Some sectors of the economy, simply because of the nature of their business, suffer from suspicions of corruption. Any industry whose activity or products can have a deleterious effect on the environment or public health, for example, is fertile ground for foul play, and examples of company executives attempting to bribe legislators for personal gain are legion. The fiduciary (or banknote printing) sector is therefore unsurprisingly subjected to a high level of scrutiny because the opportunity for fraud and counterfeiting is rife.
The Risks of the Fiduciary Sector
Due to the highly technical nature of modern banknotes, the expertise needed to make them, and the level of investment required, the industry’s barriers to entry are high. As a result, banknote printing is dominated by a few large players that have to negotiate with central banks around the world to win contracts to print their money. With the huge amounts of money at stake, there is ample incentive for bad actors to try and take a slice of the pie. Banknote printers must ensure their techniques and processes are kept under wraps to prevent counterfeiters getting a leg up in their efforts to understand anti-fraud measures; there are also opportunities for thieves to simply steal cash at many stages of the supply chain before it enters into circulation.
Moreover, historical examples of actual or alleged corruption are manifold, so it is no surprise that the fiduciary sector took steps towards increasing transparency and implementing good practices by launching the Banknote Ethics Initiative (BnEI), a voluntary effort to put in place ethical business practices, in 2013. The BnEI expects its signatories, who include many major banknote manufacturers as well as producers of security ink, to follow a “code of good practice” developed by the Institute of Business Ethics. Members are also audited according to a framework developed by GoodCorporation. While this move was welcomed by central banks around the world as a step in the right direction, there are reasons to query the viability of self-regulation.
The Limits of Self-Regulation
According to the OECD’s Committee on Consumer Policy (CCP), self-regulation is more likely to succeed when the sector’s structure and characteristics do not create unnecessary barriers to competition. Like the financial services industry – whose attempts to self-regulate before the 2008 financial crisis were a resounding failure – the banknote industry presents highly restrictive entry barriers, and like Facebook and Twitter’s attempts to regulate social media, the BnEI resembles the efforts of an oligopolistic system to forestall government regulation.
As the CCP says, “self-regulation is unlikely to be successful in the absence of a well rooted culture of business ethics,” and given the recent high-profile scandals involving BnEI members, there may be cause for concern in that respect; De La Rue Currency has been implicated in investigations of corruption in India and South Sudan, and although the charges were later dropped, Crane Currency was indicted in a corruption case involving the theft of $16 million in Liberia.
BnEI Chairman, Antti Heinonen, claims that “the actions of a rogue employee […] acting alone and demonstrably outside well established and implemented controls […] need not necessarily lead to reputational harm to the organisation,” but the recent misadventures of certain BnEI members seem to indicate otherwise. As with all businesses, the trust of its customers and the market is crucial, and De La Rue’s share price on the London Stock Exchange has fallen by nearly 50% in just over six months. The firm’s recent bad press is certainly part of the picture, and if the allegations against them turned out to be true, it could have a devastating impact on the entire sector, including innocent parties those doing their utmost to fight corruption.
ISO 37001 as a Third Way?
Another member of the BnEI, Giesecke + Devrient, has developed its own compliance management system to fight corruption, and while it also shows positive intent, this method seems to suffer from the same inherent weaknesses as the BnEI in that internal auditors may be susceptible to conflicts of interest. In an industry that is already vulnerable to allegations of bribery, especially in developing nations, this is surely cause for concern.
Sicpa, meanwhile, the world’s leading security ink manufacturer and also a member of the BnEI, decided to also apply for ISO 37001 certification, which it obtained in 2021. ISO 37001 is an independent standard devised by the International Standards Organisation (ISO) in 2017. As with all ISO standards, companies that seek certification have to meet numerous criteria, draft processes and procedures and submit to regular independent audits to check their compliance with the standard.
And there’s the rub: while Antti Heinonen claims that the BnEI was “purpose-built for the banknote industry,” ISO 37001 has the benefit of objectivity and the prestige afforded by the organisation’s history and standing. The BnEI, on the other hand, created by and for industry stakeholders, is by design more like a special interest group; although its members may point to the fact that its audit framework was drafted by an independent expert, this third party remains the BnEI’s client and auditor, so doubts will remain over the impartiality of audits against BnEI’s members. As such, the adoption of the ISO 37001 standard by several of the industry’s big names seems to be a positive turning point in repairing the fiduciary industry’s battered reputation.
Jason is the Marketing Manager at a local advertising company in Australia. He moved to Australia 10 years back for his passion for advertising. Jason recently joined BFA as a volunteer writer and contributes by sharing his valuable experience and knowledge.
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