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Anti-bribery and corruption compliance research in Russia – 2015
December 2015
Foreword We are pleased to present the first Anti-Bribery and Corruption Index (ABCI) measuring the compliance profile of corporate Russia. Anti-bribery and corruption compliance is of increasing significance both domestically within Russia and abroad. PwC’s research illustrates how Russia’s top companies have responded to these requirements by comparing individual companies’ public compliance profiles to Russian and international anti-corruption best practices. In our research, we have analysed corporate attitudes among and the level of transparency of the leading 125 Russian companies across the following industries: telecommunications, retail and consumer, financial services, automotive, energy and utilities, mining and metals, and pharmaceuticals. Specifically, we reviewed companies’ websites to identify and analyse the compliance-related information that they disclose online. Based on relevant Russian and foreign anti-corruption legislation, we then developed criteria and analysed performance within the following parameters: corporate hotline; compliance-related message from top management; in-house compliance function; compliance risk assessment and compliance policies and procedures. We also searched for any negative publicity or news coverage related to bribery and corruption cases in which the subject companies may have been implicated, relying exclusively on reputable, trustworthy media sources.
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The results of our research show that the ABCI score for the largest Russian companies is 63%. The ABCI also indicates ways in which companies can improve their compliance programmes. First of all, senior management must be committed to introducing and maintaining a robust compliance programme. Then, one of the best practical ways to enhance a corporate compliance system is to apply due diligence procedures for all entities that interact with the organisation, namely suppliers, customers, agents and distributors. And, last but not least, automation is the way forward for compliance: from risk assessments and due diligence to detecting and responding to incidents, market-leading companies rely on data analytics and automation to boost their compliance profile. As this is the first edition of the ABCI, we plan to update our research periodically, providing up-to-date information about compliance profiles and analysing recent trends. Best regards, Jeremy Outen Partner, Head of Forensic Services in PwC Russia and CIS
Contents
Highlights of our survey
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Anti-Bribery and Corruption Index – detailed results
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Methodology
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PwC
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Highlights of our survey Anti-bribery and corruption compliance is gaining in significance both domestically and internationally. PwC’s research illustrates how Russia’s leading companies have met compliance requirements by comparing individual companies’ public compliance profiles against Russian and international anti-corruption best practices.
Highlights:
63%
63% is the ABCI score for the top 125 Russian companies.
76%
The ABCI varies significantly across industries with telecoms achieving the highest ABCI score of 76%.
51%
The automotive sector fared worst with an ABCI score of only 51%, and there is a huge range in the individual company scores within this industry grouping. The most common areas for improvement include automation of compliance processes through more sophisticated use of data analytics.
The ABCI score of Russia’s top companies is 63% Only recently has the Russian Federation adopted regulations and enacted laws to begin actively tackling the problem of bribery and corruption as compared, for example, to the United States, which enacted the FCPA nearly 40 years ago in 1977.
Article 13.3 of Russian Federal Law No. 273- FZ “On Preventing Corruption”, enacted in January 2013
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Russian Federation Ministry of Labour and Social Protection, November 2013
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Russian Federation Presidential Decree No. 226 of 11 April 2014
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Indeed, in recent years we’ve seen some major developments in the fight against corruption in Russia. The Russian Government has now placed tackling the problem of bribery and corruption squarely on the agenda by, among other things, introducing several legislative initiatives aimed at adopting and applying international best practices. Such
Anti-bribery and corruption compliance research in Russia 2015
recent developments include legislative amendments requiring all organisations to implement anti-corruption measures1, as well as the publication of a number of official documents, such as the “Guidelines for Developing and Adopting Measures to Prevent Corruption”2 and the “National Anti-Corruption Plan for 20142015”.3 These legislative initiatives appear to correlate with the recent compliance performance of Russia’s state-owned enterprises, e.g. in the energy and utilities sector, where the ABCI currently measures 70% versus the private sector score in this sector of 52%. The current average ABCI across all state-owned companies in our sample is 67%.
The telecoms sector enjoys the best ABCI score among Russian corporates The telecoms sector has outperformed all others with an ABCI of 76%. This comes as no surprise as most of the telecoms companies we analysed are publicly listed on both Russian and foreign stock exchanges. Based on our analysis, public companies perform better than their private peers in all areas, except that of negative corruption-related publicity. This is clearly a function of the higher levels of regulatory scrutiny imposed on listed companies and the more intensive media spotlight when things go wrong. However, the results for telecoms would have been even higher without the recent negative publicity indicating the involvement of various companies in the sector in high-profile corruption cases.
Russian automotive companies lag with a poor ABCI score of 51% Auto sector companies, 45% of which are subsidiaries of foreign companies, ranked last in the compliance rating with an ABCI score of only 51%. The large automotive companies included in our sample are an extremely diverse group, which includes manufacturing plants, dealers and both domesticand foreign-owned entities. The ABCI performance in this industry varies significantly from one company to another. For example, listed companies scored 57%, while non-listed companies (mainly composed of Russian auto dealers) scored a paltry 37%.
How can companies boost their compliance perception scores? The ABCI indicates ways in which companies can improve compliance. First of all, senior management must make a clear commitment to introducing and maintaining a robust compliance programme. They should foster a culture within the company in which bribery and corruption are never acceptable and reinforce this through its public profile and corporate image, for example through a message from the CEO on the corporate website unequivocally declaring the company’s commitment to ethical behaviour and adherence to strict compliance principles. One of the best practical ways to enhance a corporate compliance system is to apply due diligence procedures to all entities that interact with the company, be they suppliers, customers, agents or distributors. Current market best practice is to conduct such checks through automated computer programs or “apps” backed up by bespoke due diligence on higher-risk counterparties. Automation is the way forward for compliance. From risk assessments and due diligence to detecting and responding to incidents, market-leading companies are relying on data analytics and automation to boost their compliance efforts.
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61% Mining and Metals
67%
Anti-Bribery and Corruption Index — detailed results 53%
Pharmaceuticals
71% 60%
Retail and Consumer
72% 59% Telecom The ABCI score for Russia's top 125 companies is 63%
76%
However, there is a big variance in ABCI scores across industries and ownership N/A structures, as illustrated below. Listed
Non-listed
Figure 1. ABCI scores in different industries Telecom
Financial Servises 20%
76
63
100%
Energy and Utilities
Retail and Consumer
67
25% 65% 20%
62
65%
55% 80%
50% Automotive
Pharmaceuticals
66
51
60% 55%
Mining and Metals 5%
63
70% 45%
Compliance index, % Share of listed companies
70%
Share of state companies Share of subsidiaries of foreign companies
State-owned companies perform better than their private peers We should note here that state-owned companies have demonstrated a greater commitment to instituting robust anti-bribery and corruption measures, as illustrated 0% 0% 20% by their overall compliance index score of 67%, versus 62% for their private-sector company peers. The result for state-owned companies is not surprising. The anti-corruption initiatives launched by the Russian government since 2011 have been specifically focused on the activities of state-owned companies, including in the Energy and Utilities sector, requiring them to introduce specific measures to fight corruption. The data for those industries with a significant share of state-owned companies is illustrated in Figure 2. Figure 2. ABCI scores for private sector and state-owned companies Financial Services
61% 69% Energy and Utilities
52% 70% Private
Automotive 6
57% Anti-bribery and corruption compliance research in Russia 2015 37%
State
Financial Services
61% 69% Listed companies show a stronger commitment to anti-corruption compliance The spread between the compliance performance of listed and non-listed entities is Energy and Utilities substantial. The ABCI score of listed companies is 66%, while their non-listed peers 52% scored 55%. The data for listed and non-listed companies is illustrated in Figure 3. 70%
Privatescores State Figure 3. ABCI for listed and non-listed companies
Automotive
57% 37% Energy and Utilities
62% 60% Financial Servises
64% 61% Mining and Metals
67% 53% Pharmaceuticals
71% 60% Retail and Consumer
72% 59% Telecom
76% N/A Listed
Non-listed
Note also that ABCI scores vary among listed companies, with the ABCI scores of companies listed exclusively on Russian stock exchanges Telecom Financialgenerally Servises lower than those trading on foreign bourses, which could be attributable to the stricter rules imposed 25% 20% by foreign securities exchanges. 65%
76
63
100%
Figure 4. ABCI scores for listed companies Retail and Consumer
67
65% 50%
Pharmaceuticals
66
60% 55%
Mining and Metals 5%
63
70%
20%
Energy and Utilities
72% 67%
55%and foreign stock exchanges Listed in Russian 62 80% Listed in foreign stock exchange only
51%
Listed in Russian stock exchange only Automotive
51
70% 45%
Compliance index, % Share of listed companies Share of state companies Share of subsidiaries of foreign companies
Our further analysis of the compliance performance of listed companies revealed that 57% such companies perform better in all areas under review except as regards negative corruption-related publicity. This could be due to the higher level of regulatory scrutiny 46% 0% on high-profile 20%organisations.0% of listed companies, as well as a brighter media spotlight N/A 62% 65%
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Russian companies versus foreign subsidiaries: Who performs better? We compared the ABCI performance of the top Russian companies against the subsidiaries of foreign companies Surprisingly, theforeign compliance Listed in Russian and stock exchanges 72%active in Russia. performance of these two groups of companies is similar: Russian companies scored 67% Listed in foreign stock exchange only 62% while local subsidiaries of multinationals scored 65%.
51%
Listed in Russian stock exchange only
Potentially, this similarity, in particular as regards the average ABCI score for multinationals active in Russia, may be rooted in insufficient efforts by the senior management of multinationals to localise anti-corruption policies and procedures within their Russian subsidiaries.
Indeed, in certain cases we found that subsidiaries of foreign companies often pay more attention to compliance-related disclosures on their global websites than on their local, Russian-language sites (see Figure 5 below). Figure 5. ABCI scores for Russian companies and subsidiaries of foreign companies
57% 46% N/A 62% 65% 62% N/A 63% 63% 70% 72% 62% N/A 76% Subsidiaries of foreign companies
27%
Russian
30% 25%
25%
Telecom
25%
Maximum
10%
Hotline
8
Policies and procedures
Absence of negative publicity
8%
10%
Compliance-related message from top management
5%
5%
Compliance function
1%
5%
Compliance risk assessment
Anti-bribery and corruption compliance research in Russia 2015
30%
Automotive
N/A
51%
Listed in Russian stock exchange only
62% 65% 62% N/A 63% 63% 70% The telecoms industry boasts Russia’s best ABCI scores
57% The telecoms 72% sector outperformed all others with an ABCI score of 76%. This comes as 46%as most of the telecoms companies we analysed are listed, both in Russia no surprise 62% and abroad. N/A N/Aresults would have been 15% higher without the recent negative publicity In fact, the 62%the involvement of various Russian telecoms in certain high-profile implicating 76% corruption cases. Subsidiaries of 65%
Russian
The composition of factors contributing to the telecoms industry’s high ABCI score is foreign companies 62% illustrated below. N/A Figure 6. ABCI scores for the telecoms sector 63%
27%
30% 63%
70%
25%
25%
Telecom
25%
Maximum
72% 10%
62% N/A Hotline 76%
Policies and procedures
Subsidiaries of foreign companies
8%
Absence of negative publicity
10% 5%
Compliance-related message from top management
5%
Compliance function
1%
5%
Compliance risk assessment
Russian
Auto industry performs poorly with unimpressive ABCI score of 51%
Automotive
30%
Companies in Russia’s automotive industry, 45% of which are local subsidiaries of 25% 25% 25% multinational automakers, came in at the very bottom of the compliance indexMaximum with a sector-wide score of only 51%. 13%
11% companies included in our sample 10% are an extremely diverse The large30% automotive 1% 1% Telecom 27% 5% and1% 5% group, which includes plants, dealers and both domesticforeign25% 25% 25% manufacturing Absence of Compliance Compliance risk Hotline Policies and Compliance-related owned subsidiaries. The ABCInegative performance this industry varies significantly from publicity in function procedures assessment message from top Maximum one company to another. For example, listedmanagement companies scored 57%, while non-listed companies (mainly made up of Russian auto dealers) were at a paltry 37%.
10%
8%
10%
The main factors contributing to the ABCI score in the automotive are 1% 5% industry 5% presented in the graph below. Hotline
Policies and procedures
Absence of negative publicity
Figure 7. ABCI scores in automotive industry
Compliance-related message from top management
Compliance function
5%
Compliance risk assessment
Automotive
30% 25%
25%
25% Maximum
13% Hotline
11% Policies and procedures
1% Absence of negative publicity
10%
Compliance-related message from top management
1%
5%
Compliance function
1%
5%
Compliance risk assessment
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Methodology Selection of companies We selected the top 125 Russian companies by sales volume across the following critical industries: telecommunications, retail and consumer, financial services, automotive, energy and utilities, mining and metals, and pharmaceuticals.
Selected parameters and their weightings in the ABCI We analysed the selected companies’ websites to assess whether they disclose the compliance-related information listed below; we also searched for any negative news coverage or publicity related to bribery and corruption cases. Based on relevant anti-corruption legislation (Russian law, the US FCPA, and the UK Bribery Act), we developed criteria and analysed performance within the five following parameters: corporate hotline; compliance-related message from top management; inhouse compliance function; compliance risk assessment; and policies and procedures. To ensure that our ABCI data would more closely reflect actual corporate practices, we also searched for any negative news coverage or publicity related to bribery and corruption cases in which any of the companies covered may have been implicated, relying solely on trustworthy, reputable media sources. We considered only corruption cases that occurred during January 2013 – June 2015. Moreover, we factored in only those cases that occurred in Russia for multinational companies, but for Russian companies with foreign subsidiaries we also took foreign corruption cases into account.
We applied the following weightings for an ABCI score of 100%: • Corporate hotline (maximum 30%); • Policies and procedures (maximum 25%); • Absence of negative publicity (maximum 25%); • Compliance-related message from top management (maximum 10%); • In-house compliance function (maximum 5%); • Compliance risk assessment (maximum 5%).
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Anti-bribery and corruption compliance research in Russia 2015
For more information on this report, please contact: Jeremy Outen Partner Forensic Services Leader PwC Russia Tel. : +7 (495) 967 60 11 Fax.: +7 (495) 967 60 01 jeremy.outen@ru.pwc.com Irina Novikova Partner Forensic Services PwC Russia Tel. : +7 (495) 232 57 35 Fax.: +7 (495) 967 60 01 irina.novikova@ru.pwc.com Inna Fokina Partner Forensic Services PwC Russia Tel. : + 7 (495) 967 63 82 Fax.: +7 (495) 967 60 01 inna.fokina@ru.pwc.com Tatiana Vostrova Director Forensic Services PwC Russia Tel. : + 7 (495) 223 50 86 Fax.: +7 (495) 967 60 01 tatiana.vostrova@ru.pwc.com Kristina Petrova Assistant Manager Forensic Services PwC Russia Tel. : + 7 (495) 967 36 31 Fax.: +7 (495) 967 60 01 kristina.petrova@ru.pwc.com
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© 2015 ООО PricewaterhouseCoopers Advisory. All rights reserved. PwC Russia (www.pwc.ru) provides industry-focused assurance, tax, legal and business consulting services. Over 2,500 professionals working in PwC offices in Moscow, St Petersburg, Ekaterinburg, Kazan, Novosibirsk, Rostov-on-Don, Krasnodar, Voronezh, Vladikavkaz and Ufa share their thinking, experience and solutions to develop fresh perspectives and practical advice for our clients. The global network of PwC firms brings together more than 208,000 people in 157 countries. PwC refers to OOO PricewaterhouseCoopers Advisory, or, as the context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate legal entity.