Corruption circumvents principles of fairness and honesty, and harms societies in numerous direct and indirect ways, depending on the decisions which are distorted in exchange for which benefits. As corruption generates illegal gains for those involved, it seriously undermines competition in markets. Although it may harm any part of the economy, it is particularly a concern in sectors where firms are subject to comprehensive regulations, privatization and/or concession contracts, such as sectors that provide basic services, including transport, electricity, telecoms, water & sanitation, as well as services with substantial health and safety components. The risk is considered high in public procurement, and especially where contracts are large, complex and/or shrouded in secrecy, such as construction projects and defense sector acquisitions. Bribery has a direct impact on competition when targeted at the outcome of tenders, competition law enforcement, regulations related to entry barriers, taxation of specific firms, access to credit, or biased enforcement of the law. Beyond such direct impacts, corruption harms markets and society in many ways as it typically leads to unfair allocation of benefits and higher expenses for citizens, firms, and public institutions. It demotivates innovation and investment, and facilitates other forms of crime, corporate crime included. The consequences of corruption are normally more severe, the more discretionary and high-level authority is corrupted, and the scarcer the benefits in question. These are the factors that drive up the size of bribes as well because they are associated with more profitable outcomes. When extensive, corruption reduces trust in government institutions and increases income differences in society.
The more profitable the benefits in question, and the higher the bribes, the trickier it is to eradicate the problem. Societies, therefore, apply a broad spectrum of measures to control corruption. In countries all over the world there are conflict of interest regulations, rigorous auditing requirements, ombudsman arrangements, revenue control as part of tax law, procedural rules for recruitment, public procurement legislation, access to information laws, whistleblower protection, ethical guidelines, and in most countries, mechanisms intended to bolster democracy. In addition to the plethora of state institutions with an oversight responsibility (and the multilateral cooperations they are part of), there are civil society groups, journalists, and researchers in most countries who contribute to monitor how such integrity mechanisms are recognized and enforced.
Given the serious consequences, and the importance of sustaining the many integrity mechanisms in society, corruption is regulated by criminal law. In fact, many jurisdictions define corruption in their penal code only. Typically, corruption is here described as improper influence and extortion, while the law also lists the thresholds for enforcement. Many countries introduced corruption as a new concept in criminal law in the years after the turn of the millennium, as part of an impressively rapid evolution and harmonization of anti-corruption law, driven by international anti-corruption treaties. These treaties included in particular the United Nations Convention against Corruption (UNCAC), the Inter-American Convention against Corruption, the African Unition Convention on Preventing and Combating Corruption, the criminal law and civil law anti-corruption conventions of the Council of Europe /GRECO, and the OECD Anti-Bribery Convention that forbids bribery in a foreign country.
Under these reforms, business leaders as well as civil servants and elected officials can be imprisoned for their involvement in corruption. Many countries, including all OECD member countries, can hold corporations criminally liable for bribery, or have legislation functionally equivalent to criminal liability. Corporate sanctions for bribery tend to reach high levels. On top of law enforcement, corporations involved in bribery face claims for damages by different categories of victims, including victim societies, government institutions, and business partners. They risk exclusion from public procurement and pension funds, as well as serious collateral damage.
With respect to law enforcement, however, there is substantial variation across countries. Some countries, such as the United States, actively enforce their foreign bribery regulations, and impose heavy sanctions on American firms or firms that operate in US markets if they have paid bribes abroad, while in other countries, such rules have not been enforced in any cases, despite serious allegations of wrongdoing. The OECD Working Group on Bribery keeps track of enforcement patterns and operates a solid system for peer review evaluation of enforcement practices across the signatories to the OECD Convention. Their cooperation, combined with research in law and economics, and pressure for enforcement from the most active enforcers, have driven cooperation between countries towards more efficient and incentive-based law enforcement, more mutual legal assistance, better whistleblower protection in corruption cases, joint efforts for asset recovery, and recently, recommendations for the use non-trial resolutions in cases of corporate criminal liability.
While there are still numerous serious challenges in this area of law enforcement, firms that are involved in corruption and related offences increasingly rely on the enforcement system in question to reduce sanctions substantially if they report their own offences and cooperate with enforcement agencies.