Anti-bribery Compliance Best Practices and New Tools for Managing Supply and Marketing Chain Compliance Risks Alexandra Wrage 9 October 2012 TRACE 2011
Burden on Private Sector Because of sovereign immunity legal obstacles political sensitivities governments cannot reach across borders to solve significant social, economic and security challenges. Their best answer to date: the Private Sector
Fundamentals Benefits of Compliance Programs Detect and deter inappropriate activity Avoid related bookkeeping anomalies Create a culture of good governance Enhance company s reputation Reduce liability if something goes wrong
Compliance Challenges Cross Industry Challenges anti-bribery laws anti-money laundering laws forced labor disclosure laws New California Law conflict mineral disclosures 3TG : tin, tungsten, tantalum, gold
Bribery Anti-bribery laws require both companies and their third parties to commit to a high level of transparency. 90% of U.S. cases involve conduct by 3 rd parties new anti-bribery laws worldwide impel companies to take a more robust approach to monitoring third party activities third parties that want to embrace compliance are often confused about conflicting message
Who are these third parties? Suppliers Vendors Freight forwarders Professional service providers (e.g. law firms, accounting firms) Sales agents (typically paid on commission) Consultants (typically paid a fixed fee) Resellers Distributors Subcontractors Joint Venture Partners
What are the Risk Factors? Professional interaction with government officials Amount of compensation Nature of compensation Country in which services will be provided Value / volume of sales Red flags : shell companies links to government refusal to provide certifications
Basic Review Business information Ownership information Identification of directors and key employees Current government employment of owners Standard questions about past misconduct Denied party screening Certifications re: compliance with laws this list is growing
Conflict Minerals Under the new SEC rule, public companies are required to disclose if they: manufacture, or contract to manufacture products that contain certain minerals (gold, columbite-tantalite (coltan), cassiterite (tin), wolframite (tungsten) or their derivatives) from the Democratic Republic of Congo or adjoining countries.
Conflict Minerals Companies that use these minerals are required to conduct a reasonable country of origin inquiry to determine whether the minerals they use originated in the DRC, or an adjoining country, or are from scrap or recycled sources. Companies must file their first specialized disclosure report on May 31, 2014 (for 2013).
Forced and Trafficked Labor California Transparency in Supply Chains Act of 2012: Effective January 1, 2012, requires certain retail and manufacturing companies to disclose efforts to eradicate slavery and human trafficking from their supply chains Audit, reporting and training requirements Similar legislation proposed at the federal level
Sanctions & International Watch Lists Need for continuous awareness across hundreds of international watch lists for hundreds, or hundreds of thousands, of entities Need for a streamlined and affordable process for both customers and suppliers
Silos Every company designs its own compliance program Within each company, different departments may be responsible for: anti-bribery anti-money-laundering sanctions labor issues conflict minerals Companies then worry whether they re within best practices
Collective Action Most compliance work is time-consuming and repetitive Time to re-think our current approach Collective action enables companies to: do more spend less set standards, rather than simply responding to them continuously monitor best practices
Social Media Solution A global due diligence platform that everyone can access: Leverages technology to collect and disseminate information Requires each entity to complete the process only once, so businesses are willing to work to a higher standard and keep everything up to date Global system creates one baseline standard across industries Continuous screening of international watch lists simplified Industry groups; business associations; TRACE
Value to large multinationals reduces compliance costs and labor resolves most false positives on watch lists brings discipline to third party entities that may have lower levels of corporate formality encourages supply chain entities to prioritize compliance issues and their reputation keeps the business relationship collaborative rather than the increasingly divisive tone compliance has taken
Value to suppliers and intermediaries provides an important business credential and an opportunity to demonstrate commitment to transparency enables third parties to work to a single standard rather than many competing standards promotes efficient distribution of information and avoids duplicative paperwork No one feels singled-out by the process; everyone participates
Value to the Community A better-governed supply chain with greater understanding of CSR pressures and cascading best practices more willing to partner with multinationals both for the business advantage it brings and their own sense of contributing to their community and less reputational and legal risk for all parties
How to Undermine a Compliance Program Inadequate tone at the top Inadequate resources Policy opaque, dense or unavailable in relevant languages No internal reporting mechanism (hotline), or inadequate follow-up on confidential or anonymous reports Inconsistent application of sanctions to employees or third parties who violate policy
Questions Alexandra Wrage President TRACE 151 West Street Annapolis, MD USA 21401 +1 410-990-0076 wrage@traceinternational.org