Managing corruption risks in Africa global anti-corruption compliance requirements & best practices Steven Powell ICFP Breakfast 31 July 2015.

Managing corruption risks in Africa global anti-corruption compliancerequirements & best practices

Steven Powell ICFP Breakfast 31 July 2015

agenda ENSafrica survey

the corruption landscape in africa

key global initiatives to tackle corruption

the importance of enforcement

global anti-corruption best practises

third party due diligence

concluding thoughts

ENSafrica 2015 anti-bribery compliance survey

survey included 88 organisations across Africa, including Mauritius

measurement of perceptions regarding Anti-Corruption Compliance commitment

the extent to which local and global requirements complied with, and

how local compliance processes compare to generally accepted anti-corruption compliance best practice

key finding

incidents of bribery have increased, but so has general awareness of anti-bribery compliance among organisations

24% of organisations have experienced an incident of bribery and/or corruption in the past 24 months (that’s an increase of 4% since 2013), with 5% experiencing five or more incidents within the last 24 months

just over 90% of organisations surveyed have a policy prohibiting bribes, 52% have an established anti-bribery compliance programme and 43% have conducted a detailed anti-bribery risk assessment of their bribery risks

(important caveat: ENS clients are more compliant than most – there is still large number of companies that are not doing any ABC compliance)

detailed findings

68% of those surveyed believe that third-party business partners pose the greatest source of bribery risk to their organisations

17% of organisations feel they are highly exposed to bribery in Africa (a drop of 33% compared to 2013), with 71% believing they are moderately exposed to bribery and corruption in Africa (which may be attributed to organisations embracing the challenges of anti-bribery compliance and starting to build workable compliance programmes that mitigate bribery risks)

detailed findings

Angola (score 19 rank 161/175*), the Democratic Republic of Congo (score 22 rank 154/175*), Ghana (score 48 rank 61/175*), Kenya (score 25 rank 145/175*), Mozambique (score 31 rank 119/175*), Nigeria (score 27 rank 136*), South Africa (score 44 rank 69*) and Uganda (score 26 rank 142/175*) were highlighted as corruption hotspots

only 36% of organisations surveyed:

are confident that they have proportionate procedures to mitigate bribery risks; orbelieve they are well prepared to respond to the threat of an anti-bribery regulatory investigation

*Transparency International Corruption Perception Index 2014

detailed findings

62% of organisations now conduct due diligence screening on third parties, -increase of 22% from 2013

Only 40% of organisations have a dedicated anti-bribery training programme for their employees and 15% provide anti-bribery training to their business partners

(an internet link to interactive results and graphs will be e-mailed to all delegates)

detailed findings

Our survey further found that organisations:

• with an anti-bribery compliance programme,• with a dedicated anti-bribery policy,• with top-level commitment,• who have conducted an anti-bribery risk assessment,• who conduct anti-bribery due diligence on business

partners, and• who provide their employees and third parties with anti-

bribery training

reported fewer incidents of bribery as opposed to those who do not.

(an internet link to interactive results and graphs will be e-mailed to all delegates)

the corruption landscape in Africa

Africa is the investment destination of choice for International companies expanding their business footprint

but

Corruption is an almost insurmountable obstacle

TI Corruption Index reflects that two thirds of Africa score > 3 out of 10 (indicative of endemic corruption levels)

facilitation payments are routine and almost mandatory

bribes often paid by third parties to facilitate setting up

meetings with government often come at a price

“Africa is no place for sissies

Africa’s least corruptRating Score 31 Botswana (-1) (63)

42 Cape Verde (57)

47 Mauritius (54)

55 Namibia (+2) (49)

55 Lesotho (49)

55 Rwanda (49)

61 Ghana (48)

67 RSA (+5) (44)

three quarters of the African countries scored less than 3 out of 10 – a sign of rampant corruption (oil producers - worst of all)

“Corrupt politicians make the other ten percent look bad.” ― Henry Kissinger

Transparency International Corruption Perceptions Index 2014

why does anti-corruption compliance matter

ethically & morally – right thing to do, but also legal req

increased global regulatory enforcement activity i.e.

• risk of being penalised is higher than ever• more and more jurisdictions fining companies that

bribe• reputational harm• share price and company value can be devastated• expensive legal and remediation fees• derivative action risk • director accountability • jail time for offending directors

defines categories of corrupt activities (Including foreign bribery)

creates reporting obligation if you know or suspect acts of corruption, fraud, theft, extortion, forgery and uttering. The reporting obligation is set out in Section 34 – any person in a position of authority who knows, ought reasonably to have known, or suspects that an act of fraud, theft, extortion, forgery or uttering has been committed, where the value exceeds R100,000.00, it is a criminal offence if you fail to report to SA Police Services (10 years imprisonment) All corruption irrespective of value is reportable

prohibits cross border acts of corruption (extra territorial jurisdiction for SA courts)

provides a black list for companies convicted of corruption

Main act in South Africa - Prevention and Combating of Corrupt Activities Act (Act 12 of 2004) PreCCA

latest anti-corruption weapon in South Africa - OECD recommendations

- Section 43 of the regulations to the companies act requires the establishment of a social and ethics committeeapplies to:

• every state owned company• every listed public company• any other company that has in two of the previous 5 years

scored more than 500 points in relation to reg 26(2)score is determined by one point per average employee number, - one point per every R1 million in third party liability, - one point for every million in t/o and - one point for every person with direct/indirect beneficial interest in issued securities, and then for NPO’s – one point per member or per association that is a member

Section 43 of the 2011 regs to the Companies Act 2008

The Social and ethics committee of the company shall monitor the company’s progress and standing regarding:

• the implementation of the OECD recommendations on preventing corruption:– Not offer, promise or give undue pecuniary or other advantage

to public officials or the employees of business partners.– Develop and adopt adequate internal controls, ethics and

compliance programmes or measures for preventing and detecting bribery, developed on the basis of a risk assessment addressing the individual circumstances of an enterprise, in particular the bribery risks facing the enterprise (such as its geographical and industrial sector of operation)

– Prohibit and discourage facilitation payments

• Perform due diligence on agents and intermediaries• Enhance the transparency of their activities in the fight

against bribery, bribe solicitation and extortion• Promote employee awareness of and compliance with

company policies and internal controls, ethics and compliance programmes or measures against bribery, bribe solicitation and extortion

• not make illegal political donations

The committee must ensure companies adhere to UN Global compact principles – Principle 10 is reducing corruption

recommendations contd

what does this mean in practical terms?

• dedicated social and ethics committee

• a stand alone anti-bribery policy

• commitment to ethical business practises

• internal controls to prevent bribery

• based on a risk assessment • due diligence on business

partners, JV partners, agents & intermediaries (failure to conduct DD = wilful blindness)

• training & communication• on-going monitoring of

bribery risk

The US Foreign Corrupt Practices Act of 1977 US Federal law with two main components

• “Anti-Bribery” Provisions• Illegal to corruptly offer, promise, or give anything of

value, directly or indirectly, to a foreign official for the purpose of obtaining or retaining business

• “Accounting” Provisions• Publicly traded companies must maintain accurate

books and records and devise and maintain internal controls designed to provide reasonable assurances that financial transactions are properly recorded

FCPA – Books and records offenceThe provisions of the Act relating to bookkeeping

and internal controls (“accounting provisions”) receive less publicity but are much more likely to form the basis of a government proceeding against companies subject to the Act

The most common FCPA enforcement mechanism is a civil action by the Securities and Exchange Commission (“SEC”) under the accounting provisions and not a criminal charge by the Department of Justice (“DOJ”) or even a civil action by the SEC under the anti-bribery provision

a company may be liable if it’s records:

omit a transaction, such as a bribe, illegal commission or other improper payment

disguise records to conceal improper activity or fail to identify the improper nature of the recorded transaction

issuers are required to maintain a system of internal accounting controls to provide reasonable assurances that transactions are executed in line with management authorisation.

FCPA accounting provisions

the United States is the most robust anti-corruption compliance enforcer

The US govt has collected over R5 billion dollars in penalties and settlements from corrupt companies over the past six yearsmany well-known blue chip multinational organizations have settled enforcement actions with the US government, related to acts of bribery to win business, particularly in developing markets in Africa, Asia and Latin America. often the parent company is held accountable for bribes paid by third party intermediaries (TPI’s), • highlights why it is so important to perform effective anti-

corruption due diligence on business partners

since 2008 to date- the US Govt has collected almost $5 billion in fines

Enforcement action 2008 - 2013

The new Corporate FCPA Top 10 List now reads as follows:

Company Total

Resolution DOJ

Component SEC

Component Date

1 Siemens

AG* $800,000,000 $450,000,000 $350,000,000 12/15/2008

2 Alstom S.A. $772,290,000 $772,290,000 -- 12/22/2014

3 KBR/Hallibur

ton $579,000,000 $402,000,000 $177,000,000 02/11/2009

4 BAE

Systems** $400,000,000 $400,000,000 -- 02/04/2010

5 Total S.A. $398,200,000 $245,200,000 $153,000,000 05/29/2013

6 Alcoa $384,000,000 $223,000,000 $161,000,000 01/09/2014

7 Snamprogett

i/ENI $365,000,000 $240,000,000 $125,000,000 07/07/2010

8 Technip S.A. $338,000,000 $240,000,000 $98,000,000 06/28/2010

9 JGC Corp. $218,800,000 $218,800,000 -- 04/06/2011

10 Daimler AG $185,000,000 $93,600,000 $91,400,000 04/01/2010

top ten FCPA cases

FCPA Enforcements • Wide-spread international focus – significant portion of the DOJ/SEC settlements

initiated/concluded during H1/2012 involved improper conduct occurring in China• Enforcement actions against companies from 2006 to 2011

the anti-corruption legislative regime in USA

The Foreign Corrupt Practices Act (FCPA)

the United Kingdom has also promulgated strong extra-territorial anti-corruption lawsIn July 2011, the British Government promulgated the United

Kingdom Bribery Act of 2010. (UKBA)

The UKBA goes further than the FCPA, as it targets private bribery, as well as the bribery of government officials.

The most radical innovation introduced by this legislation however is the introduction of corporate liability for companies that fail to prevent bribery,

forces organisations associated with UK to proactively take steps to manage the corruption risk, by way of policies, procedures, controls, due diligence procedures, monitoring.

the enactment of the Crime and Courts Act 2013 in the UK has authorized the SFO to resolve violations of the Bribery Act through Deferred Prosecution Agreements ("DPAs"),

UKBA Compliance: Ministerial guidelines “adequate procedures”

proportionate procedures: Procedures to prevent bribery by persons associated with the organisation are proportionate to the bribery risks it faces and the nature, scale and complexity of the organisation’s activities

top level commitment: Top level management must be committed to preventing bribery by persons associated with the organisation

risk assessment: The organisation assesses the nature and extent of its exposure to potential external and internal risks of bribery on its behalf by persons associated with it

UKBA Compliance: Ministerial guidelines

due diligence: Apply due diligence procedures in respect of persons who perform or will perform services for or on behalf of the organisation, in order to mitigate identified bribery risks

communication (including training): Bribery prevention policies and procedures are embedded throughout the organisation through internal and external communication, including training

monitoring and review: The organisation monitors and reviews policies and procedures designed to prevent bribery by persons associated with it

Brazil has initiated strong action against bribery

In early 2014 Brazil, promulgated a new extraterritorial anti-corruption law, which targets companies that pay bribes with heavy fines of between 0.2 per cent and 20 per cent of its gross revenue plus damages

significant efforts are being undertaken by companies domiciled or engaging in business in Brazil in efforts to comply with the new law as it becomes effective

Other countries are expected to adopt more stringent legal requirements in the near future as well

China has initiated a crackdown on corruption

China, has embarked on an anti-corruption crackdown, initially targeting the pharmaceutical industry

In July 2013, the Chinese authorities accused GSK of funnelling up to 3 billion yuan (287 million pounds) to doctors and officials to encourage them to use its medicines in a case that rocked the pharmaceutical industry

The Chinese government stated that it had noted the international trend of governments imposing heavy fines against corrupt companies

liability for the acts of third parties

FCPA, UKBA, and most other anti-corruption laws prohibit making corrupt payments both directly and indirectly through third-party agents, distributors, consultants, intermediaries, or other third partiesCompanies can be held responsible for the actions of a third party when they:1. authorize or instruct the third party to make improper payments to

foreign officials, or2. make payments to a third party, knowing (or willfully blind) that

money will be paid directly (or indirectly) to a government officialthe general rule is that you cant use an indirect route to do things you are

not allowed to do directly

(over 70%) of U.S. enforcement actions today involve bribe payments made by agents, consultants and other third parties

liability for third party actions

The notion that one is not responsible for bribe payments made by third parties no longer valid

• proof of “actual knowledge” of a bribe payment is not required

• knowledge is satisfied when a person is aware of a high probability of the existence of a particular circumstance

• Companies and their employees cannot consciously disregard or deliberately ignore suspicious facts before entering into or during a third-party contract

• knowledge can be established by failing to conduct due diligence, which may cause enforcement authorities to take the position that the knowledge element has been satisfied due to willful blindness/conscious disregard

resellers

vendors

marketing and other “consultants”

export and other “agents”

sales, licensing and other representatives

lawyers

accountants

JV partners

acquisition targets

who are third-party intermediaries TPI’s

due diligence process Due diligence - simply means researching a TPI/BP to identify potentially negative information regarding a TPI’s or BP’s reputation and to determine whether they are qualified to do business with your organisation

Why conduct due diligence? - when you hire a TPI or BP, the U.S. Government will assume that you knew the TPI’s or BP’s reputation and qualifications and you become liable for their actions on your behalf

The DOJ regards the failure to perform due diligence as “willful blindness” you did not ask because you didn’t want to know

Eg – “we don’t pay bribes, but what the consultants get up to is their business, we don’t want to know”

Key compliance controlsPre – approval for providing anything of value to govt officials (+ training)• Gifts• Travel • Entertainment• Per diems

Due diligence • Employees• Agents, business partners and other TPI’s

Anti bribery warranties and covenants in contracts with TPI’s

3 layers of scrutiny• Line• Legal• Compliance

Compliance must keep records – evidence of compliance

• sponsorships

• donations

• corporate responsibility programmes

• Books and records• Monitoring

• Training & • communication

concluding thoughts corruption levels in SA are almost out of control – “almost anything can be acquired at a price’

across our borders, it gets worse -corruption represents a significant challenge which must be properly managed

it is imperative that employees and business partners are screened, trained and bound by warranties and covenants

ANTI BRIBERY COMPLIANCE DUE DILIGENCE on business partners in Africa is critically important (failure to perform due diligence is regarded as wilful blindness by regulators)

Anti-Bribery Compliance Policies and Procedures are critically important

A very simple conclusion ….

“If you think compliance is expensive, try non - compliance”

Former U.S. Deputy Attorney General Paul McNulty.

Questions

Steven [email protected]

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