Business IntegrityDigest

Prohibited Practices Contracts Clauses

December 2017

INTRODUCTION

QUERY

As a follow-up of the recent UNIC educationalmeeting, we obtained several queries toprovide examples of anticorruption orprohibited practices clauses that UNICmembers could introduce into agreements withtheir partners to prevent and managecorruption risks.

HERE WE GO!

This provides brief guidance regardingentering the contracts with business posing amore than low corruption risk. This examinesthe requirement in several stages:

WHEN it is reasonable to require suchprovisions in a contract, and

TYPES of anticorruption commitments to beincluded in the contract.

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WHEN

As a general practice, the company would notbe required to insert a prohibition of corruptioninto its contracts with low risk business as theadministrative requirement to do so is likely tobe unreasonable and disproportionate to thelow risk.

At the same time, the company is likely to beable to require a prohibition, for example,where the company is appointing:

suppliers to work on the company’sstandard purchase conditions;

a sub-contractor with a large scope of work; an agent to act on its behalf in a transaction.

Please note that the company may not havesufficient influence to require a prohibition ofcorruption to be included, for example, incontracts with major customers. In these cases,the absence of such prohibition does not meanthat the contract should not go ahead, but itshould be regarded as a negative factor in therelevant risk assessment.

Therefore, in undertaking the risk assessment,the company should consider, taking intoaccount all relevant factors, including the lackof a corruption prohibition in the contract,whether the risk of corruption in relation to thetransaction is sufficiently low for it to be areasonable business decision to continue.

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TYPES

Simple anticorruption prohibition: The belowrequirement could be considered as a minimumrequirement: “The party will not participate inany corrupt conduct, including, withoutlimitation, any bribery, extortion, fraud, cartels,abuse of power, embezzlement, money-laundering and other similar activities.”

More comprehensive anticorruptionprovisions:The company may choose, particularly in thecase of more complex or higher risktransactions or business, to include morecomprehensive anticorruption provisions.These could include, for example, thefollowing:

• A definition of corruption to includebribery, extortion, fraud, cartels, abuse ofpower, embezzlement, money laundering, andany similar criminal activity.

- Agreement by the business that:

i. it will not participate in any corruptpractices in relation to the contract orproject;

ii. it will ensure that its personnel, andsubsidiary and related companies, do notparticipate in any corrupt practices;

iii. it will take reasonable steps to ensurethat its agents, joint venture andconsortium partners, sub-contractors,suppliers and consultants do notparticipate in any corrupt practices.

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TYPES (2)

• Confirmation by the business that it, and itsowners, directors and relevant managers, havenot been investigated convicted or debarred forcorruption.

• Confirmation by the business that allpayments made in connection with theperformance of the agreement will be properlyand accurately recorded in its books andrecords, including amount, purpose andrecipient, and maintained in accordance withtheir internal procedures along with supportingdocumentation.

• Agreement by the business to ensure that itsrelevant personnel receive an anticorruptiontraining.

• Provisions allowing the company to audit thebusiness in relation to the relevant transaction.

• Provisions allowing the company toundertake an investigation in the event ofsuspected corruption involving the business.

• Provisions allowing the company toterminate the contract with immediate effect inthe event of any breach by the business of theanticorruption provisions.

• Agreement by the business to indemnify thecompany for any liability, all losses and expensessuffered by the company due to a breach by thebusiness of the anticorruption provisions.

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TYPES (3)

A provision passing on to the business anyrelevant anticorruption obligations assumed bythe company in its other contracts in relation tothe same project or transaction (e.g., sub-contractors, suppliers, agents and consultants.

For example, “If [Party] subcontracts any of theservices to a subcontractor, subagent, or anyother third party, [Party] will notify, in writing,the subcontractors of the Anti-bribery Provisionsand obtain a written certification of compliancewith them. Each Party represents that it and itssubcontractors under this agreement haveadequate policies, procedures and controls inplace to ensure services under this agreementare in compliance with the Anti-briberyProvisions, including at a minimum, policies andprocedures relating to: [___]”.).

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SAMPLE FOR A COMMERCIAL CONTRACT

Prohibited Practices

1.1. Each Party agrees that, at all times during the term of this Agreement,it shall not, and shall ensure that no officer, director, authorised employee,affiliate, agent or representative of the relevant Party shall be involvedwith any Prohibited Practice in connection with this Agreement or anymatters covered hereunder. Each Party shall cooperate in good faith withthe other Party and its representatives in determining whether aProhibited Practice has occurred and shall respond promptly and inreasonable detail to any such notice from the other Party and shall furnishdocumentary support for such response upon such other Party’s request.1.2. For the purposes of this Clause “Prohibited Practices” are one or moreof the following actions:

1.2.1. a “coercive practice” which means impairing or harming, orthreatening to impair or harm, directly or indirectly, any party or theproperty of the party to influence improperly the actions of a party;

1.2.2. a “collusive practice” which means an arrangement between two ormore parties designed to achieve an improper purpose, including toinfluence improperly the actions of another party;

1.2.3. a “corrupt practice” which means the offering, giving, receiving, orsoliciting, directly or indirectly, of anything of value to influence improperlythe actions of another party;

1.2.4. a “fraudulent practice” which means any act or omission, including amisrepresentation, that knowingly or recklessly misleads, or attempts tomislead, a party to obtain a financial or other benefit or to avoid anobligation; and

1.2.5. a “theft” which means the misappropriation of property belongingto another party.

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SAMPLE FOR AN EMPLOYMENT CONTRACT

Non-Competition, Anticorruption

1. The Employee agrees that for the entire term of this Contract, theEmployee shall not:

• directly or indirectly (whether as director, employee, consultant,contractor, advisor or otherwise) engage in competition with theEmployer, or own any interest in, perform any services for, participate in orbe connected with any business or organization which, in the solejudgment of the Employer, engages in any competition with the Employer;or

• directly or indirectly advise or recommend to any other person orentity that they employ or solicit for employment any employee of theEmployer.

• directly or indirectly participate in any corrupt conduct, including,without limitation, any bribery, extortion, fraud, abuse of powerembezzlement, money-laundering and other similar activities.

2. The Parties agree that the provisions of this Article are essentialconditions of working discipline of the Employer and any violations ofthese provisions are treated as essential violations of Employee’sobligations under this Contract (gross misconduct) and also workingdiscipline of the Employer.

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IMPLEMENTATION CHECKLIST

In the next forthcoming business integritydigests, we will address how the company shouldidentify its counterparty business risk, whichcategories of business pose more than a low riskof corruption to the company. The UNIC ExpertsGroup has already launched its activity.

Meanwhile, the following rules could be helpful:

Identify any categories of business, which willbe required to work under the company’sstandard conditions of contract (e.g.suppliers and sub-contractors over which thecompany has bargaining power).

Identify any categories of business in respectof which it is likely that the company willneed to work under the business’sconditions of contract (e.g. clients, largesuppliers with a greater bargaining powerthan the company does).

• In relation to the mentioned business:

a) identify any categories of business inrespect of which it is likely to beunreasonable to require the insertionof a prohibition of corruption into itscontracts.

b) identify any categories of business inrespect of which it is likely to bereasonable to require the insertion of aprohibition of corruption into itscontracts.

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IMPLEMENTATION CHECKLIST (2)

• The company should develop the actualanticorruption contract wording which it willuse. The company should update its standardcontract documents to include theseanticorruption provisions.

• The company should document theseprocedures.

• The company should appoint a manager(s)responsible for implementation of theseprocedures. In particular:

i. to ensure that the company’s standardwording is being used where appropriate;

ii. to ensure where the company’s standardanticorruption wording is not being used,that: where reasonable, an appropriateanticorruption prohibition is included orwhere not reasonable, the lack of such aprovision is a negative factor in thecompany’s risk assessment on that businessor transaction.

• Different managers may be appointed tooversee different categories of business. Forexample, a procurement manager may managethe appointment of suppliers, a project managermay oversee the appointment of sub-contractors, and a sales manager may overseethe entering into a contract with a client.

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GOOD PRACTICES

We encourage you to check the following recourses to find your inspiration:

ICC Anti-Corruption Clauses

Examples of anti-corruption clauses in cooperation agreements from www.u4.no

Prohibited Practices Guidelines for EBRD Operations

Get Your Company New Anti-Corruption Clauses for Free from Compliance Periscope

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UNIC thanks the UNIC Experts Group members for their input:

Ganna Gerasymchuk, Legal Counsel of Nokian Tyres LLC

Tetiana Kheruvimova, Investigator of the Business Ombudsman Council

UNIC plans to share best practiceswith UNIC members on regular basis.Please subscribe here. Ournewsletters are free of charge andyou can unsubscribe at any time.

If you would like further informationon any of the matters discussed inthis Business Integrity Newsletter,please contact us at info@unic.org.ua

Publication name: Prohibited Practices Contracts Clauses

Publication number: Issue 1

Publication date: December 2017

The information contained herein is of a general nature and is not intended to address the circumstances of any particular

individual or entity.

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