Critical Review of the Key Aspects of the 2018 Guadalquivir River Basin Drought Management Plan

A detailed report on fraud, corruption, and counterfeiting, which surveyed more than 114,000 professionals in 107 countries, came up with a startling finding. The study concluded that one in four people had recently paid some form of a bribe over a 12-month period.¹ While this seems shocking, we have to remember that not all countries or cultures view this topic the same way. Fraud, corruption, counterfeiting, and theft are a large part of supply chain risk.

The following provides a quick summary of some key concepts that are important parts of this chapter.

Bribery

Bribery is trying to persuade someone, typically illegally or dishonestly, to act in one’s favor by offering a gift of money or other attractive induce-ment. While supply chain managers in the United States know that brib-ery is illegal, the same is not true around the world. In some countries, bribery is referred to as “facilitating payments,” a term that is much more benign sounding. In Greek, the word fakelaki, literally meaning “little envelope,” is used in Greek popular culture as a term referring to the brib-ery of public servants and private companies by Greek citizens in order to

“expedite” service. Not that long ago the Greek parliament actually made this practice legal.

In many countries bribery is an accepted way of doing business. More than three out of four people in Liberia and Sierra Leone, for example, said they paid a bribe over a 12-month period. Bribery rates are more than 50%

in Cambodia, Senegal, Cameroon, Ghana, India, Tanzania, Kenya, Libya,

Mozambique, Uganda, Yemen, and Zimbabwe. Conversely, Australia, Belgium, Portugal, Malaysia, Finland, Denmark, and Croatia have the lowest bribery rates at less than 5%. In the United States and UK this fig-ure is just over 6%.

A study from Compliance Week and Kroll concluded that, on the posi-tive side, large corporations based in the United States take anticorruption programs more seriously than their counterparts based elsewhere.² On the less- positive side, almost half of all respondents report they conduct no anticorruption training with their third parties. Of those who do train their third parties, only 30% believe their efforts are effective.

A headline on a prominent website stated that Ralph Lauren admitted to bribery at its Argentina subsidiary.³ A Ralph Lauren subsidiary alleg-edly bribed customs officials to improperly obtain paperwork necessary for goods to clear customs and to avoid inspections. Also, the company was accused of faking invoices to mask payoffs. The U.S. Securities and Exchange Commission, in a nonprosecution agreement, fined the com-pany $1.6 million. The fine would probably have been larger, but the company, according to the SEC’s enforcement director, responded appro-priately to the violations and cooperated fully with the investigation. The company’s response was that bribes are inconsistent with the culture of compliance and integrity of the company. Still another corporate response was there was no evidence that the improper activity in Argentina was known or authorized by anyone outside of Argentina or that similar prac-tices were occurring at other foreign operations.

Counterfeiting

A specific type of intellectual property theft involves counterfeiting. A counterfeit is something made in imitation so as to be passed off fraudu-lently or deceptively as genuine.⁴ The sad truth is that many supply chains are plagued by counterfeits. Although movies, books, records, clothing, and other consumer goods are regularly copied, counterfeit goods are increasingly making their way into industrial supply chains. This includes products such as pharmaceutical drugs, automobile parts, and aerospace replacement parts that place the health and safety of individuals at risk.

Examples of counterfeiting globally are all too common. Car owners in the United States who have had their air bags replaced in the last several years, for example, run a high risk that the replacement bags are counter-feit. The U.S. Department of Defense says defense supply chains are

inundated with counterfeit parts, and efforts to curtail them are failing.

The U.S. Congress estimates there could be a million counterfeit parts in the supply chain. Besides the risk of product failure, Chinese counterfeit components could offer a backdoor to cyber snoops, escalating the threat of cyberspying and intellectual theft.⁵

One of most well- known and respected departments in the U.S. govern-ment, the Nuclear Regulatory Commission (NRC), is very concerned about counterfeit parts making their way into nuclear energy plants within the United States—so much so that the NRC is driving the issue of counter-feiting with its Counterfeit, Fraudulent, and Suspect Items (CFSI) project.

We’ll talk more about the NRC’s projects and their countermeasures later in the chapter. For now, let’s look at a few key data points on counterfeit parts relative to nuclear energy around the globe. Globally, a procurement director of a Russian supplier to the nuclear power industry was arrested for buying low- quality raw materials and pocketing the difference. During this same period multiple South Korean nuclear plants identified numer-ous counterfeit issues and shut down over fake control cable certification.

The South Korean president ordered a parliamentary investigation.

Tables 8.1 and 8.2 present the estimated scope of global counterfeiting across various product categories and countries. As these tables reveal, the costs of counterfeiting to the U.S. economy, and to global industry as a whole, are significant.

Fraudulent, Corrupt, Coercive, and Collusive Practices

Fraudulent practices are any action or omission, including misrepresenta-tion, that knowingly or recklessly misleads or attempts to mislead a party to obtain a financial benefit or to avoid an obligation.⁶ Corrupt practices means the offering, giving, receiving, or soliciting, directly or indirectly,

TABLE 8.1

Losses to Counterfeit Goods by Country, U.S. Dollars United States $225 billion

Mexico $75 billion

Japan $75 billion

China $60 billion

Germany $32.25 billion

Canada $30 billion

Source: www.havocscope.com.

of anything of value to influence improperly the actions of another party.

Coercive practice means impairing or harming or threatening to impair or harm, directly or indirectly, any party or the property of the party to influ-ence improperly the actions of a party. And finally, collusive practice means an arrangement between two or more parties designed to achieve an improper purpose, including influencing improperly the actions of another party.

Let’s look at some headlines coming out of China over the last sev-eral years. These announcements from China came through sevsev-eral U.S.

media outlets:

• GlaxoSmithKline was placed under scrutiny for bribing doctors and hospital officials in efforts to sell products at higher prices; several executives were detained.

• Fines are being administered to six dairy companies in China accused of price fixing and anticompetition practices. The fines will amount to a record setting $108 million!

TABLE 8.2

Counterfeit Goods by Industry, U.S. Dollars Counterfeit drugs $200 billion Counterfeit electronics $169 billion

Software piracy $63 billion

Counterfeit foods $49 billion Counterfeit auto parts $45 billion Counterfeit toys $34 billion

Music piracy $12.5 billion

Counterfeit clothing $12 billion Counterfeit shoes $12 billion

Cable piracy $8.5 billion

Video game piracy $8.1 billion Counterfeit sporting goods $6.5 billion Counterfeit pesticides $5.8 billion Mobile entertainment piracy $3.4 billion Counterfeit cosmetics $3.0 billion

Movie piracy $2.5 billion

Counterfeit aircraft parts $2 billion Counterfeit weapons $1.8 billion Counterfeit watches $1 billion Fake diplomas and degrees $1 billion Total for all goods worldwide $652 billion Source: www.havocscope.com.

• Sanofi, France’s largest pharmaceutical company, was accused of paying bribes totaling 1.69 million yuan to 503 doctors at 79 hospi-tals in Beijing, Shanghai, and Hangzhou.

• Novartis was placed under investigation for possible bribery and fraud in the provision of medical drugs and services. A Novartis employee claimed her manager instructed her to use 50,000 yuan (US$8,000) to boost sales of its drugs.

The standard response to these cases is one of initial shock and then full cooperation with the investigating authorities of the country where the risk event occurred. Over the years, insurance and other risk management organizations have been monitoring these events and others. And with so many observations, we’ve developed a Four- Stage Model of how most risk events play out, regardless of the event cause or country of origin, which Figure 8.1 illustrates.

As seen in this figure, the first stage of a risk event tends to be denial.

Normally it means a belief the event is not that damaging and a company will be back in business in a few days. In 2013, the U.S. attorney general announced fines levied against Johnson & Johnson for false marketing of three drugs, Risperdal, Invega, and the heart failure drug Natrecor. The attorney general stated the company marketed the drugs for unapproved use and paid “kickbacks” to doctors and nursing homes. The company’s response was typical in terms of damage control and our Four- Stage Model—J&J continued to stand by Risperdal as safe and effective for its approved use.

Severity Blame

Resolution Event

Denial

“It’s not that bad! We”ll be back in

business in a

few days!” Well, it’s actually worse than

we thought!

How did that happen? And the inevitable… Who is

responsible?

During that time a solution is being worked

on. Is a lesson learned?

FIGURE 8.1

The four stages of a fraud, corruption, or supply chain disaster.

The second of the four stages, severity, talks about the real scope and scale and normally includes realization that the event is actually worse than first thought. The third stage, blame, is the stark reality that the event is a total mess and follows this line, “We can’t understand how this hap-pened and are working diligently to solve the problem.” All the while, executives are asking questions such as, “How did this happen and who’s responsible?” Finally, the fourth stage, resolution, should be a teaching moment in terms of supply chain risk management.

What we’ve witnessed, along with other research organizations, aca-demia, and consulting firms, is that supply chain risk management and to some extent general risk management is still an ad hoc activity. And when the event has been resolved and the company is still in business, those who handled the event go back to their normal job responsibilities. Most com-pany executives assume that their direct reports are prepared to handle risk events. This assumption, however, is flawed. If you fail to prepare and train for risk events, do not be surprised that the probability of a good outcome from a risk event is suspect.