Spending may stimulate corruption.(UPDATE)

THE US $5 TRILLION IN STIMULUS SPENDING BY GOVERNments worldwide may spur a "new wave" of fraud and corruption, U.S. Federal Bureau of Investigations Director Robert Mueller warns. According to estimates by Transparency International, a Berlin-based anti-corruption advocacy organization, corruption can increase procurement costs by 10 percent in a stable economy, and such corruption can amount to up to 30 percent of the total cost of a contract in emergency situations.

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"With billions of dollars at stake--from the purchase of troubled assets to improvements in infrastructure, health care, energy, and education--even a small percentage of fraud results in substantial taxpayer losses," Mueller told the Economic Club of New York.

Massive stimulus spending may greatly increase the number of violations of the U.S. Foreign Corrupt Practices Act (FCPA) as companies are tempted to take riskier actions to gain government contracts in a down economy, says Blake Coppotelli, senior managing director with Kroll Inc., a New York-based risk consultancy. In a recent Deloitte survey, three-fourths of senior executives from around the world were highly concerned about potential violations of the FCPA's anti-bribery provisions.

In the June issue of the Kroll Global Fraud Report, Coppotelli predicts stimulus spending also could increase corruption risk domestically, as agency officials may be more likely to solicit or accept bribes from potential contractors. Similarly, there may be greater conflicts of interest and self-dealing among public officials and government employees. "Federal and state agencies controlling the distribution of these funds need to enhance their already stretched resources to oversee and enforce robust anti-corruption policies or look to independent experts to supplement their efforts," he says.

Such initiatives are still lacking among large corporations worldwide, Transparency International reports. In the organization's recent study of 500 large publicly listed corporations in 17 countries, only seven companies achieved the highest score in reporting on their strategies, policies, and management systems for countering bribery and corruption. Despite commitments to fight corruption, on average, companies scored in the middle of the scale, with many failing to provide meaningful details about anti-corruption practices. "In the aftermath of the financial crisis, transparency is a key ingredient for companies seeking to restore public trust," says Jermyn Brooks, director of private sector programs at Transparency International.

The Kroll Global Fraud Report can. be obtained from www.kroll.com. The Deloitte survey, Business Principles for Countering Bribery, is available at www.deloitte.com. To download the Transparency in Reporting on Anti-corruption study, visit www.transparency.org.

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