Have you ever asked yourself how corruption contributes to your financial institution? Corruption and bribery are significant threats that, if not checked, can affect any institution. These practices, in the finance world, can result in massive legal troubles, damage one’s reputation, and even come with major financial losses. So what can the financial institutions do to prevent these and protect themselves?
Let’s now move towards the measures one can take to combat corruption and bribery effectively.
Issue of Corruption and Bribery in Financial Institutions
Corruption and bribery are the acts of offering or receiving, soliciting, or getting something of value in exchange for influencing decisions in relation to business. In the financial sector, it could refer to illegal kickbacks, money laundering, or transacting unethical business, which kills the trust that people give in financial institutions.
Such practices can cause heavy damage to an organization’s credibility. Guilty financial institutions may be fined, subject to legal consequences. Financial corruption affects not only the company but also clients, investors, and the whole economy.
Key Measures Financial Institutions Can Take
Just as it requires a multifaceted approach, financial institutions must adopt an effective way to combat corruption and bribery. It ranges from strong anti-bribery policies to regular training of employees, as well as the use of the most state-of-the-art technology to monitor the flow of deals and transactions. In addition to that, thorough diligence and solid whistleblower systems are responsible for catching and keeping unethical behavior in check. This can make financial institutions less vulnerable to the legal, financial, and reputational risks that arise from corruption and bribery.
Establish Policies for Anti-Bribery and Corruption Policies
Having a clear and enforceable anti-bribery and anti-corruption policy is the first step towards combating corruption and bribery in any organization. Through the written document, it can be determined what bribery and corruption are and what consequences the financial institutions will have to face if someone is involved in such.
All this has to be communicated clearly to all employees, from senior executives to junior staff. The policy should not only be a piece of paper but should also be followed strictly by everyone, starting from senior management, as they also need to follow the rules. Second, these policies should be reviewed from time to time to ensure that they remain current regarding regulations and standards in the marketplace.
As per the International Monetary Fund (IMF), corruption-related violations have resulted in fines amounting to around $5 billion for financial institutions around the world. Regulators were also part of this broader effort to tighten anti-bribery and corruption measures across all industries.
Anti-Bribery and Corruption Training for Employees
The second important thing is to educate employees about an anti-bribery and corruption policy once one is in place. New employees’ and existing staff’s onboarding should include anti-bribery and corruption compliance training, which should be an ongoing process.
Training programs should be aimed at enabling employees to identify situations where corruption or bribery might happen, to avoid this behavior, and to report unethical behaviors. Real-world examples and case studies of real financial institutions that have experienced the incidence of bribery or corruption and been made to pay the price for this omission can be effective teaching tools to help make the risks seem tangible.
Bonus: To have a sustainable business, financial institutions must focus on robust anti-corruption measures because financial services institutions must ride with a reputation and stay compliant with global regulations.
Implementing Strong Due Diligence and Monitoring Systems
Financial institutions have to do due diligence extensively so as not to do business with individuals or firms that are engaged in corrupt activities. This is where the principle “Know Your Customer” (KYC) is key. KYC practices play a role in enabling financial institutions to collect important information about clients so that they do not bring in any illegal transactions.
Anti Money Laundering (AML) protocols ought to be set in place to trace and report any suspicious activities. Financial institutions should also monitor transactions to discover irregularities. For instance, large transfers or payments to jurisdictions that carry certain risks can be flagged for further investigation.
Encouraging a Whistleblower-Friendly Environment
It is very important to have an effective whistleblower system to catch corruption and bribery in time from the early stage. Some modes of ethical reporting can be implicit. A clear and anonymous channel needs to be set up for employees in a financial institution to report unethical behavior without fearing retaliation. All staff should have access to and knowledge of these channels.
There should be no tough stuff when it comes to speaking out about corruption, bribery, or other illegal activity by employees. An anonymous environment alone cannot be set up without a whistleblower-friendly environment; unethical practices may go unnoticed, and such an institution will be at a great loss. Financial institutions should also protect whistleblowers from discrimination or job loss and shouldn’t worry that they might suffer in any other way as a result of what they’ve done.
Transparency International’s recent study shows that almost 30 percent of banks have detected corruption in operations in 2024 and that a substantial part of the cases of money laundering or bribery of public officials.
