When bribery is so endemic, how can you do business in Russia and China without breaking the law?

Insurers and brokers wanting to expand in emerging countries are facing a stark choice: break the Bribery Act or walk away from business.

Despite tough management talk that they have the proper checks and controls in place, the reality of working abroad is very different, we can reveal.

Nobody would talk on record to Insurance Times, but sources speaking anonymously say it is “impossible” to do business abroad without breaking the law. India, Russia and China are said to be plagued by corruption, and paying off people in these countries is a way of life.

The revelations will serve as a sharp warning to insurance management, who face up to 10 years in jail if staff are caught breaching the new act, which comes into force in July.

One source with extensive insurance experience in Russia, says: “When the Bribery Act comes into force, and we don’t know the effect of it yet, it is going to make it very difficult for anyone to do business with countries like Russia.

“From the top down, the whole structure is utterly corrupt. It’s difficult to explain to people why we should accept that, but if you know anything about Russian history, you have to just accept it. That’s the way it has always been.”

So-called ‘facilitation payments’ – paying off government officials or politicians – are illegal according to the Bribery Act but are unavoidable in emerging countries. Officials are paid off directly, or more typically a middle man is employed to do the dirty work.

The source says: “If you want to function there as a business, you have to find a way to get round this. Say you open an office in Russia and want the telephones connected – who is going to do that? Somebody sitting in an office with power? You have to pay to get that done.

“But below this government level, businesses function in a normal commercial way. And that is something people in the UK cannot understand. People think the whole place is the ‘Wild East’ but it’s not like that at all.”

The source continues: “Insurance companies, for example, have no intention of destroying their balance sheets by paying claims corruptly. Loss adjusters and courts are used. It is a professional system for everything from telephone companies to petrol stations – once you have paid off the politicians.”

Break the law or walk away?

The revelations show how challenging it will be for Lloyd’s – which plans to open an office in Moscow in the middle of this year – to operate strictly within the structure of the Bribery Act. The source says: “Lloyd’s has decided to go in, so it must have decided it can live with the consequences of UK legislation.”

A Lloyd’s spokesman said: “Lloyd’s is not new to the Russian market. We have been doing business in the country from London for years. Opening an office in Moscow is just the next step, and we always operate transparently and to the highest ethical standards.”

One insurance director with experience of emerging markets admits that some firms will break the act and win business. But he prefers to walk away and not take the risk.

“That’s what is so difficult for a broker to understand,” he says. “They see a business and that they could get that nice account if they could only do this. But you’ve got to be tough and explain that you can’t do that.”

Click here to download the pdf and continue reading the investigation including more on facilitation payments, which countries top the scale of corruption, and Aon's £5.25m wake-up call.

Downloads

Insurance Times Fantasy Football

Topics