How Anti-Corruption compliance can strengthen governance & ethics in Municipalities

Transcription

1 How Anti-Corruption compliance can strengthen governance & ethics in Municipalities IMPSA Conference Lord Charles Somerset West Steven Powell 25 August 2015

2 overview the corruption landscape in africa results of the ENSafrica ABC survey local & global anti-corruption legislation enforcement trends liability for the acts of 3 rd parties third party due diligence requirements conclusion

3 corruption is a global phenomenon

4 transparency corruption perceptions index 2014 Africa s least corrupt TI 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) Corrupt politicians make the other ten percent look bad. Henry Kissinger three quarters of the African countries scored less than 3 out of 10 a sign of rampant corruption (oil producers - worst of all)

5 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: anti-bribery-and-corruption-surveyresults?Id=1933&STitle=forensics%20newsflash

6 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

7 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

8 POCA 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

9 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

10 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

11 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, 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

12 Prevention and Combating of Corrupt Activities Act 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

13 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

14 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

15 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

16 OECD recommendations 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

17 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

18 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

19 FCPA Books and records offence The 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

20 FCPA accounting provisions 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.

21 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)

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

23 top ten FCPA cases The new Corporate FCPA Top 10 List now reads as follows: 1 Company Siemens AG* Total Resolution DOJ Component SEC Component Date $800,000,000 $450,000,000 $350,000,000 12/15/ Alstom S.A. $772,290,000 $772,290, /22/ KBR/Hallibur ton 4 BAE Systems** $579,000,000 $402,000,000 $177,000,000 02/11/2009 $400,000,000 $400,000, /04/ Total S.A. $398,200,000 $245,200,000 $153,000,000 05/29/ Alcoa $384,000,000 $223,000,000 $161,000,000 01/09/ Snamprogett i/eni $365,000,000 $240,000,000 $125,000,000 07/07/ Technip S.A. $338,000,000 $240,000,000 $98,000,000 06/28/ JGC Corp. $218,800,000 $218,800, /06/ Daimler AG $185,000,000 $93,600,000 $91,400,000 04/01/2010

24 the Foreign Corrupt Practices Act (FCPA) the anti-corruption legislative regime in USA 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

25 the UK has also promulgated strong extra-territorial anti-corruption laws United Kingdom Bribery Act of 2010 (UKBA) came into effect in July 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")

26 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

27 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

28 Brazil has initiated strong action against bribery Brazil promulgated a new extraterritorial 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

29 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

30 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

31 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

32 who are third-party intermediaries TPI s resellers vendors marketing and other consultants export and other agents sales, licensing and other representatives lawyers accountants JV partners acquisition targets

33 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

34 key compliance controls pre approval for providing anything of value (+ training) Gifts Travel Entertainment Per diems due diligence Employees sponsorships donations corporate responsibility programmes 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 training & communication books and records monitoring

35 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

36 A very simple conclusion. If you think compliance is expensive, try non - compliance Former U.S. Deputy Attorney General Paul McNulty.

37 Questions

38 Steven Powell