Upload
phamnhi
View
216
Download
0
Embed Size (px)
Citation preview
How Anti-Corruption compliance can strengthen governance & ethics in Municipalities
IMPSA ConferenceLord Charles Somerset WestSteven Powell25 August 2015
overview
the corruption landscape in africa
results of the ENSafrica ABC survey
local & global anti-corruption legislation
enforcement trends
liability for the acts of 3rd parties
third party due diligence requirements
conclusion
corruption is a global phenomenon
Africa’s least corruptTI Rating 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 corruption perceptions index 2014
ENSafrica 2015 ABC survey results
88 organisations across Africa participated in survey
South Africa one of 8 corruption hotspots in Africa
24% of organisations have experienced incident of bribery and
corruption in past year
68% of those surveyed believe that third-party business partners
pose the greatest source of bribery risk to their organisations
For detailed results see: https://www.ensafrica.com/news/ENSafricas-
2015-anti-bribery-and-corruption-survey-
results?Id=1933&STitle=forensics%20newsflash
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
overview of applicable ABC legislation & initiatives
POCA – Prevention of Organised Crime Act
PDA – Protected Disclosures Act
FICA – Financial Intelligence Centre Act
PCCA – Prevention and Combating of Corrupt Activities Act
Plea & sentence agreements – Sec 105 A of Act 51 of CPA of 1977
SCCU – Specialized Commercial Crime Unit
Companies Act – Reg 43 which introduces the OECD
recommendations
the Prevention of Organised Crime Act, (POCA) Act 121 of 1998
introduced asset forfeiture in SA – power to freeze and seize
the proceeds of crime, taking the profit out of the illicit activities
proceeds of the asset forfeiture activities go to Criminal Assets
Recovery Account, (CARA) either for reimbursement to victims
or for utilisation by the state in its efforts to fight crime
also introduced the crime of racketeering
and non drug based money laundering offences
POCA
PDA
the Protected Disclosures Act (Whistle Blowers Act) Act 26
of 2000, protects employees from discrimination in
circumstances where they blow the whistle on corruption
the PDA provides for damages for whistleblowers who are
subjected to an “occupational detriment”
but criticised – paper protection and many whistleblowers
are subjected to victimisation in SA (and elsewhere)
Dodd Frank Legal reforms in the US
FICA
aims to combat money laundering activities and financing of
terrorist and related activities
obligation to report suspicious transactions is on “accountable
institutions” and “reportable institutions”
“accountable institutions” obliged to know their clients
the FIC channels STR’s to the appropriate bodies to investigate
or take action
Sec 105 A of CPA – plea bargains
Sec 105 A of the Criminal procedure Act 51 of 1977 was introduced to allow the state & defence to enter into plea & sentence agreements
to address the backlog of cases (white collar crime matters take years to investigate and prosecute)
In terms of sentencing guidelines – where the value involved exceeds R500, 000.00 a mandatory 15 year jail term is applicable
however, this long term imprisonment cab be negotiated into a reduced sentence via 105 A
based on successful intervention in New York City
PCCA (Act 12 of 2004) defines categories of corrupt activities (Including foreign bribery)
creates reporting obligation if you know or suspect acts of corruption or fraud, theft, extortion, forgery and uttering, where the value exceeds R100,000.00, it is a criminal offence if you fail to report to SA Police Services (up to 10 years imprisonment)
prohibits cross border acts of corruption (extra territorial jurisdiction for SA courts)
provides a black list for companies convicted of corruption
Prevention and Combating of Corrupt Activities Act
the specialized commercial crime courts
dedicated commercial crime courts - established in all of the major centres to improve conviction rates in white collar crime matters
staffed by expert prosecutors
presided over by magistrates and judges who have sufficient white collar crime expertise to understand the often complex fraud and corruption cases
the conviction rate in these courts has consistently remained higher than 90%
indicative of the success of this initiative
OECD recommendations on reducing corruption – Reg 43
Section 43 of the regulations to the
companies act requires the establishment of
a social and ethics committee
applicable to:
every state owned company
every listed public company
companies that satisfy the public interest criteria
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 company adheres to UN Global compact principles – Principle 10 is reducing corruption
OECD recommendations
what does this mean in practical terms?
a stand alone anti-bribery policy (Municipalities have focused historically on fraud risk – this must be overhauled and extended
internal controls should be put in place to prevent bribery
based on a risk assessment
Includes processes to perform due diligence on business partners, agents & intermediaries (failure to conduct DD is regarded as 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 offence
The provisions of the Act relating to bookkeepingand internal controls (“accounting provisions”)receive less publicity but are much more likely toform the basis of a government proceeding againstcompanies subject to the Act
The most common FCPA enforcement mechanismis a civil action by the Securities and ExchangeCommission (“SEC”) under the accountingprovisions and not a criminal charge by theDepartment of Justice (“DOJ”) or even a civilaction 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 US govt 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 years
many multinational organizations have settled enforcement
actions with the US government
Often related to acts of bribery in developing markets in Africa,
Asia and Latin America.
parent company is held accountable for bribes paid by third
party intermediaries (TPI’s)
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 UK has also promulgated strong extra-territorial anti-corruption laws
United Kingdom Bribery Act of 2010 (UKBA) – came into effect in
July 2011 - provides:
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
enactment of Crime and Courts Act 2013 in UK authorizes SFO
to enter 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
Brazil promulgated a new extra-territorial anti-corruption law, in early 2014,
targets companies that pay bribes with heavy fines of between 0.2 % & 20 % of its gross revenue plus damages
significant efforts are being undertaken by companies domiciled or engaging in business in Brazil to comply with the new law
China has initiated a crackdown on corruption
China, has embarked on an anti-corruption crackdown, initially targeting the pharmaceutical industry
in July 2013, 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
a Chinese government official stated that it had “noted the international trend of governments imposing heavy fines against corrupt companies and was contemplating doing the same”
in 2014, GSK fined nearly $500 million
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 parties
companies can be held responsible for the actions of a third party when they:
authorize or instruct the third party to make improper payments to foreign officials, or
make payments to a third party, knowing (or willfully blind) that money will be paid directly (or indirectly) to a government official
(over 70%) of U.S. enforcement actions involve bribe payments made by agents, consultants and other third parties
liability for the acts of third parties 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,
enforcement authorities 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 controls
pre – approval for providing anything of value (+ 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’
corruption in municipalities can be mitigated by robust compliance procedures
it is imperative that employees and business partners are screened and trained
ANTI BRIBERY COMPLIANCE DUE DILIGENCE on business partners is vital to avoid corrupt business partners – if done properly it can save municipalities millions in wasted costs
anti-bribery compliance policies, controls 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