International Regulatory Enforcement (PHIRE)

Recent Trends and Challenges on Anti-Corruption Compliance and Responsible Business Conduct in Southeast Asia

December 07, 2020

Shaun Wu, Jian Wu, Nicola Bonucci, Jon Drimmer

On November 13, the OECD, in partnership with the United Nations Development Program (UNDP), released a new report entitled “Responsible Business Conduct and Anti-Corruption Compliance in Southeast Asia” (the “Report”).[1]  Based on responses from 229 company representatives across 10 ASEAN countries, the Report discusses the business risks companies face and the way they manage their responsible business conduct (“RBC”) and anti-corruption compliance.  The survey targeted firms of varying sizes, ownership structures, industry sectors and geographic locations, ranging from small-and-medium-sized enterprises (SMEs) to the largest state-owned enterprises (SOEs).  Conducted in the current context of the COVID-19 pandemic, the survey particularly noted how the businesses in Southeast Asia have responded to the challenges coming along, as well as their increasing need for assistance with developing and implementing assessment frameworks on significant risks. The Report is part of a continuing work by the OECD and UNDP[, in partnership with Southeast Asian countries,] in fostering a transparent, responsible business and investment climate in the [Southeast Asia] region

Surveyed companies identify corruption as the main business risk (e.g., 58% respondents admitted facing corruption issues), while human and labour rights are seen as a risk by only 39% of the companies.  This divergence illustrates the fact that RBC and anticorruption policies and practices are somewhat decoupled in the region.  While the importance of anti-corruption policies is increasingly recognized by Southeast Asian companies, other areas of RBC appear to be of less concern.  The Report acknowledges the progress made by Southeast Asian companies on written policies (e.g., 92% respondents indicated they have formal policies in place), but also points out certain potential risks for doing business in Southeast Asia.  Some of the key findings serve as reminders forkey risks faced by companies operating in the region:

  • A large majority (60%) of companies surveyed are concerned with being directly or indirectly associated with at least one sustainability risk, such as corruption, transparency and governance issues. The risk exposures appears higher when doing business with micro/small companies, since less than 50% of such companies have formal written anti-corruption policies.

  • The Report reveals that only around 40% of the reviewed Southeast Asian companies have rules or guidance for handling donations and contributions, anti-money laundering (“AML”) and nepotism. Accordingly, multinational companies should be cautious about donation and contribution activities in Southeast Asia and strengthen their AML compliance.

  • In the context of COVID-19, 58% of respondent Southeast Asia companies indicated an increase of environmental, social and/or governance risks due to the epidemic.However, 29% reported a reduction in their budget for business integrity activities, and 13% reported reduced budget for the management of environmental, social and governance risks.Lack of adequate resources could become a potential issue for Southeast Asia companies to ensure ongoing compliance.

Drawing from this data on the current environment in ASEAN countries, the Report provides guidance for Southeast Asian companies on how to develop and implement robust risk management policies and practices.  The Report also sheds light on how to navigate associated regional risks for multinational companies with operations in Southeast Asia.  Certain practical suggestions from the report are summarized as follows.

  • Risk management efforts most often fall short in the implementation phase.Building the capacity of businesses and their stakeholders, of trade unions, and of civil society to identify, prevent, mitigate and account for a broad range of anticorruption and sustainability risks is key to building resilient value chains and contributing to broader value creation.

  • COVID-19 has brought significant challenges to economic survival and required new ways of working.While the temptation to reduce budgets and focus on maintaining profits is understandable, it will be vital to sustain efforts to promote and implement anti-corruption and RBC standards in this context.

  • Anti-corruption and RBC are linked together in practice and often managed through similar institutional modalities.This overlap presents an important opportunity for companies to reduce costs and maximize benefits.[2] A company should take a holistic approach to the implementation of both anti-corruption and RBC to avoid any compliance issues being overlooked.

Companies based in Southeast Asia or operating in the region should take notice of this rapidly evolving environment to ensure successful navigation of the ever-more complex cross-border business landscape.

[1] https://www.oecd.org/corruption/anti-bribery/anti-corruption-business-integrity-southeast-asia.htm

[2] See previous Paul Hastings documents on the subject: https://www.paulhastings.com/publications-items/details/?id=d962706f-2334-6428-811c-ff00004cbded  and https://www.paulhastings.com/publications-items/details/?id=64572e6f-2334-6428-811c-ff00004cbded

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