Corruption has many adverse effects. If permitted to flourish, corruption can, in the worst instances, hinder the development of entire nations.

The World Bank and Transparency International, the global anti-corruption NGO, have demonstrated that, in some developing countries, corruption has reduced growth by deterring foreign investment and channelling funds into “white elephant” projects of primary benefit to corrupt decision-makers. Transparency International has also produced ‘Business Principles for Countering Bribery’ and produced lists of countries where bribery and corruption are common place.

Companies that do business in such countries are more likely to be faced with compromising situations and have a bigger need to have in place policies and systems to address such cases.

Tax evasion occurs when a country uses illegal means to avoid paying tax. Usually, this involves hiding or misrepresenting income. Tax evasion might be underreporting income, inflating deductions without proof, hiding or not reporting cash transactions, or hiding money in offshore accounts. Companies will face charges if caught.

Tax avoidance however is a legal means of minimizing of taxes and maximize after-tax income. Many forms of tax avoidance are considered morally dubious. Larger, often multinational organisations are generally better placed to avoid tax. They can hire expensive accountants to help them navigate tax law, including loopholes. Many multinational companies have gained criticism in recent years for deliberately setting up their headquarters in ‘tax haven’ countries to avoid paying significant corporation tax.

It is possible to negatively screen companies who:

• Work in countries very prone to bribery or corruption, and haven’t shown how they are mitigating this risk
• Are known to undertake tax avoidance