Towards a comprehensive business integrity system
Stepping up reforms Existing safeguards need to be strengthened and new ones explored. Consolidating and simplifying a patchwork regulatory environment can be helpful in countries such as the United States. Industry self-regulation is also important, but it requires credible and effective mechanisms for monitoring and enforcing codes and standards. Such mechanisms are still in short supply, in particular for rating agencies and enforcement in emerging economies.17 Proportionate liability for gatekeepers and their errors or omissions in judgment is another area requiring further progress. Rating agencies, for example, for quite some time have sought to stave off more responsibility for their ratings by depicting them as mere opinions (‘the world’s shortest editorial’) – a defence even more difficult to uphold against the backdrop of their contribution to the financial crisis.18 Most importantly, a fresh discussion on alternative funding models to shore up the independence of gatekeeper services is in order. Investors could pool resources to fund bond ratings and more independent analysis. Auditors could be incentivised with bonus payments for fraud detection.19 Public money may be better spent in stimulating demand for independent market research and ratings and in supporting independent oversight and standard-setting processes for gatekeepers, rather than propping up collapsing markets when controls have failed. Reforms in many countries also need to consider the pivotal role that many gatekeepers play in ensuring corporate compliance with anti-corruption and anti-money laundering (AML) provisions. Elaborate schemes for kickbacks, bribes or money-laundering are often supported by corporate slush funds and complex financial transactions that auditors and accountants are best positioned to detect. 20 The OECD Anti-Bribery Convention, for example, requires sanctions for accounting violations related to bribing foreign public officials to be ‘effective, proportionate and dissuasive’.21 A progress report in 2006 identified a lack of clear legal obligations in many countries for auditors and accountants to report suspicions of crimes to the authorities, however. In addition, the report faulted several countries, including Australia, France, Italy and South Korea, for insufficient and ineffective sanctions such as low maximum fines and suspended sentences, and countries such as Belgium, Hungary, Luxembourg and Slovakia for weak enforcement.22 Clarified legal obligations and accountability, less financial dependence on clients and credible enforcement of industry codes and conducts are key measures to help gatekeepers fulfil their essential roles. Ultimately, though, no system of checks and balances can guard fully against 17 See article starting on page 136. 18 D. J. Grais and K. D. Katsiris, ‘Not “The World’s Shortest Editorial”’, Bloomberg Law Reports, November 2007. 19 L. A. Cunningham, ‘Book Review of Gatekeepers: The Professions and Corporate Governance by John C. Coffee, Jr’, British Accounting Review, vol. 40, no. 87 (2008). 20 OECD, Mid-term Study of Phase 2 Reports (Paris: OECD, 2006). 21 OECD, Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Paris: OECD, 1997). 22 OECD, 2006.
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