť 8lackwell
Þubllshlngţ 2008Ŧ
unlLed naLlons Clobal CompacLŦ llghLlng CorrupLlon ln Lhe Supply Chalnť A Culde for CusLomers and
SuppllersŦ Conference 8eporLŦ new ?orkť unlLed naLlonsţ 2010Ŧ
Wrageţ AlexandraŦ uue ulllgenceť SLaggerlng under Cood lnLenLlonsŦ 8eporLŦ new ?orkť Aspen
Þubllshersţ lncŦţ 2010Ŧ

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