Companies may require links with governments and regulators to conduct their business operations. The closer the relationship is with the state, the more likely it is that the company may be perceived as associated with any actions (or non actions) of the government which result in human rights abuses.
Operations in countries in conflict
If a multinational company is operating in a country where there is ongoing conflict, even if the company is not situated in the zone of conflict, it may be perceived to be associated with human rights violations. In some circumstances, the company may be forced to withdraw from the region due to growing pressure in its home country to disengage or risks of financial disincentives to remain in country.
Entry (pre and post conflict)
A company may wish to enter a new market in a country where conflict is likely or where there has been recent conflict. This may raise issues about the stability of government, the provision of essential services and infrastructure, and the role of security professionals. There may also be heightened potential for human rights abuses to occur, but conversely there may also be opportunities to contribute to the development or re-development of the country.
Relations to states with poor human rights records
To access particular markets companies may be required to obtain an agreement from the state government to operate in the country. Proximity to states with poor human rights records can result in reputational and complicity risks for the company.
Money laundering and transparency
In some countries, there is concern that taxes are not used to benefit local communities (eg: provide education and health services). In such cases, companies may be perceived as complicit in corruption. Greater transparency over revenue flows between companies and governments would enhance accountability. A second important issue is that banks may act as a channel for illegal transactions within and between countries. Failure to be alert to this risk and ask appropriate questions can make it easier for illegal actors to conduct their business.
The UN Global Compact - Principle 10 states:
"Businesses should work against corruption in all its forms, including extortion and bribery."
Origin of the 10th principle
On 24 June 2004, during the UN Global Compact Leaders Summit it was announced that the UN Global Compact henceforth includes a tenth principle against corruption. This was adopted after extensive consultations and all participants yielded overwhelming expressions of support, sending a strong worldwide signal that the private sector shares responsibility for the challenges of eliminating corruption. It also demonstrated a new willingness in the business community to play its part in the fight against corruption.
Underlying legal instrument
The United Nations Convention against Corruption was adopted in Merida, Mexico in December 2003. The Convention is the underlying legal instrument for the 10th principle against corruption and entered into force in December 2005.
Objectives of the 10th principle
The adoption of the tenth principle commits UN Global Compact participants not only to avoid bribery, extortion and other forms of corruption, but also to develop policies and concrete programs to address corruption. Companies are challenged to join governments, UN agencies and civil society to realise a more transparent global economy.
How to define corruption?
Corruption can take many forms that vary in degree from the minor use of influence to institutionalised bribery. Transparency International's definition of corruption is "the abuse of entrusted power for private gain". This can mean not only financial gain but also non-financial advantages.
What is meant by extortion?
The OECD Guidelines for Multinational Enterprises define extortion in the following way: "The solicitation of bribes is the act of asking or enticing another to commit bribery. It becomes extortion when this demand is accompanied by threats that endanger the personal integrity or the life of the private actors involved."
... and what about bribery?
Transparency International's Business Principles for Countering Bribery define "bribery" in the following way: "Bribery: An offer or receipt of any gift, loan, fee, reward or other advantage to or from any person as an inducement to do something which is dishonest, illegal or a breach of trust, in the conduct of the enterprise's business."
Bribes, excessive hospitality, and facilitation payments may be "business as usual" in some regions. Bribing or complicity in bribing a foreign public official should (in accordance with the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions) be a crime and construed as a liability in the countries that have ratified it. Other relevant instruments on bribery and corruption include the United Nations Convention against Corruption, the International Chamber of Commerce Rules of Conduct and Recommendations for Combating Extortion and Bribery. The USA Foreign Corrupt Practices Act 1977 and the UK Bribery Act 2010 are examples of strong national and extraterritorial legislation.