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Hungary must enforce its foreign bribery offence against companies

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The Working Group is concerned that Hungary has not commenced any foreign bribery investigations or prosecutions in over nine years since the Phase 3 evaluation of implementation of the OECD Anti-Bribery Convention. However, the companies operating in the country have significant exposure to export-related risks of the bribery of foreign public officials. This includes foreign subsidiaries of multinational enterprises (MNEs) that use Hungary as a manufacturing base and re-export goods to other markets. To avoid Hungary becoming a safe harbour for MNEs with subsidiaries in Hungary that commit bribery abroad, the authorities must overcome their reluctance to enforce relevant criminal legal provisions and assign responsibility to detect and investigate such bribery.

The OECD Working Group on Bribery has just completed its Phase 4 evaluation of Hungary’s implementation of the Convention. The resulting Report focuses on ways for Hungary to significantly enhance enforcement of its foreign bribery offence against corporate vehicles, including foreign subsidiaries, by taking steps including the following:

Significantly increase the resources to manage the current and forecasted foreign bribery case load and utilise investigative tools;

Improve the whistleblower system, and framework for detecting and reporting suspicions of foreign bribery by public officials, including the tax authorities;

Adopt measures to safeguard foreign bribery investigations and prosecutions from potential disruption due to the use of immunities for specific office holders;

Urgently extend the two-year investigation time-limit, due to the highly complex nature of foreign bribery cases;

Urgently raise the awareness of Hungarian companies, including foreign subsidiaries, of their foreign bribery risks in export activities, and the need to adopt effective measures for managing those risks; and

Strengthen its capacity to provide prompt and effective legal assistance to other Parties to the Convention that are investigating and prosecuting foreign bribery cases.  

Furthermore, the Working Group will follow-up on the impact of recent reforms on the ability of the Hungarian media and civil society to play a role in detecting foreign bribery cases.

The report also highlights that Hungary is in a transitional phase, having recently initiated important reforms that could impact on foreign bribery enforcement, such as a settlement procedure, a gradual system for encouraging confessions, and new covert investigative techniques. In addition, Hungary has successfully implemented a recommendation from its Phase 3 evaluation to compile statistics on investigative measures and reasons for discontinuing any foreign bribery investigations, and the Hungarian Export Promotion Agency has delivered a substantial number of trainings and courses to small and medium-sized enterprises. The Hungarian authorities welcomed insights from the Working Group on how to ensure that these reforms translate into more effective implementation of the Convention. 

The OECD Working Group on Bribery, which is composed of 44 countries, adopted the report on 27  June 2019, including recommendations made to Hungary on pages 53-56. In accordance with standard procedures, Hungary will be invited to submit a written report in two years (June 2021) to the Working Group on the steps taken to implement these recommendations. Additionally, Hungary will submit a written report to the Working Group in one year on specific recommendations on the detection and investigation of foreign bribery and use of corporate responsibility for such bribery.

This report, available at http://www.oecd.org/corruption/anti-bribery/OECD-Hungary-Phase-4-Report-ENG.pdf, is part of the OECD Working Group on Bribery’s fourth phase of monitoring implementation of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and related instruments, which was launched in 2016.  Phase 4 examines the evaluated country’s particular challenges and positive achievements. It also explores issues such as detection, enforcement, corporate liability, and international cooperation, as well as unresolved issues from prior Working Group evaluations.

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Confident in managing liquidity, organizations still face challenges forecasting

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Most responding C-suite and other executives (84.6%) feel confident in their organizations’ abilities to manage cash and liquidity, according to a Deloitte poll. But as uncertainty persists, it’s important for organizations to continue to improve and strengthen their cash and liquidity management abilities so as not to provide a false sense of security.

 “With increased disruption from the pandemic, it’s important for executives to build long-term, sustainable strategies for liquidity versus focusing on short-term fixes which can provide a false sense of security. Bettering processes like forecasting can help give better visibility into cash-flows which in turn can help attain liquidity objectives.”

While forecasting can help give organizations better visibility into their financials, doing so has been difficult for many organizations amid the pandemic. Respondents stated that forecasting was either their top challenge (13.8%) or among their top challenges (54%) with liquidity and cash management during COVID-19.

“The pandemic has shifted executives’ focus from long-term planning to addressing more immediate business concerns—putting forecasting capabilities into the spotlight, which has shown weak points in these efforts. Gaining better visibility into forecasting to fully understand the liquidity impacts in their business is critical in navigating a path forward,” Jackson continued.

Advanced technologies are here to help but few are taking advantage

With forecasting challenging executives, especially in a time of increased disruption, leveraging advanced technologies can help. However, only 13.5% of respondents stated they are currently doing so and 18.8% of respondents plan to implement in the next 12 months. Almost half of respondents (46.8%) stated that they have no plans to use advanced technology in their liquidity management efforts.

Jackson said, “Utilizing technologies like advanced analytics can help executives save time and gain valuable insight that might not have otherwise been available—identifying trends and issues throughout areas like forecasting efforts. Ultimately, advanced technologies can help executives evaluate the most strategic ways to strengthen their liquidity.”

Through disruption, organizations are regularly updating liquidity management efforts
Executives stated that their organizations are updating cash flow and liquidity management plans in a regular cadence. Nearly a third (31.4%) of respondents are updating their plans monthly and nearly a quarter (24.5%) are updating their plans on a weekly basis. Only 7.2% of respondents stated they were not making changes to their cash flow and liquidity management plans.

Jackson concluded, “Efforts in managing cash flow and liquidity have usually been reserved for companies in distress. However, with the pandemic and increased disruption, these efforts are now relevant for almost every organization. Executives should recognize that now is the time to act by updating or creating better processes, gaining visibility and enhancing capabilities to make proactive and informed decisions that affect liquidity.”

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Family businesses risk missing the mark on ESG – PwC

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In a year where business has had to transform the way it meets the needs of society and the environment, family owned businesses risk falling behind, according to a new global survey of 2,801 family business owners. 

While more than half (55%) of respondents saw the potential for their business to lead on sustainability, only 37% have a defined strategy in place. European and American businesses are lagging their Asian counterparts in their commitment to prioritising sustainability in their strategy. 79% of respondents in mainland China and 78% in Japan reported ‘putting sustainability at the heart of everything we do’ compared to 23% of US and 39% in the UK. Larger businesses and those owned by later generations also buck the trend, with greater focus on sustainability.

This reluctance to embrace sustainability comes despite the fact family owned businesses are highly likely to see a responsibility to society. Over 80% engage in proactive social responsibility activity, and 71% sought to retain as many staff as possible during the pandemic. Nor is it a function of economic pessimism – less than half (46%) expect sales to fall despite the pandemic and survey respondents felt optimistic about their business’ abilities to withstand and continue to grow in 2021 and 2022.

Instead, the issue is an increasingly out-of-date conception of how businesses should respond to society, with 76% in the US and 60% in the UK placing greater emphasis on their direct contribution, often through philanthropic initiatives, rather than through a strategic approach to ESG matters. Family businesses are also somewhat insulated from the investor pressure that is currently pushing public companies to put ESG at the heart of their long term plans for commercial success.

Peter Englisch, global family business leader at PwC says,

‘It is clear that family businesses globally have a strong commitment to a wider social purpose. But there is a growing pressure from customers, lenders, shareholders and even employees, to demonstrate a meaningful impact around sustainability and wider ESG issues. Many listed companies have started to respond but this survey indicates that family businesses have a more traditional approach to social contribution.

‘Family businesses must adapt to changing expectations and, by failing to do so, are creating a potential business risk. This is not just about stating a commitment to doing good, but setting meaningful targets and reporting that demonstrate a clear sense of their values and purpose when it comes to helping economies and societies build back better.’

Growth

The survey suggests family businesses have weathered the pandemic relatively well. Less than half (46%) expect sales to fall despite the pandemic and survey respondents felt optimistic about their business’ abilities to withstand and continue to grow in 2021 and 2022.

Family business lagging on digital transformation

Even though 80% of family businesses adapted to the challenges of the COVID-19 pandemic by enabling home working for employees, there are also concerns about their overall strength when it comes to digital transformation.

62% of respondents described their digital capabilities as ‘not strong,’ with a further 19% describing it as a work in progress. 

Yet here there are clear generational differences: 41% of businesses that describe themselves as digitally strong are 3rd or 4th generation, and Next Gens have taken an increased role in 46% of digitally strong businesses.

Peter Englisch says,

‘It is a concern that family businesses are lagging behind the curve. There is clear evidence that having strong digital capabilities enables agility and success and that they have a similar enthusiasm for sustainability

‘Businesses should consider how they can engage the experience and fresh insight of Next Gens when it comes to prioritising their digital journey.’

The governance gap

While family businesses report good levels of trust, transparency and communication, the survey highlights the benefits of a professional governance structure. While 79% say they have some form of governance procedure or policy in place, the figures fall dramatically when it comes to important areas: just over a quarter state they have a family constitution or protocol, while only 15% have established conflict resolution mechanisms.

Peter Englisch says,

‘Family harmony should never be taken for granted – it’s something that must be worked on and planned for, with the same focus and professionalism that’s applied to business strategy and operational decisions.

‘There are growing concerns from regulators around the world about family business succession, especially with a third of 1st, 2nd or 3rd generation businesses expecting the next generation to become majority shareholders in the next five years.

‘It is therefore vitally important that businesses take a lead on ensuring they have formal processes in place they can ensure stability and continuity in the long run.’. 

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Services trade restrictions increased in 2020, compounding COVID-19 economic shock

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The global regulatory environment for services trade became more restrictive in 2020, with new barriers compounding the shock of the COVID-19 pandemic on exporters, according to a new OECD report.

OECD Services Trade Restrictiveness Index (STRI): Policy trends up to 2021 shows an increasing pace in the erection of new barriers to services trade across all major sectors. New restrictions are affecting services traded through a range of commercial establishments, in sectors including computer services, commercial banking and broadcasting. Global services trade fell by 24% in the third quarter of 2020 compared to a year ago, a small uptick from the 30% year-on-year decline registered in the second quarter.

While the overall trend was toward greater restrictiveness, governments around the world did lower barriers to cross-border digital trade in 2020, as part of the overarching policy response to the COVID-19 pandemic. More facilitation measures for digital trade were issued than in previous years, helping remote working and online business operations.

“We have experienced a major shift in trade during the pandemic,” OECD Secretary-General Angel Gurría said. “Transport and travel have collapsed, but digitally-delivered trade and enabling services such as telecommunications have contributed to the resilience of our economies. Lifting restrictions to trade in services will be critical as governments seek to put the global economy on the road to a strong, inclusive and sustainable recovery.”

The report, which covers services trade regulations in 48 countries, representing more than 80% of global services exports, identifies top performers in terms of regulatory best practices, including Czech Republic, Latvia, the Netherlands, Japan, Lithuania and the United Kingdom. It also highlights recent reform efforts in Brazil, China, Iceland, Indonesia and Kazakhstan.

National and collective action to ease barriers to services trade can reduce trade costs for firms that provide services across borders. On average across sectors and countries, services trade costs could decline by more than 15% after 3-5 years if countries could close half of the regulatory gaps with best performers. An ambitious services trade agenda, including new services market access commitments in comprehensive trade and investment agreements, can drive such gains, the report said. 

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