Combating bribery in the SME sectorAbout ACCA ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants, offering business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management. ACCA supports its 219,000 members and 527,000 students (including affiliates) in 179 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. ACCA works through a network of 110 offices and centres and 7,571 Approved Employers worldwide, and 328 approved learning providers who provide high standards of learning and development. Through its public interest remit, ACCA promotes appropriate regulation of accounting and conducts relevant research to ensure accountancy continues to grow in reputation and influence.ACCA has introduced major innovations to its flagship qualification to ensure its members and future members continue to be the most valued, up to date and sought-after accountancy professionals globally. Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity and accountability. More information is here: accaglobalCombating bribery in the SME sectorAbout this reportSmall and medium-sized enterprises (SMEs) make up the great majority of businesses in all countries, and employ the majority of the global workforce. Yet their significance to the health of the global business environment is often overlooked. This is as true in relation to bribery and corruption problems as to other aspects of business regulation. This report continues ACCAs work investigating how bribery and corruption damages the SME sector and argues that smaller businesses need to be encouraged and supported in their efforts to combat the threats posed.4ForewordBribery is not restricted to «Grand Corruption» which frequently hits the headlines. It affects citizens all over the world and companies of all sizes. These “daily corruption challenges” can be as detrimental as the publicly known cases of multi-million bribery schemes as they destroy the trust of society in governments, administration and business, like a slow but steady poison. Still, as “daily bribery” often stays in silence or is sometimes perceived as the “cost of doing business” especially for smaller companies or “the cost of surviving” for affected citizens, it is less in the spotlight. I therefore very much commend ACCA for their second study on “Combating Bribery in the sector of small and medium sized companies (SMEs)”. This effort is of particular value as the results of the 2019 study can now be compared with the results of the first ACCA survey on SMEs in 2013, and the data gives us very interesting insights into the developments over the last five years. There are concerning trends, as for example the increased willingness to mis-state financial statements to cover up misconduct. But thanks to the ACCA study, we also see encouraging signals, such as significantly increased awareness that bribery is indeed a problem for SMEs which requires attention and determined counter-measures. Now, what can the international community of experts from international institutions, private and public sector and civil society do to build on the rich content of the ACCA study? From a business point of view, there is a clear need for more stakeholder engagement and discussion. In 2017, under the German G20 presidency, the B20 Cross-Thematic Group on Anti-Corruption explicitly recommended the “promotion of key international instruments, supporting the capacity building and training for SMEs” and provided practical and existing use-cases for such initiatives (see recommended Policy Action 2.3). The subsequent B20 Integrity and Compliance Taskforce under the G20 presidency of Argentina highlighted in its pledge for a private-public partnership for anti-corruption the specific vulnerability and exposure of SMEs when it comes to the risk of corruption related to excessive bureaucracy, especially in public procurement (see B20Argentina policy paper). Despite these calls for action by the business community and some laudable local initiatives, we need to keep up the momentum. At Business at OECD, we have advocated for many years the importance of having a special focus on the needs of SMEs, including in the important work the OECD is doing to fight bribery and corruption. In our position paper regarding the ongoing Review of the 2009 OECD Anti-Bribery Recommendations, we specifically proposed the inclusion of practical guidance on how to put in place an effective program taking into account the different sizes of companies (see Business at OECD comments).As Chair of the Business at OECD Anti-Corruption Committee, I am therefore very grateful to our long-standing partner ACCA for providing this timely study, which will be of great support for our ongoing dialogue with the OECD on how to create an effective but also tailored approach towards SMEs when it comes to the new version of the impactful OECD Anti Bribery Recommendation. It is now time for action.Klaus Moosmayer, Ph.D. Chief Ethics, Risk & Compliance Officer of Novartis Chair of the Business at OECD Anti-Corruption CommitteeContentsIntroduction 61. The business impact of bribery 82. What is being done? 103. How do bribery and corruption affect SMEs? 124. ACCAs research 135. Global research findings 146. What can SMEs and policymakers learn? 27Conclusions 30References 32According to the World Bank, businesses and individuals pay more than $3.6 trillion in bribes every year (Johnson 2018). A Transparency International (2017) survey of over 160,000 respondents found that nearly one in four people said they had paid a bribe for public services in the previous 12 months.term which includes state-level complicity in abuse of post-conflict reconstruction efforts and theft by leaders of resource-rich countries of royalties, licence fees and profits (Vogl 2019).The damage caused by such behaviour is real and must be tackled. But the mechanisms in place for preventing, detecting and responding to such large-scale, high-level activities are quite specific. The work of bodies such as the Financial Action Task Force (FATF) in promoting the transparency of corporate registers, for example, is of little practical relevance to most SMEs, beyond revised registration and compliance procedures.The guidance produced to accompany the OECD Anti Bribery Convention, for example, is effective at countering every aspect of corruption and bribery within a large business, especially one with international reach. A combination of tone from the top and ground-up compliance and control mechanisms will produce maximum effect. The aim is to make corrupt behaviour something that the majority of employees would not even contemplate, while providing the tools for detecting the dishonest minority at the earliest opportunity.And yet bribery, so much a part of the grand corruption phenomenon, is all too often found far closer to home, and with far more insidious effects for small businesses, local communities, and struggling families. A bribe of $100,000 to a government minister will inevitably come from a wealthy source, and if that source is a large business then the cost will be shared across hundreds or thousands of employees. The direct impact of providing the resources on those funding the crime may be almost imperceptible, however great its effect upon the payee or those at the mercy of their decisions.6Bribery and corruption is as much a threat today as it has ever been, and is not restricted to any sector of society, any region of the world, or any aspect of the business world. Wherever there is gain to be made, or power to exercise, the risk exists that some individuals will seek an unfair advantage to benefit themselves.Corruption in the political sphere is popularly perceived to be widespread, and regrettably in all too many cases this may be true. Headline-grabbing cases of grand corruption (ie corruption involving those highly placed in government or related organisations), multimillion dollar properties and billions of dollars stashed in offshore accounts have an other-worldly fascination to them. However mundane and familiar one aspect of a grand international crime ring may seem to a domestic audience, it is in the very nature of these cross-border crimes that other elements will seem exotic and unfamiliar. The dislocation is such that the audience believe there is nothing they can do: it is all beyond them and their influence. Headline writers and influential commentators highlight the damage done by illicit financial flows, a fluid IntroductionBribery and corruption is often instituted by those in public or higher offices entrusted with ensuring a bribery and corruption- free environment.Survey respondent, sub-Saharan Africa7SME bribery works in the opposite direction. For the government official demanding $50 to clear goods through customs, it is only the aggregate of many such payments that will make a real difference to their lifestyle. But for a small business struggling with cash flow, the incremental impact of lost investment opportunities can be amplified over the life of the venture, tipping the balance away from growth, and the increased wealth that this would bring to the whole local economybating bribery in the SME sector | IntroductionThe impetus for corruption is all too often reversed: the economics change from a supply-side or cooperative model to a coercive one. The smaller business doesnt offer a bribe to an official because it wants to, but rather because it has to. But when such behaviour becomes the norm, it can escalate to a point where the whole of society is corrupted, and it becomes impossible to do business honestly.For a small business struggling with cash flow, the incremental impact of lost investment opportunities can be amplified over the life of the venture, tipping the balance away from growth.In my country the system is endemically corrupted. It is difficult to get anything done without having to grease some palms.Survey respondent, CaribbeanRules and regulations are relaxed for those who can afford to pay their way through to get things done. Survey respondent, sub-Saharan AfricaThere is not enough exposure to the existence of this. People see corruption in local councils and think if its okay for the government, then its okay for all. Survey respondent, EuropeIts about an eco-environment, where all entities survive together. When this eco-environment is contaminated by bribery and corruption, fair trade is non-existence and the system goes into a vicious cycle and can never get out of it. So every entity, no matter whether it is a large corporation, or SME, or government body, must take bribery and corruption seriously. Survey respondent, Oceania8A culture in which a business considers it may have no choice but to pay bribes will be one that facilitates and perpetuates unfairness and inequalities. The distortion of economic decision making that results from such an approach to the power dynamic will embed inefficiencies into the production cycle, stifling innovation and economic growth.Where a business cannot or will not compete with those paying bribes, or refuses to submit to those who demand them, stakeholders will still suffer. The forgone business will cost investors their return on profits, and employees the income otherwise potentially earned from additional work. If the output has been bought by a richer or less scrupulous rival then the cost will be passed on to its customers. If those demanding the bribe are so greedy that none can pay and no one steps into the gap, then everyone is poorer by the lost productivity.1. The business impact of briberyBusiness and society are inextricably interwoven together, and an environment where bribery is tolerated and accepted as an inevitable feature in the conduct of business will find its reflection in wider society. The diversion into private pockets of funds that should be spent on public benefits will have adverse consequences for all in society.Bribery and corruption is not only a concern for SMEs. It is a concern for society as a whole which continuously erodes ethical values and norms. Survey respondent, AsiaIt significantly affects its growth, as policemen and city council workers and other intermediaries keep on taking bribes and to get licences, permits you must bribe your way up. Survey respondent, sub-Saharan AfricaIt will impact their growth as they SMEs do not have excess resources to finance bribery and corruption. Survey respondent, sub-Saharan AfricaMany SMEs never see the light of the day because they were never granted relevant operational licences since they could not engage in bribery and corruption. Survey respondent, sub-Saharan AfricaBribery and corruption disrupts the fair market opportunity and competition trajectory, thereby giving opportunity to low-performing SMEs. It also increases cost for SMEs and sometimes virtually increases start-up and operations capital as well as the profitability levels. In fact, bribery and corruption brings about poor service delivery and less regards for quality of services and quality of life in general. Survey respondent, sub-Saharan Africa9The diversion of funds into private pockets has an impact on the quality of goods and services delivered by business. In some parts of the world, buildings that collapse during earthquakes are known as bribe buildings because the builders bribed inspectors to ignore low standards (Wharton 2002). Infrastructure failings around the world are openly linked to bribery and corruption (Jones 2018).Where businesses choose not to conduct business in a particular country or region because of concerns about bribery or corruption, then that countrys economy will suffer the reduced activity. The population will miss out on whatever goods or services are not supplied, while the public purse will miss out on whatever taxes and duties might have been due.In 2013, ACCAs report identified research that had suggested an increase in corrupt behaviours attributable directly to the global financial crisis (GFC) (Davies and Mirkovic 2013) . The issues had two faces. Combating bribery in the SME sector | 1. The business impact of briberyOn the one hand, businesses were under pressure to maintain their trading performance, and so tempted to resort to any methods to preserve short-term trading cash flow, or to massage financial results to assuage creditors concerns. On the other hand, individuals within business were themselves subject to personal financial pressures, and where the opportunity presented itself might be more inclined to divert business property to relieve per