Corruption risk in the port sector

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All industries are affected by corruption, but some sectors are at greater risk than others. In both 2014 and 2016, The Economist magazine published a Crony Capitalism Index that included the port sector. When you overlap the Transparency International Corruption Perceptions Index 2016 map with the world map highlighting where port projects are developed, it becomes clear that many ports are developed in countries with high perceived levels of corruption.

Corruption is a threat to ports, terminal operators, shipping lines, investors, financiers and other stakeholders. Given the extraterritorial reach of the US Foreign and Corrupt Practices Act 1977 (FCPA) and the UK Bribery Act 2010, problems originating in South America, Africa or Asia expose companies and their officers to investigations in the US and in the UK, in addition to investigations in the markets where the improper action may have occurred.

Bribery and corruption enforcement not only exposes companies and officers to criminal prosecution, but also constitute massive commercial risks in the form of penalties (last year, a record US$ 2.43 billion in total fines and penalties was collected to settle FCPA cases), a collapsing share price, negative press, customers taking their business elsewhere, potential events of default in financing and even the risk of losing a concession. Furthermore, handling an investigation is extremely expensive and disruptive.

Bribes are expensive and sometimes the middleman handling an illicit payment is the main beneficiary. Bribes also often offer a poor return on investment, particularly if the potential costs of an investigation and of fines and settlements are factored in.

In order to protect against bribery and corruption risk, companies in the port industry continue to strengthen their compliance programs. Compliance with anti-bribery regulations is gaining ground in the port industry and most players have implemented robust business conduct policies, strategically focusing on interactions with third parties.

For further information on our ports & maritime infrastructure practice or if you would like to discuss what we can offer (for example, assistance with the establishment of an anti-bribery program or a gap analysis of your current compliance policies), please contact Ton van den Bosch in Singapore or your usual Ince & Co contact.

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