Prosecutors in Sweden have charged a Bombardier employee with aggregated bribery,
The Toronto Star reports. According to the charges, Evgeny Pavlov, a Russian national working for the Canadian plane and train manufacturer's Swedish branch, bribed a government official in Azerbaijan to help the company obtain a $340 million contract for a new railroad signaling system. Prosecutors are investigating other Bombardier employees in relation to the case.
Despite significant efforts by governments, regulators, and enforcement agencies in many countries around the world, corruption and bribery activities continue to be perpetrated by some of the world's largest companies and their employees. In addition to the allegations in this story, Bombardier is being investigated in Brazil, South Africa, and South Korea for various alleged bribery, corruption, and price-fixing activities. The amounts of money and potential negative reputational damage are staggering. What can internal auditors do to help?
Be prepared to follow the money, people, and goods wherever they lead. According to news reports, Swedish authorities were investigating a business structure in which equipment built by Bombardier's Swedish affiliate for the project allegedly was sold to a U.K.-based shell company called Multiserv Overseas. Multiserv is owned by a company based in Belize and has business interests in other tax havens and links to Russian businessmen. Multiserv then sold the same equipment to Bombardier's Russian affiliate at a steep markup. Costs were inflated by 400 percent in some cases.
In one example, Multiserv purchased signaling equipment for around $19 million. Multiserv then sold the same equipment to Bombardier's Russian affiliate for $104 million, a markup of $85 million. Multiserv allegedly kept some of the profits and passed the balance along to officials in Azerbaijan as bribes in exchange for favoring the Bombardier contract, even though that bid was ranked fifth.
These kinds of multistep, company and country transactions may be somewhat complex, but they are common for multinational corporations. Auditors need to ask questions and carefully examine all available documentation to obtain a clear picture of these transactions.
An anti-corruption policy and compliance regime is a necessary, but not always sufficient preventive measure. Bombardier officials said Multiserv had been verified and checked out, according to its internal compliance policies. They also said, "As always, we are committed to operating in full compliance with all legal rules and requirements and our own high ethical standards." What is missing is any evidence that the company had asked auditors to systematically assess and report on the effectiveness of its anti-corruption and compliance policies and processes.
Numerous companies have well-thought-out and articulate anti-corruption regimes (for one example, see
http://www.teck.com/media/Anti-Corruption-Policy.pdf). These regimes need to be regularly and systematically tested. Potential areas of weakness include:
- The role of the chief compliance officer and how well he or she executes, or is allowed to execute, his or her responsibilities.
- The adequacy of records and controls over anti-corruption and compliance regimes. These must capture the movement of money and goods.
- The scope and strength of sanctions. Sanctions frequently are disproportionately small in relation to the potential gains resulting from bribes and corruption.
On this latter point, governments themselves need to self-examine their resolve to deal with the problem. The Canadian government recently pledged to lend Bombardier CAN$372 million and stated it did its due diligence in advance. Canada also said Bombardier is a significant economic contributor to the Canadian economy, and it would be premature for the government to consider suspending its agreement with the company. The balance in the equation between economic contribution and ethical behavior also is an important consideration when aiming to prevent fraud and corruption.