Managing Risks if You Invest in Emerging Markets
Defining Emerging Markets
Property Protections and Emerging Markets

How to Protect Your Emerging-Market Investments from Corruption

If you’re doing business in another country, which includes investing in an emerging market, get a sense of what you may encounter so that you can behave appropriately and legally. Ways to avoid dangerous corruption traps include:

  • Do some basic research on the amount of corruption in a country. Transparency International’s reports give you some good perspective on the operating climate in a country. The World Bank’s Doing Business Web site breaks down specific information on the time and procedures involved in running a company. In general, the greater the time and the more processes, the higher the level of corruption.

  • Ask whether facilitation payments are the norm. If you have a local contact or know people who’ve traveled to the country before, they can give you advice. And ask more than one person, if possible. Facilitation payments aren’t ideal, but they probably aren’t illegal, especially if they involve relatively small amounts of cash or low-value gifts like cigarettes. The more money you pay, the less likely it is that the payment is legal.

  • Ensure that you know who you’re dealing with. Intellectual property laws aren’t the same everywhere, so you may encounter several companies with the exact same name. Which is which? You may think you have a meeting on-site with a potential supplier, but your contact may have bribed the factory manager for a tour and a meeting in the conference room. Before you sign a contract, verify articles of incorporation, bank accounts, and business references.

  • If you’re uncomfortable with something, mention it. Don’t fall for the line, “That’s not how we do business here.” Such a statement is often meant to embarrass you into silence. Instead, point out that whatever you’re looking for is how you do business in your country and at your company, and you need help. A legitimate prospective partner will work with you, not shame you.

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