Marine Madatyan

TRACE in Armenia: Recruiting “Safe” Local Partners for International Businesses

Alexandra Wrage, from the U.S, is in a taxi on the road to Yerevan. She spots a private house owned by one of Armenia’s oligarchs. “What is that? Whose building is it?” Alexandra asks, with bemusement. “My driver told me it’s a private house, it’s a ridiculous, huge house, it’s up on the hill. There’s a big one, and a smaller one. It’s like a castle.” Alexandra was so surprised that she took a photo of the house.” The domes of the house had especially impressed her, Alexandra later tells me.

It’s Alexandra’s first visit to Armenia. She’s the president and founder of TRACE, an anti-bribery business organization based in the U.S. that provides third party risk management solutions to its corporate clients. TRACE seeks to expand its global membership base, including businesses in Armenia. Here, we are not referring to those businesses in Armenia that engage in illegal practices but enjoy the “protection” of certain government agencies. Doing business in Armenia, in large part, is a question of knowing the right officials who can pull the strings in your favor.

Wrage has come to Armenia to explore whether it’s possible to forge a business culture in which anti-corruption practices and transparency take center stage. Hetq talks to Alexandra about TRACE’s mission statement and the prospects of collaborating with businesses here in Armenia.

Alexandra, what is your company’s main activity?

Trace is a non-profit, but it’s a business association, rather than a watchdog. That are a lot of anti-bribery organizations that are doing good work as watchdogs, but what our philosophy is that if you make tools and services, inexpensive and available to companies, you do achieve compliance. 

Let me give you some very simple example. We have over 350 multinational companies that are our members. If each of them went out to build online training, it would cost them between 50 and 100 thousand dollars each. So, Trace did it once, put it out in 25 languages, and then we give to all our member companies for free; as much as they want.

So, two things happen. One, they save money. But the other is we encourage them to use it for their whole supply chain - all their third parties, all of their business partners. So, tiny companies and places like Yerevan who would never get this kind of training are getting it because we make it available for free. It’s a very business-friendly model, but also a kind of stealthy way to reduce corruption and increase transparency.

The general categories of our tools are trainings - in person and online, and due diligence, which is very rigorous research reports on third parties. If somebody is trying to break into the market in Armenia and they want a local partner, they’ll ask us to do the background review on a local partner.

And the third category is really a kind of benchmarking. Companies want to know what everybody else is doing in this space. They want to figure out what other companies are doing, what is working, and what doesn’t work. So we do a lot of surveys and a lot of meetings around that.

And then we have given scholarships for people to study anti-corruption law - for universities. We also have a journalism prize, which the OCCRP won one year․

I think we are the first organization in the world that has done anti-bribery meetings but not for lawyers or compliance people, but for business people. Every June in Vancouver we get a group of business people together to talk about the topic.

We have a Matrix - a ranking analysis by country. Transparency international ranks general perceptions of corruption, which is interesting, but it’s not helpful to our companies. Our companies want to know if they go into a country, how likely is it that someone can ask them for a bribe.

Do Armenian official circles use your research results?

Today is my first time ever in Armenia. So I don’t know the answer to that. Countries where I go a lot, like China and India with a lot of commercial businesses, are definitely paying attention. I don’t know about this government at all.

Do you work on Matrix with a team?

We have one person who runs it. He is very smart. He’s a lawyer from Harvard and is very strong at statistics. But when we first built it, we worked with the Washington think-tank Rand. They helped to set it up initially, but we have changed it a lot. Each year we have revised and improved it, so we don’t work at Rand anymore. And then we used outside resources - consultants and others.

What are your perspectives for Armenia? Why would an Armenian business company like to be a member of Trace? What would it gain?

If the business is operating exclusively in Armenia, it probably should not join Trace. It probably will not benefit enough to justify the expense. Our membership is $18,000 a year, and that is a really good value for a multinational company. But for a national company it’s high. However, we have two communities - we have the multinationals who pay the $18,000, and then we have small and medium size companies. They pay only $2,000, but they get a different deal․

What they must do is is go through our due diligence process, that can take about three or four weeks. They have to disclose their ownership, they have to sign a code of conduct. And they have to complete an online training. It brings raises their compliance standard very quickly, and they are in our database as a local partner in Armenia. So, if one of the multinational companies needs an Armenian partner, they can find them in our database, and they know they are already transparent, have already disclosed their ownership, are trained, etc. So, it’s a way to bridge good multinational and good third parties. We have some of those in Armenia, so that is going to be more popular for an Armenian company.

Can a shareholder of your member company have governmental or official ties?

One of the questions is can a government official have ownership. In some countries the answer is yes, and in some countries the answer is no․ If it’s legal, and they disclose it, then that goes into their report. But the multinational company may still be uncomfortable with that․ I’ll give you a recent example․ We did a report on an entity in Nigeria, and the entity was partly owned by the Ministry of Petroleum. Well, that is legal in Nigeria. This is really-really important information for a major oil and gas company, so we put information out there. The company still must do a risk analysis.

Is that information about shareholders public? Can you sell it?

It’s not exactly public. It goes in our database. Imagine this first company is an American defense company, and our British company says it would like to work with them. So, they go in our database and they request a report. That entity then must agree, because it’s really a lot of private information-financial, ownership, etc. They have data privacy, it’s their trade secrets. If they want to work with them, they say yes, and the report goes to them. So, they can send the report to whoever they want, but we need to get their approval. In 18 years I don’t think anybody has ever said no, but we still need to get their permission. So, it’s not public, but it’s available for free with their permission.

And if a media organization applies to your company for this type of information?

It’s not up to me. I’m sure there is a lot of reporters who would like a lot of information, but we still must get their permission.

Alexandra, do you find the companies for training sessions, or do they find you?

No, they find us. We really are the only organization of our kind. You know, we do a lot of case studies. One of the Trace teams do case studies where we stop on the different points and say how you will handle this, and it’s very interactive. My favorite project is probably doing a kind of training with people in North America and Europe who are going overseas.

We don’t take any money from any government. I got to go to Moscow with the Obama team in 2008, and there he put together an anti-corruption group and… I flew separately, I think it’s important. So, we don’t take any money, but we do training for governments. I’ve done trainings in probably 20 or 30 countries for government officials.

What kind of training sessions do you provide? Are they only online?

There are three different categories. Online, we have multiple topics, anti-bribery, human trafficking, conflict of interests, and those are in lot of languages and they can use our scholar-learning management system, and if you have ten thousand employees, you can see when they took the test, very sophisticated, our companies love that. And there are conferences, and workshops, round tables. We have two days of speakers. It’s very interactive and always full. The third category is private training, not online, but in person, maybe with two employees.

So, hiring you is very much like hiring an international law firm?

A little bit. You can’t really hire us, you join Trace. You pay an annual fee, and after you join, everything is free - the training, the meetings, the conferences, the bench marking. Everything is included. The only thing you can pay separately for are the due-diligence reports, because they are very labor intensive. They take weeks of our time. We have employees that speak 34 languages because you have to, of course, be able to speak the local language.

Does your company pay travel expenses?

No, they pay for travel. These events are mostly two-day affairs. There’s a lot of speakers, breakfast, lunch and dinner. That’s all included, but they have to pay for their flight and hotel.

I get the impression that companies choose your services because they also want to feel like a member of that community. Do your members know each other?

Most of them do. We hold about 15 meeting a year. We just had one in Dubai. You know, it’s a big community. In April, we do a big event in Berlin, where we get our partner law firms and our member companies together. It’s a really good event because we have lawyers from Nigeria talking to oil and gas companies from Huston, and in informal setting with some wine. So, they do get know each other well. And we had eight employees leave Trace to go to member companies, because the member companies get know them, trust them and hire them․