Managing & Responding to Increasing Risks of Bribery & Corruption ACFE Asia Pacific Fraud Conference Hong Kong 18 November 2014 Shane MacDonald Partner, Forensic Consulting Grant Thornton Australia 2013 Grant Thornton Australia Ltd. All rights reserved.
CONTENTS Background Why risks of bribery & corruption are increasing Implementing an anti-bribery and corruption program Key elements Challenges Solutions
BACKGROUND Summary Bribery and corruption is an issue of Integrity, Your, Our, Their Integrity Complicit Condoning Reporting The importance of culture - principles, values, right and wrong in how affairs are conducted The decisions that all us make can impact on our Integrity
BACKGROUND Impact of Corruption Restricts economic growth Creates, maintains and increases Poverty Lack of confidence Giving of foreign aid Foreign investment Public institutions Lack of hope
BACKGROUND Summary Business Integrity can mean different things: Compliance Corporate responsibility Honesty in dealing and record keeping Internal and/or external focus Non discriminatory Ethics Culture and cultural acceptance
BACKGROUND What is "corruption" "Abuse of entrusted power for private gain" Source: Transparency International FAQ http://archive.transparency.org/news_room/faq/corruption_faq
BACKGROUND Corruption Conflict of interest Bribery Extortion Collusion/bid rigging Kick backs Blackmail Appointments/contract award Secret commissions Threats
BACKGROUND Example of Bribery Project Wrapper Client Head Office based in Europe Subsidiaries in Australia and Malaysia Wins customer contract in South East Asian Country Global Managing Director receives 'tip off' from Whistleblower staff in Malaysia Allegation that bribe paid to win the contract
BACKGROUND Example of Bribery Project Wrapper Forensic investigation of computers & accounting data discovers identity of recipient and payment Interview of Managing Director of Australian subsidiary: Acknowledges the payment claim Claims it to be a facilitation payment Claims it was made to win the contract otherwise competitors would have won the contract Significant pressure from Head Office to increase sales
BACKGROUND Example of Extortion Organised crime using threats, blackmail, industrial action to solicit involuntarily awarding of contracts, appointments and direct payments Organised crime disguise their true intent for unlawful gain via control of legitimate business companies Particularly prevalent in construction, physical security, gambling and clothing manufacturing industries
BACKGROUND Example of Conflict of Interest Project Clean Large religious organisation owns and maintains substantial property assets Whistleblower letter received alleging conflict of interest between Procurement Manager and Maintenance and Cleaning Supplier Supplier alleged to be husband of Procurement Manager Letter signed by 3 employees Alleges bid rigging and deliberate favouritism in appointment of supplier Alleges supplier's quotes always received last and submitted via by the Procurement Manager, not direct as with other supplier bids
BACKGROUND Example of Conflict of Interest Project Clean Investigation reveals the following: Senior Management knew of the married relationship Senior Management knew the supplier won work for many years The Procurement Manager knew that Senior Management knew the above Two whistleblowers had not direct knowledge, only hearsay based on the third The third whistleblower had a personal dispute with the Procurement Manager, a very old friendship had failed No evidence that contracted works were not supplied No evidence of lack of value for money Lack of supporting policy, procedure, training, enforcement
BACKGROUND Example of Conflict of Interest Project Clean Key issues: A conflict of interest existed but had not been formally managed The opportunity existed for fraudulent and corrupt conduct to occur The client couldn t pursue disciplinary action due to lack of policy, procedure, training and condoning of the relationship for several years The whistleblowing disclosure including aspects malicious and vexations intent on part of one whistleblowing, using the other two for influence Lack of evidence that allegations made in good faith New claims of bullying & harassment now against Senior Management Poor overall culture created opportunities and ongoing disruption
BACKGROUND Legislative environment summary of key aspects Bribery Act 2010 (UK) Receiving/paying or trying, bribes to Public or Private individuals Failure to prevent bribery Includes facilitation payments Global jurisdiction where carrying on business in the UK
BACKGROUND Legislative environment summary of key aspects Bribery Act 2010 (UK) Use of third parties Foreign subsidiaries or parent entities Personal and corporate criminal liability Defence to demonstrate adequate procedures existed to prevent bribery
BACKGROUND Legislative environment summary of key aspects Foreign Corrupt Practise Act 1977 (US) Receiving/paying or trying, bribes to Foreign Public Officials Doesn t include certain facilitation payments Covers any company or individual domiciled in USA and/or using US Mail
BACKGROUND Legislative environment summary of key aspects Foreign Corrupt Practise Act 1977 (US) Foreign subsidiaries or parent entities Use of third parties Personal and corporate criminal liability Defence of facilitation payments, non Foreign Public Official
BACKGROUND Legislative environment summary of key aspects PRC Criminal Law & PRC Anti-Unfair Competition Law (China) No exception for facilitation payments New enforcement campaign since 2013 targeting domestic and foreign entities No express defence for demonstrating adequate ant-bribery procedures Express defence for extortion
BACKGROUND Legislative environment summary of key aspects PRC Criminal Law & PRC Anti-Unfair Competition Law (China) Commercial bribery offence >$US1,600 for an individual or $US32,000 for an entity Receiving and active bribery of Public Official by individuals, entities and intermediaries "Active bribery" refers to bribery of 'state functionaries' of giving articles of property for improper benefit, a broad coverage of people Liability for companies, their directors, officers, employees & agents
BACKGROUND Legislative environment summary of key aspects General observations many Asia Pacific region laws: Lacking in Global jurisdiction More focused on internal bribery & corruption of official Don t often include facilitation payments Inconsistent enforcement across region Lack of protection for whistleblowers
BACKGROUND FCPA enforcement actions in the US Top Ten: 1. Siemens (Germany): $800 million in 2008. 2. KBR / Halliburton (USA): $579 million in 2009. 3. BAE (UK): $400 million in 2010. 4. Total S.A. (France) $398 million in 2013. 5. Alcoa (U.S.) $384 million in 2014. 6. Snamprogetti Netherlands B.V. / ENI S.p.A (Holland/Italy): $365 million in 2010. 7. Technip S.A. (France): $338 million in 2010. 8. JGC Corporation (Japan) $218.8 million in 2011. 9. Daimler AG (Germany): $185 million in 2010. 10. Weatherford International (Switzerland): $152.6 million in 2013 - See more at: Source: http://www.fcpablog.com/blog/2014/1/10/alcoa-lands-5th-on-our-top-ten-list.html
BACKGROUND Enforcement China Rio Tinto Australian Executive sentenced to 10 years jail GSK $489m fine* Pending? Hong Kong, allegations of secret payments Australian Engineering firm UGL of $7 million Hong Kong chief executive CY Leung to help secure purchase of DTZ Holdings * Source http://www.reuters.com/article/2014/09/19/us-gsk-china-iduskbn0he0tc20140919
INCREASING RISKS What types of risks are we talking about? Risks to Public and Private Sector organisations of: Financial loss Reputational loss Civil and criminal penalties from enforcement Health and safety (insert example of Bangladesh factory collapse) Education Employment
INCREASING RISKS Are risks of bribery and corruption actually increasing? TI CPI results: 2010 2011 2012 2013 China 78 75 80 80 India 87 95 94 94 Japan 17 14 17 18 Philippines 134 129 105 129 Indonesia 78 80 94 114 Thailand 116 112 88 102 Vietnam 116 112 123 116 Bangladesh 134 120 144 136 Malaysia 56 60 49 53 Australia 8 8 7 9
INCREASING RISKS TI Global Corruption Barometer 2013 Asia Pacific Results Decreased (a lot) Stayed the same Increased (a lot) 18% 29% 53%
INCREASING RISKS What is driving increasing risks? Increasing international trade 'Globalisation' Changes in legislative environment Poverty/inequality and changes therein Increased enforcement/selective enforcement Lack of enforcement Economic growth and decline Changes in political environment Natural disasters Lack of will power Greed
IMPLEMENTING AN ABAC PROGRAM Managing the risks Document a plan as to how you have 1. Top level commitment 2. Identify and assessing risks 3. Adequate procedures 4. Due diligence 5. Communication 6. Monitoring Helpful References Guidelines to Bribery Act 2010 (UK) Key Principles Australian Standard 8001-2008 Fraud & Corruption Control
IMPLEMENTING AN ABAC PROGRAM 1. Top level commitment key elements Demonstrated zero tolerance Sufficient resourcing Enforcement
IMPLEMENTING AN ABAC PROGRAM 1. Top level commitment challenges Not setting consistent example Making exceptions Pressures to succeed in new markets profits at costs Ability to influence change in behaviour:
IMPLEMENTING AN ABAC PROGRAM 1. Top level commitment challenges Risk of penalty rationalised based on profit, competition and perception of "accepted practice" in different Countries/markets Ability to influence change in behaviour: "A 2014 survey carried out by TI has found that one in five of the surveyed young people between the ages of 15 and 30,1 in Fiji, Indonesia, South Korea and Sri Lanka, would find it acceptable to lie and cheat to get rich. Between 14 and 52 per cent of the young people surveyed in each of the four countries think that people have more chances of achieving success in life if they lie, cheat, break the law and act corruptly." Source: Asia Pacific youth: integrity in crisis 27 May 2014
IMPLEMENTING AN ABAC PROGRAM 1. Top level commitment solutions Leadership Key roles of Chairperson, Managing Director and CEO Demonstrating the values, principles and code of conduct of the organisation during recruitment, induction and performance reviews of all employees Maybe.reaching out to the Education System to promote the organisations position on unacceptable conduct
IMPLEMENTING AN ABAC PROGRAM 2. Identify and assess the risks key elements Legal risks, foreign jurisdictions Internal risk External risk Principles of AS/NZS ISO 31000:2009. Risk management Principles and guidelines - Identifying risks - Assessing likelihood - Assessing impact/consequence - Identifying and assessing mitigating internal controls - Identifying and assessing residual risk
IMPLEMENTING AN ABAC PROGRAM 2. Identify and assess the risks challenges Irregular assessments Not recognising changes in environment Not understanding different types of bribery and corruption that occur and in different cultures Insufficient resourcing, identification and access to information Not understanding real potential cost of "residual risk"
IMPLEMENTING AN ABAC PROGRAM 2. Identify and assess the risks solutions Seek expertise & senior management buy-in Regular risk assessments including when environment changes Use of technology to capture indicators of deviation from policy & procedure Document work completed to establish an audit trail Commitment to supporting & respecting the role of Internal Audits, Forensic Audits/Examinations and other forms of advice and assurance impacting on Governance
IMPLEMENTING AN ABAC PROGRAM 3. Adequate procedures key elements Proportionate to assessed risks Controls aligned to risks Consistent message Prescribed rules together with principles and values Approved, documented and living policies and plans which demonstrate approval and endorsement of procedures: - Code of Conduct - Procurement Policy - Contract Management Policy - Whistleblowing Policy
IMPLEMENTING AN ABAC PROGRAM 3. Adequate procedures challenges Providing more than just paper based procedures Providing an audit trail of cultural practices Demonstrating organisational behaviour in line with procedures
IMPLEMENTING AN ABAC PROGRAM 3. Adequate procedures solutions Use of technology with systems that record approvals, requests & source documentation providing an overall audit trail linked to policy and procedure (live tracking) Regular internal audit and forensic reviews, training (including inductions, performance reviews and exit interviews) and surveys Make compliance and conduct a part of KPI's for performance review Regular updating and version control in accordance with changing risks Audit trail confirming implementation and effectiveness of procedures, including training and third party agreement to adherence to anti-corruption policy
IMPLEMENTING AN ABAC PROGRAM 4. Due diligence key elements Employee screening Intermediaries Suppliers How? Outsource expertise Public records, ownership, control, sanctions, litigation, penalties Human source, street intelligence Research/media
IMPLEMENTING AN ABAC PROGRAM 4. Due diligence challenges Knowledge of need for due diligence ignorance, naivety & arrogance Identifying sources of information Expertise to gain that information Knowledge of relevant legislation in countries, privacy & data collection laws Not considered part of overall DD program, legal, financial and integrity combined
IMPLEMENTING AN ABAC PROGRAM 4. Due diligence solutions Education understand & acknowledge need for integrity due diligence as part of overall program of DD along side legal/compliance and financial Use of technological and human intelligence 'Trust but verify'
IMPLEMENTING AN ABAC PROGRAM 5. Communication key elements Internal and external Induction, review and exit Top level commitment
IMPLEMENTING AN ABAC PROGRAM 5. Communication challenges Ensuring training is understood acknowledged Keeping up with changes in policy and procedure and risks Acquisitions, mergers, intermediaries & third parties keeping up
IMPLEMENTING AN ABAC PROGRAM 5. Communication solutions Tailored to positions, roles and locations of participants Involvement of senior management leadership Recording acknowledged attendances Confirming effectiveness through surveys and monitoring behaviour/results Continuous training program, reinforcing messages at every opportunity Mandatory specific training for high risk positions
IMPLEMENTING AN ABAC PROGRAM 6. Monitoring & review key elements Obtaining assurance as to effectiveness of procedures Monitoring compliance with Code of Conduct (ethics and integrity) Recording results evidence of effectiveness and compliance
IMPLEMENTING AN ABAC PROGRAM 6. Monitoring & review challenges Lack of monitoring program for specific ABAC compliance, not integrated Understanding, identifying and capturing indicators of effectiveness Lack of audit trail of monitoring process itself, the results & remedial actions
IMPLEMENTING AN ABAC PROGRAM 6. Monitoring & review solutions Use of technology 'big data' Customer, supplier, regulatory complaints and enquiries Exception reporting, commission variances, purchase order variances, contract variations, rebate requests, budget variances, financial adjustments, donations & sponsorships, expense claim reimbursements Human intelligence through interviews, surveys, whistleblowing hotlines
SUMMARY 1. Obtain knowledge and intelligence on ABAC risks to all areas and locations of your organisation's activities 2. Commit to a decision as to how to manage those risks 3. Ensure there is strong leadership to drive and maintain behaviours to achieve 1 and 2 above Questions?