Warning of stimulus cash paying for bribes

More than $500bn in global economic stimulus spending could be lost to wasteful and fraudulent procurement practices ranging from bribery to selecting less efficient service providers, according to a report on Monday by Kroll, the world's leading risk consultancy.

Governments have promised to spend $5,000bn (€3,587bn, £3,026bn) to jump-start their economies. But many of them - and the companies they deal with - have reduced spending on compliance and control functions as part of larger cost-cutting measures.

Prior studies of government contracting found that up to 3.5 per cent of the money ended up as bribes and 4-10 per cent was wasted by failing to pick the most efficient bidder, the report said. The numbers come from a 2002 study of World Bank figures and may understate the problem as it was conducted in more stable economic conditions, Kroll said.

Capital improvement projects are particularly vulnerable to corruption, the consultancy said. It recommended making procurement processes as transparent as possible and offering officials rewards tied to timely delivery.

"Governments need to be aware of the heightened risk of corruption that goes along with stimulus funding and for companies to ensure that robust anti-corruption and compliance policies are in place," said Blake Coppotelli, senior managing director in Kroll's Business Intelligence and Investigations practice. "Focusing on the middlemen entrusted with large sums of money is key to combating this type of crime. As always, the cost of prevention is far better than the cost of fraud and corruption."

According to Transparency International, the anti-corruption watchdog, companies are most likely to use bribery in Russia, China, Mexico and India, among the world's largest economies. Belgium and Canada are seen as the most corruption-free.

The risks of incurring penalties are rising for multinational companies participating in corruption, particularly if they do business in both the west and countries where such payments are common.

The US has been using its Foreign Corrupt Practices Act to bring record numbers of overseas corruption cases against companies that do business there, and many European nations now officially ban bribery.

A recent study by the law firm Freshfields says US authorities have 29 corruption investigations under way, including 16 against UK-linked businesses. The UK government is circulating a draft anti-bribery bill that could lead to British companies facing prosecution over corruption abroad.