Dangerous world Practical steps for global companies to evaluate and address corruption risk
1 A Resource Guide to the U.S. Foreign Corrupt Practices Act, 2 prosecution agreements, which could lead to an increase in cases 1 Annual Report 2013 on page 17, www.oecd.org. 2 Annual Report on the Dodd-Frank Whistle-blower Program, Fiscal Year 2012 at 2 Dangerous world: Practical steps for global companies to evaluate and address corruption risk
The FCPA and the UK Bribery Act: the global standards 3 illegal act, including commercial bribes paid both within and outside 5 It also 3 Opinion Releases relative to the FCPA at www. 5 Dangerous world: Practical steps for global companies to evaluate and address corruption risk 3
6 A Resource Guide to the U.S. Foreign Corrupt Practices Act. 7 There are other aspects to these laws that will not be described here. Guidance for designing an effective anti-corruption compliance program published about building corporate compliance programs in general sources: The US Federal Sentencing Guidelines for Organizations 10 Good practice guidance on internal controls, ethics and compliance, 11 The UK Bribery Act Guidance about procedures which relevant commercial organizations can put into place to prevent persons associated with them from bribing, 12 A Resource Guide to the U.S. Foreign Corrupt Practices Act, 13 companies that describe procedures that settling companies agree The 1992 COSO report, Internal Control Integrated Framework Monitoring board that applicable laws are being complied with. This does not aligns limited resources with the most pressing risks. 6 7 10 Chapter 8, Sentencing of Organizations 11 12 13 4 Dangerous world: Practical steps for global companies to evaluate and address corruption risk
Dangerous world: Practical steps for global companies to evaluate and address corruption risk 5
The Federal Sentencing Guidelines to report misconduct measures that address other legal and reputational risk issues, it is important The OECD Good Practice Guidance program The UK Bribery Act Guidance 6 Dangerous world: Practical steps for global companies to evaluate and address corruption risk
A Resource Guide to the U.S. Foreign Corrupt Practices Act compliance program: Published DOJ and SEC deferred prosecution and non-prosecution agreements Dangerous world: Practical steps for global companies to evaluate and address corruption risk 7
Step 1: Effective Compliance programs are business and to risks associated with that business. They are dynamic and evolve as the business and markets change. DOJ/SEC, A Resource Guide to the U.S. Foreign Corrupt Practices Act The commercial organization assesses the nature and extent of its exposure to potential and internal risks of bribery on its behalf by persons associated with it. The assessment is periodic, informed and documented. UK Ministry of Justice, The Bribery Act 2010 Guidance Putting in place an anti-corruption program a step-by-step approach to evaluate and address corruption risks Conduct a corruption risk assessment program based on the present risk, the current controls in place and additional resources the whole program. 8 Dangerous world: Practical steps for global companies to evaluate and address corruption risk
Step 2: Within a business organization, compliance begins with the board of directors and senior executives setting the proper tone for the rest of the company. Managers and employees take their cues from these corporate leaders. DOJ/SEC, A Resource Guide to the U.S. Foreign Corrupt Practices Act Setting the tone by developing a corporate anti-corruption policy improper acts A formal statement appropriately communicated can be very effective in establishing an anti-bribery culture within an organization. UK Ministry of Justice, The Bribery Act 2010 Guidance at risk. tone at the top, educating and training, auditing, monitoring, and implementing appropriate Dangerous world: Practical steps for global companies to evaluate and address corruption risk 9
Step 3: Adopt policies for retaining agents, consultants and other vendors Risk-based due diligence is particularly important with third parties and will also be considered by DOJ and SEC in assessing the effectiveness of a company s compliance program. UK Ministry of Justice, The Bribery Act 2010 Guidance 1) Pre-contract due diligence and acceptance 15 15 10 Dangerous world: Practical steps for global companies to evaluate and address corruption risk
DOJ s and SEC s FCPA enforcement actions demonstrate that third parties, including agents, consultants and distributors, are commonly used to conceal the payment of bribes to foreign DOJ/SEC, A Resource Guide to the U.S. Foreign Corrupt Practices Act 2) Contracting provisions include: corruption compliance program on an annual or periodic basis 3) Special payment review and approval 4) Vendor anti-corruption audits Dangerous world: Practical steps for global companies to evaluate and address corruption risk 11
The more lavish the hospitality or the higher the expenditure in relation to travel, accommodation or other similar business expenditure provided to a foreign greater the inference that it is to grant business or a business advantage in return. UK Ministry of Justice, The Bribery Act 2010 Guidance Incorporate anti-corruption into employee travel, gifts and entertainment rules In designing controls in this area, companies need to balance between reasonable business 12 Dangerous world: Practical steps for global companies to evaluate and address corruption risk
As part of an effective compliance program, a company should have clear and easily accessible guidelines in place for gift giving. DOJ/SEC, A Resource Guide to the U.S. Foreign Corrupt Practices Act Consider banning facilitating payments Develop guidance for charitable giving, political contributions and offset commitments Dangerous world: Practical steps for global companies to evaluate and address corruption risk 13
Step 4: Businesses whose operations expose them to a high risk of corruption will necessarily devise and employ different internal controls than businesses that have a lesser exposure to corruption. DOJ/SEC, A Resource Guide to the U.S. Foreign Corrupt Practices Act charges. be discussed at meetings and in training sessions. 14 Dangerous world: Practical steps for global companies to evaluate and address corruption risk
Step 5: Communication and training deters bribery by associated persons by enhancing awareness and understanding of a commercial organisation s procedures and to the organisation s commitment to their proper application. Making information available assists in more effective monitoring, evaluation and review of bribery prevention procedures. UK Ministry of Justice, The Bribery Act 2010 Guidance Conduct anti-corruption compliance training Compliance policies cannot work unless effectively communicated throughout a company. DOJ/SEC, A Resource Guide to the U.S. Foreign Corrupt Practices Act Dangerous world: Practical steps for global companies to evaluate and address corruption risk 15
Step 6: An effective compliance program should include a mechanism for an organization s employees and others to report suspected or actual misconduct or violations of the company s policies on a of retaliation. DOJ/SEC, A Resource Guide to the U.S. Foreign Corrupt Practices Act Monitor the program Anti-corruption internal audits corruption culture. Anti-corruption analytics 16 Dangerous world: Practical steps for global companies to evaluate and address corruption risk
An organization should take the time to review and test its controls, and is should think critically about its potential weaknesses and risk areas. Although the nature and frequency of proactive examinations may vary depending on the size and complexity of the organization, the idea behind such efforts is the same: continuous improvement and sustainability. DOJ/SEC, A Resource Guide to the U.S. Foreign Corrupt Practices Act data. Whistle-blower program Dangerous world: Practical steps for global companies to evaluate and address corruption risk 17
Step 7: A company that does not perform adequate FCPA due diligence prior to a merger or acquisition may face both legal and business risks. Perhaps most commonly, inadequate due diligence can allow a course of bribery to continue with all the attendant harms to reputation, as well as potential civil and criminal liability. DOJ/SEC, A Resource Guide to the U.S. Foreign Corrupt Practices Act. Incorporate anti-corruption procedures into mergers and acquisitions and joint venture due diligence diligence makes good business sense, as the risk includes: the new business but were not anticipated the business risk transactions laws. 18 Dangerous world: Practical steps for global companies to evaluate and address corruption risk
Step 8: As a commercial organization s business evolves, so will the bribery risks it faces and hence so should its risk assessment. Periodically reassess risk and modify the program UK Ministry of Justice, The Bribery Act 2010 Guidance In conclusion This paper was written by William T. Henderson, a partner in Ernst & Young LLP s Fraud Investigation & Dispute Services practice. Dangerous world: Practical steps for global companies to evaluate and address corruption risk 19
India: Understanding local legislation Strengthening anti-graft laws sector. 1. 1 20 Dangerous world: Practical steps for global companies to evaluate and address corruption risk
Table 1: Proposed Bills/ Amendments Proposed Bills/ Amendments Prevention of Bribery of Foreign International Organizations Bill 2011 (India's FCPA equivalent) 2 Salient features business Prevention of Corruption (Amendment) Bill 2008 3 include: Public Procurement Bill 2012 4 Matters connected therewith or incidental thereto 2 3 Dangerous world: Practical steps for global companies to evaluate and address corruption risk 21
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Ahmedabad 2 nd Bengaluru 12 th & 13 th th th Chandigarh 1 st Chennai th & 7 th 600113 Hyderabad Kochi th Kolkata 3 rd Mumbai th 5 th NCR 6 th th & 5 th Pune th Yerwada Contact Arpinder Singh Partner and National Leader Direct: + 91 22 6192 0160 Email: arpinder.singh@in.ey.com Sandeep Baldava Partner Direct: + 91 40 6736 2121 Email: sandeep.baldava@in.ey.com Vivek Aggarwal Partner Direct: + 91 12 4464 4551 Email: vivek.aggarwal@in.ey.com Mukul Shrivastava Partner Direct: + 91 12 6192 2777 Email: mukul.shrivastava@in.ey.com Anurag Kashyap Partner Direct: + 91 22 6192 0373 Email: anurag.kashyap@in.ey.com Anil Kona Partner Direct: + 91 80 6727 5500 Email: anil.kona@in.ey.com Dinesh Moudgil Executive Director Direct: + 91 40 6192 0584 Email: dinesh.moudgil@in.ey.com Dangerous world: Practical steps for global companies to evaluate and address corruption risk 23
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