Corruption crackdown in construction

The Serious Fraud Office (SFO) has indicated that it will crack down on corruption in sectors that are most vulnerable to economic crime, such as construction and public contracts, and oil and gas.  The construction sector is first on their list. 

The Chartered Institute of Building (CIOB) published the results of its second survey about crime and corruption in the construction sector earlier this month. Its findings, based on a survey of over 700 construction professionals, found that "little progress" had been made in the sector in the last few years, despite the introduction of the Bribery Act in 2011.  More than half of the survey's respondents thought that the Government was not doing enough to prevent and tackle corruption, while 50% felt the same about the UK construction industry.

With a business model that exposes them to a greater proportion of the recognised corruption risks than almost any other industry sector, the construction sector faces a disproportionately higher risk of being involved in corruption than others.  The main reason is that they are involved in significant one-off long-term contracts, often for the public sector, using complex supply chains.

A recent PwC paper highlighted the red flags that make the sector particularly vulnerable:

Operating in high risk areas - the most lucrative contracts tend to be found in newly established markets in high risk countries.

Interactions with Government officials - government officials have the ability to award valuable contracts, or grant favours, and yet are often paid relatively little, and may therefore be open to bribery.

Large projects - large scale or long term projects and contracts increase corruption risk as the sums involved make corruption more attractive.

Use of intermediaries - third parties used as intermediaries are one of the most common channels through which bribes are made.

Locally operated bank accounts - construction projects usually require local funding. The less control you have over how bank accounts are set up and used, the greater the risk.

Use of gifts, hospitality, or entertainment - gifts, hospitality, and entertainment used to influence key decision makers are also the focus of anti-bribery legislation.

In addition to the above risk factors, cultural practices within the sector and the consequences of the recession have put a greater strain on companies to sometimes engage in adverse practices as a survival mechanism. However, the use of "sectorial sweeps" will enable the SFO's intelligence-gathering capabilities to be far more effective and the singling out of the construction sector is a clear warning to the industry.

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