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Anti-Corruption and Third Parties: Mitigating the Risks

June 9, 2015

Chelsie ChmelaGlobal Events ManagerChelsie.chmela@ethisphere.com847.293.8806

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QUESTIONS

RECORDING The event recording and PowerPoint presentation will be provided post event.

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SPEAKING TODAY

Craig MossChief Operating Officer, CREATe.org

Leslie BentonVice President, CREATe.org

Anti-Corruption Compliance and Third Parties

Craig Moss, Chief Operating Officer, CREATe.org

Leslie Benton, Vice President, CREATe.org

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Introductions and Agenda

• How to identify, assess and manage corruption-related risks

• Ways to address corruption risks associated with third parties

• Assessing the likelihood and consequences of corruption

• Processes companies should have in place to prevent corruption

Craig MossCOOCREATe.org

Leslie BentonVice PresidentCREATe.org

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Center for Responsible Enterprise And Trade

Mission Global NGO dedicated to making leading practices in intellectual property (IP) protection and anti-corruption achievable for all companies

Services CREATe Leading Practices: online assessments, evaluations, e-Learning, advisory – available in Chinese, English, Portuguese and Spanish

Global Reach Working with companies in a range of industries in China, Brazil, India, Europe, Mexico, Japan, Singapore and the US

Anti-Corruption:Global and Local Implications

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Corruption – Significant Risk Today

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Impacts of Corruption

• Opens company to continued extortion

• Disrupts business operations

• Demands extensive management time

• Reputational harm

Business Financial & Legal• Cost and time of investigation

• Exclusion from bidding on gov’t & IFI contracts & export credit

• Insurance premium increases

• Money damages and financial loss

• Legal proceedings

• Insufficient third party resources for adequate indemnification

The Legal Framework

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Anti-Bribery Laws• Two laws with broad extraterritorial reach:

• U.S. Foreign Corrupt Practices Act

• UK Bribery Act

• Other Laws

• Brazil’s Clean Company Law

• China’s Criminal Code

• Effect of Anti-Corruption Treaties:

• Most countries have anti-bribery laws on the books

• International Cooperation

• Mutual Legal Assistance

• Extradition

Brazil

U.K.

Common Features of Anti-Bribery Laws

• Extra-territoriality

• Criminal and civil offenses

• Payment through third parties

prohibited

• Corporate liability

• Individual liability

• Covers bribery to foreign

government officials (and may

cover domestic/commercial

bribery)

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Corruption Risksand Third Parties

Who is a Third Party?Third parties can include:

• Agents

• Consultants

• Distributors

• Resellers

• Dealers

• Government service providers

• Transportation companies and freight forwarders

• Attorneys and accountants

• Joint venture partners

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Third Party Management

Risk Assessment Communicate to Third Parties

Consult Local or In-House Counsel regarding Local

Law

Collect Data

Validate Information Identify Red Flags

Assess & Resolve Red Flags

Perform Necessary Follow Up

Monitor

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Third Party Red Flags

• Reputation for unethical conduct

• Terminated by other companies

• History of civil or criminal actions

• Lack of experience in field

• Recommended by an official

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• Refuses to identify owner

• Refuses to sign a contract

• Refuses to make compliance representations and warranties

• Refuses to agree to audit rights

• Refuses to provide invoices and document expenses

Due diligence/contracts Background Behaviors

• Major political contributor

• Unusually high commissions

• Substantial upfront payments

• Insists on cash payments

• Insists on payment in unrelated country or to a third party

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Assess & Resolve Red Flags

Discuss situation with company to get more information

Review validation steps you have already taken

Strengthen contracts

Obtain frequent written verification of compliance

More frequent monitoring and/or auditing

Unannounced spot-checking

Provide training and capacity building

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Top TipsDo your Due Diligence

Use Contracts Wisely

• Define compensation; get warranties; add training requirements; create metrics; get audit rights; put remedies in contracts

Communicate and Train

• Train employees; communicate and train third parties; in high risk markets – training, capacity building and technical assistance

Monitor

• Complement formal audits with annual health checks; conduct unannounced visits; watch books; conduct transactions test

Enforce and Improve

• Act quickly to fix problems using remedies from contract; consider termination; conduct root cause analysis; improve processes

Processes that Companies Should Have in Place to Prevent Corruption

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What is a Compliance Management System?

“Trained committed people routinely following procedures”

• A Resource Guide to the U.S. Foreign Corrupt Practices Act

• U.K. Bribery Act 2010 Guidance

• Good Practice Guidance on Internal Controls, Ethics, and Compliance

• Partnering Against Corruption – Principles for Countering Bribery

• Fighting Corruption in the Supply Chain: A guide for Customers and Suppliers

• and others

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Anti-Corruption Compliance Guidelines

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What Systems Should You Have in Place?

Anti-Corruption Compliance Team

Scope & Quality of Risk Assessment

Management of Supply Chain

Training & Capacity Building

Monitoring & Measurement

Corrective Actions & Improvements

Policies, Procedures & Records

An effective anti-corruption compliance program includes 7 key categories:

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Five Levels of Maturity for Each Category

5 Mature system covering all anti-corruption issues and focused on continual improvement

4 Systems are well developed and implemented

3 Systems approach; inconsistent implementation and monitoring

2 Limited, reactive systems

1 Little or no awareness or repeatable processes

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Online Q&A:

Measures maturity of systems in all categories

Rates maturity on a scale from 1 to 5

1Self-Assessment

2Independent Evaluation

3Improvement Plan

CREATe expert evaluation:

Qualifies self-assessment

Reviews documentation

Generates verified score

Based on rating, company receives:

Improvement steps

Benchmarking report

Measure Improve

Questions?

Thank YouCraig Moss

cmoss@CREATe.org

Leslie Bentonlbenton@CREATe.org

www.latinamericaethicssummit.com

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