October 04, 2006
Foreign Trade and Bribery: An important indication for Investors
A bribe abroad is an indicator of fraud at home. Am I being too harsh?
In a global economy, it makes you wonder about the truth behind words and numbers.
So, if you are an investor and invest worldwide, how do you build in a "risk premium" for transparency and the lack thereof?
An interesting survey from Transparency International provides a form of "risk index" by country by highlighting the propensity for bribing. Click here for lowlights.
The good news is ..... wait there is no good news.
It makes you wonder about the underlying veracity of financial numbers in various capital markets. After all, if one is willing to take a bribe, or give one, it is not a stretch to believe that the "tone-at-the-top" is not good, perhaps we need to give a bit of "juice" to this quarter's numbers.
A prediction. The U.S. is a bellwether because of the drive for high standards and transparency. Just as the Foreign Corrupt Practices Act was brought into U.S. markets in 1977 and highlighted the need to reduce bribery and improve "internal controls over financial reporting", but not really affected (until broader fraud was uncovered) with teeth until SOX in 2002, we will predict that rapidly growing markets will mouth the need for financial compliance during 2006-2007, but their first major financial scandals (and equivalent SOX legislation) will kick in about the time that their growth slows (as does the world economy). SOX will have been omniscient. So, Global SOX? Late 2008?
I hope I'm wrong.
In a global economy, it makes you wonder about the truth behind words and numbers.
So, if you are an investor and invest worldwide, how do you build in a "risk premium" for transparency and the lack thereof?
An interesting survey from Transparency International provides a form of "risk index" by country by highlighting the propensity for bribing. Click here for lowlights.
The good news is ..... wait there is no good news.
It makes you wonder about the underlying veracity of financial numbers in various capital markets. After all, if one is willing to take a bribe, or give one, it is not a stretch to believe that the "tone-at-the-top" is not good, perhaps we need to give a bit of "juice" to this quarter's numbers.
A prediction. The U.S. is a bellwether because of the drive for high standards and transparency. Just as the Foreign Corrupt Practices Act was brought into U.S. markets in 1977 and highlighted the need to reduce bribery and improve "internal controls over financial reporting", but not really affected (until broader fraud was uncovered) with teeth until SOX in 2002, we will predict that rapidly growing markets will mouth the need for financial compliance during 2006-2007, but their first major financial scandals (and equivalent SOX legislation) will kick in about the time that their growth slows (as does the world economy). SOX will have been omniscient. So, Global SOX? Late 2008?
I hope I'm wrong.
