Anti-Corruption Compliance for Multinational Companies in Russia. Nikita Semenov Tatyana Pazhitnykh

Transcription

1 Anti-Corruption Compliance for Multinational Companies in Russia Nikita Semenov Tatyana Pazhitnykh

2 Roadmap 1 Theories of Corruption 2 Environment of Corruption in Russia 3 Russian Laws and Actions Against Corruption 4 International Laws Against Corruption 5 Initiative: Russian Compliance Alliance 6 Case Study: ABB Anti-Corruption Corporate Program 7 Perspectives for the future

3 THEORIES OF CORRUPTION

4 Costs of Corruption Country Roadblock to international competitiveness and foreign investment Macro-fiscal costs Economic inefficiency Reduced legitimacy of government Loss of trust Lower potential for economic reform Long Term Cost Short Term Gain Bribe Paid Bribe Extracted Damaged Reputation Incentives for Inefficiency Business Roadblock to relationships with multinational businesses Forgone gains of new information, technologies, markets, capital, etc. Reputation costs Lowered productivity Greater and greater bribe price

5 Can Corruption be Managed? Old model: More accurate model: Utility = Benefit p(detection)*sanction Utility = Benefits ( (p*criminal Penalties) + (p*social Penalties) + Cost of Favor +Psychic Costs) Rank: 5/177 Score: 8.6 Rank: 53/177 Score: 5.0 Increased perceived costs Increased perceived social costs Internalization of laws Attitude change

6 ENVIRONMENT OF CORRUPTION IN RUSSIA

7 Environment of Corruption in Russian Business: The Numbers 127/177 Corruption Perception Index Ranking (2013) 1 28/28 Bribe Payers Index Ranking (2011) 1 13% Control of corruption (2010) 1 #2 Of greatest concerns associated with the company s relationship with third parties 2 50% Of respondents have due diligence procedures in place 2 1. Transparency International 2. International Business Attitudes to Corruption 2013 Survey, Control Risks Group Limited

8 RUSSIAN ANTI-CORRUPTION LEGISLATION AND ACTIONS

9 Russian Anti-Corruption Legislation Timeline Russia ratifies United Nations Convention against Corruption 9 May 2006 Russia amends Federal Law No. 273 On Combatting Corruption with Article 13.3 January 2013 Executive Order On the National Plan to Counter Corruption for by the President of Russia April, February 2012 Russia ratifies OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions November 2013 Recommendations by the Ministry of Labor and Social Protection to comply with Article 13.3 Article 13.3 Requirements 1. Definition of the divisions or officials responsible for prevention of corruption and other violations. 2. Cooperation of organizations with law enforcement authorities. 3. Development and introduction of standards and procedures aimed at ensuring compliance. 4. Adoption of a code of ethics and business conduct applicable to the employees of the organization. 5. Prevention and settlement of conflicts of interest. 6. Prevention of unofficial reporting and the use of forged documents.

10 Russian legislation against corruption is well intentioned, but poorly executed Strengths Weaknesses Important endeavor to mitigate Russia s corruption risks May encourage Russian companies seeking advice and assistance with their compliance program Moderate prosecution (according to Investigative Committee): Uncertain enforcement Unclear concept of a corporate crime Lack of a comprehensive framework to regulate whistle blower protection for corporate employees (OECD Anti-Bribery Report) (?) 28,000 anti-corruption cases filed in 2013, 18,000 in 2012 (?) Prosecutors uncovered 9,000 episodes of corruption in 2013, 6,000 in 2012 There is now a great awareness of the risk of prosecution. Companies are very focused on compliance, on trying to prevent violations. Brian Zimbler Managing partner at Moscow office of Morgan Lewis (international law firm)

11 INTERNATIONAL LAWS AGAINST CORRUPTION

12 Foreign Corrupt Practices Act Enacted: 1977 Prohibits: Jurisdiction: Companies liable for bribes by: Administered by: Fines: Penalties: Firms or persons from directly or indirectly paying or offering to pay anything of value to foreign officials in order to obtain or retain business U.S. firms; citizen and resident Firms with securities listed on a U.S. exchange or registered with the SEC Firms required to file reports with the SEC Any employees and agents of firms subject to jurisdiction Persons involved in bribes where any part of conduct is connected to the territory of the United States Merged or acquired foreign companies Subsidiaries and agents of subsidiaries Foreign firms in which they own large percentages of shares Any third party or intermediary acting on behalf of the firm U.S. Department of Justice and Securities Exchange Commission Up to $2 million USD per violation Imprisonment up to 5 years for individual actors Forfeiture of government licenses Disbarment from government contracts Disgorgement of profits connected to bribes

13 Widespread Penalties Against Bribery Virtually every country in the world criminalizes the bribery of its own officials More than fifty countries now criminalize the bribery of foreign officials Many have signed international conventions: OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions United Nations Convention against Corruption Several international organizations require members to criminalize transnational bribery Many laws have broader definitions and applications than the FCPA Penalties as of 2011 Broad Reach High Risk p(detection) Criminal Penalties

14 The Broad Reach of Anti-Bribery Laws: Risk is Omnipresent

15 The Broad Reach of Anti-Bribery Laws: Risk is Omnipresent

16 The Broad Reach of Anti-Bribery Laws: Risk is Omnipresent

17 Bribery Enforcement Actions by Country / International Organization

18 INITIATIVE: RUSSIAN COMPLIANCE ALLIANCE

19 Russian Compliance Alliance Introduction What Initiative to promote greater understanding of ethics and compliance concepts among large corporations and their vendors and distributors Who Pioneered by Center for Business Ethics and Corporate Governance Team of multinational companies, Russian companies, professional service providers, lawyers, universities, business associations, and NGOs Where When The Russian market Kick-off presentation to USRBC on 4 February 2014 in Washington D.C. and 11 February 2014 in Moscow Why See parts 1-4 of presentation

20 Russian Compliance Alliance Model Anti-Corruption Legal Risk Multinational Company and Associated Entities Is: Completely voluntary Anonymous Based on: Global legal principles Market incentives Collective action Measurable results Self Evaluation Questionnaire Public Registry Is NOT: Certification Subject to audit Publication of company policies

21 Russian Compliance Alliance Goals Create shared understanding of fundamental ethics compliance concepts in the Russian market Develop standardized methodology for assessing relative performance with compliance requirements Publicly recognize participants in the self-evaluation program Awareness Cost Effective Ethics Standardize criteria in order to improve the efficiency of exchanging compliance information among vendors and their customers Develop a research database of effective approaches and benchmarks Transparency Prevention Encourage and facilitate use of ethics compliance as a factor in choosing a business partner

22 Self Evaluation Categories Culture Executive leadership Governance Risk management Human resource management Corporate social responsibility Communications and Training Internal operations Business Relationships Monitoring Internal operations Business relationships Conflicts of Interest Financial Management Improper Payments

23 Russian Compliance Alliance Benefits and Incentives Prevention Can be used as due diligence tool for MNCs to screen prospective partners Improve qualifications for vendors/third parties Provide education, identification of key issues, and common language for both parties Mitigation Provide regional education and awareness of compliance standards Public registry could increase social costs of corruption Cost Effectiveness Standardized and centralized due diligence May create forum for best practices, information resources, and idea exchange Competitive Advantage Public signal of compliance awareness and activity for both parties

24 CASE STUDY: ABB

25 Case Study: Industry: Robotics, Power & Automation Technology Headquarters: Zurich, Switzerland Claim to Compliance Fame: One of the most developed anti-corruption compliance programs in Russia Overall Compliance Program Vendor selection process Aim make the company more transparent 2006: kick-off of the program 2013, 2014: Anti-Corruption Verification Program Certificate 2014: rated one of the most business-ethical companies (Ethisphere) Screened for relations to politicians Review ownership structure Outsourcing of professional corruption risk agencies (e.g. Risk Advisory) 1/10 of vendors are not approved Anti-corruption clause in the contract Reference to the American FCPA Self-protection from corruption risks of the counteragent Business with stateowned companies Large share of customers More flexibility and monitoring

26 NEXT STEPS

27 Next Steps Challenge Gaining acceptance by Russian companies Maintaining connection with enforcement authorities Potential Next Steps Conduct information sessions and provide clear information on relevant laws Organize industry groups to work directly with enforcement authorities at regular intervals Growth of initiative beyond first stage model Continuing Momentum Impact and legitimacy Develop benchmarking and research through registry forum and anonymous surveys Develop forum for best practices Involve more MNCs and raise awareness of the program in the business circles through the channel of Chamber of Commerce Establish a self-regulating organization funded by the companies involved

28 QUESTIONS?