Anti-Corruption – The Role of Governance and Audit

31st International Symposium on Economic Crime

5 September 2013Jesus College, Cambridge University

Anita C. Esslinger, PartnerBryan Cave

88 Wood StreetLondon EC2V 7AJ+44(0)20 3207 1224

acesslinger@bryancave.com

LN01289408

Anti-Corruption – The Role of Governance and Audit

Role of the private sector in promoting integrity and addressing corruption

What more can be done by official organisations to facilitate the private sector and to address corruption

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Role of the Private SectorSpecial responsibilities for preventing bribery and

discouraging subordinates from engaging in corrupt activities fall squarely on companies, their directors and senior management

The UK Bribery Act: Strict liability for failure to prevent bribery by associated persons unless the company has implemented adequate procedures aimed at preventing such bribery

US Foreign Corrupt Practices Act (FCPA): Vicarious liability for the acts of employees and agents

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Corporate Governance CodesListed companies have governance responsibilities

that include requirements for internal control systems encompassing policies and processes that help ensure compliance with applicable laws and regulations and with internal policies in the conduct of business

● Sarbanes-Oxley

● UK Corporate Governance Code

● OECD and other sources of principles of good governance

Non-listed companies also recognise benefits of good governance

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Risks of Getting it WrongSerious criminal and civil penaltiesDisgorgement of profits, civil and shareholder suitsMultiple investigation costs – legal fees Diversion of management timeDebarment from public contracts and by public

international organisations (e.g. World Bank)Loss of licenses and permitsLoss of value in investments or acquisitionsLoss of business from suppliers and customersLOSS OF REPUTATION

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Adequate Procedures and GovernanceElements of both include the need for “tone from the

top” in:● Establishing a culture of ethical behaviour and

integrity where corruption is unacceptable, and communicating and embedding it in the organisation♦Unless it is clear that the directors and senior

management of the company take these issues seriously, they will not be taken seriously by rank and file employees and associated persons who perform services for or act on behalf of the company

● Rules – but more: Values and principles

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Adequate Procedures and GovernanceTone from the top requires senior management

involvement in:● Developing internal controls covering anti-

corruption policies and procedures, including providing adequate resources, and appointing and supporting senior managers to “own” and oversee compliance – with appropriate access to the company’s governing bodies such as the board and audit committee

● Monitoring and reviewing the implementation and effectiveness of compliance policies and procedures, with appropriate reporting mechanisms to company’s governing bodies

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Monitoring and Review MechanismsOngoing transaction monitoring

● Due diligence/risk assessment – agents, M&A, investments

● Keeping an open door for advice and in training

● Surveys/certificationsWhistleblowing arrangements InvestigationsAuditsReporting to senior management

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Whistleblowing

Whistleblowing arrangements form part of a system of internal controls necessary for good corporate governance and are an important part of an effective anti-corruption compliance program

● For example, the UK Corporate Governance Code provides that the audit committee should review arrangements by which staff may, in confidence, raise concerns about possible improprieties

Need for clear and well publicized points of contact for reporting suspected violations or seeking advice – including paths for escalation

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Whistleblowing

In order to encourage employees or others to come forward, they must be protected and not subject to retaliation of any sort (even if a good faith report proves to be incorrect)

Policies must make this clear, but mere statement of a policy of non-retaliation may not be enough

While anonymity raises difficult connotations and data protection issues in many European countries, the importance of being able to provide confidentiality to the whistleblower is generally recognised

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Whistleblowing

It is important that employees believe that their reports and requests for advice will be treated seriously and that there be confidence that any report of a suspected violation will be properly investigated

Assuming a report warrants investigation, companies should explain how such investigations will be conducted, including

● Fairness for employees under suspicion

● Confidentiality for the whistleblower

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InvestigationsA specific protocol or procedure for conducting

investigations should be communicated in the organisation

● Legal advice needs to be sought including to ensure rights are protected

● The investigator must be independent and impartial

● Confidentiality should be protected where possible

● What to do with results?

● Corrective or remedial action if necessary – lessons learned communicated

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Audits

Role of Internal Auditors

● Often improper payments are uncovered by internal auditors

● But in the past, the role of internal audit has been more limited to financial audits with a materiality standard, rather than auditing the effectiveness of compliance programs, including those aimed at preventing corruption

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Audits

Evolving role of internal auditorsNeed for training and defining key performance

indicators, identifying risks and metrics for measuring compliance

Petty cash reviews – goes beyond materiality standard

Sampling techniques Interviews – a special skill

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AuditsSome measurable elements of anti-corruption

programs

● Risk identification

● Roles and responsibilities

● Design and operation of policies to prevent bribery and promote its communication in the company

● Evidence of training

● Evidence of due diligence and contractual processes and record retention

● Evidence of how reports are received and handled

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Audits

Pro-active audits of high risk operations have been required in some settlements with the US Department of Justice and the SEC

Similar to in-depth transactional reviews but focused on high risk

Generally require a team approach: lawyers, auditors and compliance personnel

A detailed protocol of what is to be covered

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Reporting

Reporting to the board or audit committee of results of audits and investigations and recommendations for improvements is an important element in good governance

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What can official organisations to do help in addressing corruption?

Promotion of good governance by governments

● Citizen engagement

● Rule of law

● Effective institutions

● TransparencyUN High Level Panel Report on post-2015 priorities,

calling for a stand-alone goal for good governance, including a target to reduce bribery and corruption – a start?

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What can official organisations to do help in addressing corruption?

The problem of “passive bribery” by officials Facilitation payments – especially customs clearance

and difficulties faced by freight forwarders and importers in difficult jurisdictions

● Is the private sector alone capable of eliminating facilitation payments?

● Is it realistic to criminalise and require zero tolerance in such situations?

● What can governments and organisations such as the UN Global Compact and the World Bank do?

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What can official organisations do to help in addressing corruption?

Greater protection for whistleblowers?

● Inconsistent legislation

● Lack of protection where complained of conduct is outside the jurisdiction

● Confidentiality and anonymity issues

● Evidence gathering tensions – public interest?

● Rewards?

♦Do these discourage internal reporting?

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What can official organisations do to help in addressing corruption?

Continued vigilance and enforcement of anti-corruption laws

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