Fighting private sector corruption in a changing world Alphons P.Ranner Member of the Board Corporate Fraud & Corruption Forum Sheraton Schiphol, May 27-28, 2010

Combating private sector corruption and fraud with market and legal instruments Introduction Corruption defined Trends TI’s Approach Corruption and financial services industry Recommendations

Main conclusions The understanding of anti-bribery and corruption legislation by the private sector is insufficient Applying good anti-corruption laws can involve a trade advantage Assessment is needed of the companies’ vulnerability to corruption risk in all areas of business and their potential exposure and liabilities under domestic and foreign laws There is a need for design and implement of robust procedures to prevent bribery and corruption occurring.

Transparency International (TI) : Civil society organisation leading the global fight against corruption. Address corruption through many tools and over 90 national chapters. Politically non-partisan Introduction

Corruption is the abuse of entrusted power for private gain Why fight corruption ? Corruption undermines good governance. distorts the potential benefits of trade. implies a loss of tax revenues & fundamentally distorts public policy involves a misallocation of resources harms private and public sector development hurts in particular the poor. vulnerability to extortion and reputational risk unsafe producs of questioonable qauality Introduction No acceptable cost of doing business

Recent trends Growing role of civil society Growing population with emerging global middle class Growing competition for scarce natural resources BRICS and other emerging powers taking a larger share in global economy Growth of aid volumes but with greater focus on effectiveness. Trends

Re Recent trends Spread of new technologies offering new opportunities for empowerment and activism. Broadening of good governance agenda. Strengthening of international anti-corruption codes (UNCAC, OECD, GRECO) and new national laws (UK bribery act) to fight bribery in overseas relationships. Trends

TI’s approach Global priorities Enhancing private sector anti-corruption standards (e.g. business principles) Curbing corruption in public contracting Advancing international conventions against corruption (e.g. UNCAC, OECD, GREC0) Reducing corruption in poverty and development Reducing corruption in politics Reducing corruption in disaster areas

Stronger anti-corruption policies at EU level Helping ordinary citizens take action against corruption, offering centers for Anti Corruption Resources and Advocacy and Legal Advice. TI’s approach, current European priorities

Private sector corruption Apart from the anti-bribery index and other indices TI promotes use of many of new market and legal instruments to fight corruption. Study by Transparency International UK (Robert Barrington) for City of London. “Corruption risk and the City, the Bribery act 2010” published May 25 th. Probably many results also of interest to companies from continental Europe.

Almost 50% of respondents thought London to be less corrupt than other leading financial centres, Only 3% thought it was more corrupt. Bribery act is unlikely to have a significant negative impact on the City of London’s global competiveness. For most companies a positive impact on the city’s reputation is likely Key findings City and corruption

Views of respondents 51%City companies do not pay bribes as a matter of principle 47%City companies pay bribes in some circumstances 33% City companies are willing to pay bribes as standard practice in some environments 25% (!)Well informed about the UK bribery act 10% Current efforts by internal auditors and compliance departments to identify corruption is “very successful” 20%Typical tests of due diligence seriously inadequate to discern whether customers business partners and/or transactions are corrupt

MarketCountry corruption perceptions index OECD Anti-bribery Convention signatory OECD enforcement ranking UN Convention against corruption signed and ratified London (UK)17YesModerateYes New York (US)19YesActiveYes Paris (FR)24YesModerateYes Frankfurt (GE)14YesActiveNo Zurich (SW)5YesActiveYes Amsterdam (NL)4YesActiveYes Tokyo (JAP)17YesModerateNo Toronto (CAN)8YesLittle or noneYes Hongkong (CH)12Non/aYes Singapore3Non/aYes Dubai (UAE)30Non/aNo See resources on page 4 of “Avoiding Corruption Risks in the City: The Bribery Act 2010, City of London. Regulatory regime concerning Bribery in other Global Financial Centres [1] [1] [1] See resources on page 4 of “Avoiding Corruption Risks in the City: The Bribery Act 2010, City of London.

General Conclusion Preparations for Bribery Act and likewise present day internal procedures are in many cases inadequate.

My observation: Worldwide implications. 1. The provisions of Act require all foreign companies that do business in the UK (wherever they are incorporated) to prevent bribery through “adequate measures”. 2. In addition, foreign companies not incorporated but doing business in the UK can incur vicarious liability if they fail to take sufficient measures to prevent bribery by “associated persons” -which can relate to acts committed anywhere in the world. 3. The new legislation does not include exclusion for “facilitation payments”.

Recommendations Companies Assess vulnerability to corruption risk in all areas of business and their potential exposure and liabilities under the domestic and foreign laws Should design and implement robust procedures to prevent bribery and corruption occurring. Risk management in corporate government systems should include the assessment of corruption hazards. Companies Assess vulnerability to corruption risk in all areas of business and their potential exposure and liabilities under the domestic and foreign laws Should design and implement robust procedures to prevent bribery and corruption occurring. Risk management in corporate government systems should include the assessment of corruption hazards.

Recommendations Make anti-corruption commitments binding and verifiable and report on key aspects of compliance and adherence in a transparent and publicly available manner implement monitor and check anti-corruption policies and systems independently. proactively react to regulators’ enforcement efforts. take action to strengthen transparency, accountability and integrity of corporate governance. Companies should

Should make anti-corruption commitments binding and verifiable and report on key aspects of compliance and adherence in a transparent and publicly available manner Anti-corruption policies and systems should be implemented, monitored and checked independently. Proactively react to to regulators’ enforcement efforts. Should take action to strengthen transparency, accountability and integrity of corporate governance. Professional associations Should advise their members on how to deal with sector-specific corruption risks

Regulators Should assist with educating companies about evolving anti bribery laws and conventions Regulations should provide incentives for private sector players to help detect and disengage from corrupt practices. Regulators need to be independent and transparent and avoid conflicts of interest to ensure that they are able to enforce regulations when breaches occur. Recommendation s

Governments and public regulators Should increasingly complement punishment with a focus on sustainable prevention. They could use and refine tools like deferred and non- prosecution agreements, monitors and ethical blacklisting Make enforcement more transparent and accountable by publicly reporting.. Recommendation s

Close legal loopholes and aspects of corruption not addressed thus far like influence trading and facilitation payments. Strengthen international coordination and consistency of laws and conventions (OECD and UNCAC) Promote the international cooperation of anti-corruption agencies, tax authorities and financial markets regulators. Probably increase criminal sanctions for bribery offences.. Governments and public regulators

Main conclusions The understanding of anti-bribery and corruption legislation by the private sector is insufficient Applying good anti-corruption laws can involve a trade advantage Assessment is needed of the companies’ vulnerability to corruption risk in all areas of business and their potential exposure and liabilities under domestic and foreign laws There is a need for design and implement of robust procedures to prevent bribery and corruption occurring.

Make enforcement more transparent and accountable by publicly reporting. Close legal loopholes and aspects of corruption not addressed thus far like influence trading and facilitation payments. Strengthen international coordination and consistency of laws and conventions (OECD and UNCAC) Promote the international cooperation of anti-corruption agencies, tax authorities and financial markets regulators. Probably increase criminal sanctions for bribery offences.. Alphons P.Ranner Transparency International Nederland Benoordenhoutseweg BA ’s Gravenhage Nederland Tel: