Trade Caoacity Vietnam Companies and corruption: Reality check (benefits and harms) sequa, March 2017 What is Corruption

What benefits (1) A reputation as a business that trades ethically increases your chances of selection as a supplier to large multinationals in their supply chain, and better access to international markets. A record of integrity will enhance your opportunities to acquire government business. With a good anti-bribery Programme in place, your business and your associates will be better protected against legal penalties, loss of licenses and blacklisting. sequa, March 2017 What is Corruption

Your business will be more attractive to financial organisations. What benefits (2) If you are considering selling your business, a good reputation will be more attractive for acquisition. A business with ethical standards is a good place to work and will encourage good working relationships and morale. Your business will be more attractive to financial organisations. You, and not some bribe payer or bribe receiver, will be in control of your business decisions. Your organisation will save money which might otherwise be squandered on bribes, gifts and inducements. sequa, March 2017 What is Corruption

What harms (1) Bribery is illegal, and therefore a criminal offence which carries severe financial penalties and even the risk of imprisonment for responsible directors and managers. Even if the country in which you operate or to which you sell, does not have anti-bribery laws, you may be selling into other countries which can enforce penalties for corruption. sequa, March 2017 What is Corruption

What harms (2) Negative consequences for failing to prevent corruption can result in: Legal sanctions for corruption (criminal fines, compensatory damages, imprisonment) Commercial and operational sanctions, such as debarment from public tenders, unfavourable financing conditions, sanctions of business partners or customers with negative impacts on day-to-day activities such as buying, producing, selling, hiring, investing Negative reputation of the company and its employees among peers, business partners and customers, and the general public: Negative reputation often triggers additional commercial sanctions with decreases in sales or lower attractiveness for investments. sequa, March 2017 What is Corruption

Consequences in corruption case: corrupt acting employees In case of corruption in the company, the corrupt acting employee, the board management and the company as a whole can be assigned with penalties: It usually does not matter whether it is active or passive corruption or misconduct with public officials or with business partners. Corruption case Corrupt acting employee Board and Senior Management Business ( Legal Person) sequa, March 2017 What is Corruption

Consequences of corruption Legal consequences Economic consequences Infidelity: fine or imprisonment Money laundering: imprisonment Embezzlement: fine or imprisonment Fraud: fine or imprisonment Extortion: fine or imprisonment False accounting : fine or imprisonment Tax evasion: fine or imprisonment High (unplanned) costs for the elucidation of facts: External consultancy costs Procedural costs Integration of board and senior management Effort as being partly not deductible in the tax return Impairment of liquidity (as many of the above costs incurred under high time pressure) Improvement of internal structures and processes (often under tight deadlines and cost constraints) Nullity of contracts Forfeiture of insurance benefits sequa, March 2017 What is Corruption

Advantages of an anti-corruption programme Minimize the risk of active and passive corruption Mitigating incentives: reduced sanctions Commercial and operational advantages (e.g., preferred supplier status, employee recruitment) Improved reputation Deterring corrupt business partners and other actors with appropriate communication Detection of process inefficiencies (e.g. in shopping area) Anti- Corruption Advantages sequa, March 2017 What is Corruption

Components of an anti-corruption programme Example OECD: Good Practice Guidance on Internal Controls, Ethics, and Compliance International Chamber of Commerce: Rules of Conduct Transparency International: Business Principles for Countering Bribery Support and commitment from the leadership Corporate policy prohibiting foreign bribery Oversight over the programme and measures Measures for third parties System of financial and accounting procedures, including a system of internal controls Communication and documented training measures Promotion and assistance in compliance of programs Appropriate disciplinary procedures Possibility of confidential whistle- blowing Regular checks Company senior management as Role model Correct handling of business partners and authorities Handling of gifts and donations Clear separation between business and private area Avoiding conflicts of interest Four-eyes principle, separation of functions and documentation Rotation of staff in sensitive areas Alternative Suppliers Confidential whistle-blower system Information and Communication Plausibility checks Strengthening of audit and compliance Sanctions Business Principles: The Company shall, whether directly or indirectly, prohibit any form of corruption in any form. The company should commit to the implementation of a program to combat corruption Organization and Responsibilities Business Relations Human Resources Training Raising concerns and seeking guidance Communication Internal audit and account auditing sequa, March 2017 Guidelines for small and medium-sized enterprises comprise similar components (e.g. Transparency International Business Principles for Countering Bribery - SME Edition). What is Corruption

Risk minimization and Economy The components of an anti-corruption program for small and medium-sized enterprises are generally identical to programs of large, multinational companies. This allows companies to have the "wheel not reinvent" for the design, there is a wealth of information. However, this should not simply be copied, but are adapted to the requirements and risk characteristics of the company. Risk minimization Economy sequa, March 2017 What is Corruption

3 Steps Approach for companies to fight corruption Business environment with reduced corruption risk Internal Measures External Measures Collective Measures Establishment of an anti-corruption programme Discussion of internal guidelines, measures and experience values with external stakeholders Building sector co-operation and collaboration with business partners and other stakeholders (e.g., NGOs, Chamber of commerce) to initiate joint activities in the fight against corruption Even companies that have established internal measures to fight corruption can be exposed to competitive disadvantages, or lack the leverage to change the business environment. A collective approach helps to level the playing field and creates a business environment with reduced risk of corruption. sequa, March 2017 Source: Adapted from Global Compact “Business against Corruption - A Framework for Action”, 2006 What is Corruption