CGMA REPORT 速
COMBATING CORRUPTION ACROSS THE VALUE CHAIN
Two of the world’s most prestigious accounting bodies, AICPA and CIMA, have formed a joint venture to establish the Chartered Global Management Accountant ® (CGMA®) designation to elevate and build recognition of the profession of management accounting. This international designation recognises the most talented and committed management accountants with the discipline and skill to drive strong business performance. CGMA designation holders are either CPAs with qualifying management accounting experience or associate or fellow members of the Chartered Institute of Management Accountants.
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COMBATING CORRUPTION ACROSS THE VALUE CHAIN
Contents
Overview 2 Corruption perceptions index 2013
4
The legislative landscape
6
A comparison of the UK Bribery Act 2010 and the US Foreign Corrupt Practices Act 1977
7
Overview of anti-bribery legislation in selected emerging markets
9
Summary actions
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COMBATING CORRUPTION ACROSS THE VALUE CHAIN
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OVERVIEW CGMAs worldwide have a responsibility to be aware of the global demand for increased transparency in order to prevent corruption and improve fair and competitive conditions for business. They also need to be familiar with deterring measures, such as anti-corruption legislation both within their own market, as well as the implications of laws with global reach such as the UK Bribery Act 2010 and the US Foreign Corrupt Practices Act (FCPA). The role of the finance professional includes the development of both risk reviews and of corporate processes. They must also ensure that financial systems are suitably managed to ensure that improper payments cannot be made and/or improper systems not set up. Given their professional obligations to their respective bodies, CGMA designation holders’ ethical responsibilities in relation to integrity, objectivity and independence are crucial.
Corruption can be defined as “the abuse of entrusted power for private gain”.1 It captures a wide range of unethical behaviour – from bribery, undue influence, fraud, money laundering and collusion, to improper hospitality and political contributions.
The last two decades have seen a great shift in awareness and dedication to fighting corruption, through the OECD (Organisation for Economic Co-operation and Development), United Nations treaties and now the G20, together with the ongoing activities of campaigning NGOs around the world.
• dealings with sub-contractors and agents
Significantly, alongside civil society and governments, businesses are also demanding less corruption and greater transparency in the economies in which they operate. As a result, the response to corruption is intensifying.
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COMBATING CORRUPTION ACROSS THE VALUE CHAIN
It has an impact on businesses at all levels of the supply chain, including but not limited to: • public procurement and tendering processes
• moving goods through customs. Corruption depletes national wealth, hinders the development of fair market structures and distorts competition, which in turn deters investment. The World Economic Forum estimates corruption adds up to 10% of the total cost of doing business globally, and up to 25% of the cost of procurement contracts in developing countries. 2
In many markets, national legislators have displayed an increasing commitment to fighting corruption in recent years. In particular, criminal and commercial law provisions relating to corruption in business transactions have been introduced or strengthened, alongside more rigorous requirements for businesses to maintain adequate books and records. In addition, a number of national anti-corruption laws, such as the US Foreign Corrupt Practices Act 1977 and the UK Bribery Act 2010, have extra-territorial effect, meaning that they prohibit companies or individuals from engaging in corrupt conduct regardless of the location. Efforts to combat corruption are now more farreaching and globally unified than ever before. It is therefore very important that businesses develop and maintain effective internal compliance systems and controls to increase transparency and reduce their own supply chain risks.
To support businesses in better understanding the global risk environment, this guide highlights: • t he Transparency International (TI) corruption perception index, • t he legislative landscape in the UK and the US, • h ow international measures to combat corruption have intensified, • t he latest anti-corruption developments in a number of emerging markets, • c ritical procedures necessary to counter the risk of bribery and corruption.
“Whenever bribery or corruption is considered, qualified accountants are not just the conscience of an organisation. They have to ensure that there is no scope for such practices to exist within their own company or their supply chain. Conscience helps solve a dilemma. With bribery and corruption, like fraud, there should be no dilemma: prevention is the only solution.” – Jeff Kaye, FCMA, CGMA, Trustee at Transparency International, UK
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COMBATING CORRUPTION ACROSS THE VALUE CHAIN
Corruption perceptions index 2013
Š 2013, Transparency International
The perceived levels of public sector corruption in 177 countries/territories around the world.
HIGHLY CORRUPT
VERY CLEAN 0-9
RANK
4
10-19 20-29 30-39 40-49 50-59 60-69 70-79 80-89 90-100
COUNTRY/ TERRITORY
SCORE
RANK
COUNTRY/ TERRITORY
NO DATA
SCORE
RANK
COUNTRY/ TERRITORY
SCORE
RANK
COUNTRY/ TERRITORY
SCORE
1
Denmark
91
12
Germany
78
22
France
71
33
Saint Vincent and the Grenadines
62
1
New Zealand
91
12
Iceland
78
22
Saint Lucia
71
36
Israel
61
3
Finland
89
14
United Kingdom
76
26
Austria
69
36
Taiwan
61
3
Sweden
89
15
Barbados
75
26
United Arab Emirates
69
38
Brunei
60
5
Norway
86
15
Belgium
75
28
Estonia
68
38
Poland
60
5
Singapore
86
18
Japan
74
28
Qatar
68
40
Spain
59
7
Switzerland
85
19
United States
73
30
Botswana
64
41
Cape Verde
58
8
Netherlands
83
19
Uruguay
73
31
Bhutan
63
41
Dominica
58
9
Australia
81
21
Ireland
72
31
Cyprus
63
43
Lithuania
57
9
Canada
81
22
Bahamas
71
33
Portugal
62
43
Slovenia
57
11
Luxemburg
80
22
Chile
71
33
Puerto Rico
62
45
Malta
56
COMBATING CORRUPTION ACROSS THE VALUE CHAIN
RANK
5
COUNTRY/ TERRITORY
SCORE
RANK
COUNTRY/ TERRITORY
SCORE
RANK
COUNTRY/ TERRITORY
SCORE
RANK
COUNTRY/ TERRITORY
SCORE
46
Korea (South)
55
77
Tunisia
41
111
Kosovo
33
144
Central African Republic
25
47
Hungary
54
80
China
40
111
Tanzania
33
144
Iran
25
47
Seychelles
54
80
Greece
40
114
Egypt
32
144
Nigeria
25
49
Costa Rica
53
82
Swaziland
39
114
Indonesia
32
144
Papua New Guinea
25
49
Latvia
53
83
Burkina Faso
38
116
Albania
31
144
Ukraine
25
49
Rwanda
53
83
El Salvador
38
116
Nepal
31
150
Guinea
24
52
Mauritius
52
83
Jamaica
38
116
Vietnam
31
150
Kyrgyzstan
24
53
Malaysia
50
83
Liberia
38
119
Mauritania
30
150
Paraguay
24
53
Turkey
50
83
Mongolia
38
119
Mozambique
30
153
Angola
23
55
Georgia
49
83
Peru
38
119
Sierra Leone
30
154
Congo Republic
22
55
Lesotho
49
83
Trinidad and Tobago
38
119
Timor-Leste
30
154
Democratic Republic of the Congo
22
57
Bahrain
48
83
Zambia
38
123
Belarus
29
154
Tajikistan
22
57
Croatia
48
91
Malawi
37
123
Dominican Republic
29
157
Burundi
21
57
Czech Republic
48
91
Morocco
37
123
Guatemala
29
157
Myanmar
21
57
Namibia
48
91
Sri Lanka
37
123
Togo
29
157
Zimbabwe
21
61
Oman
47
94
Algeria
36
127
Azerbaijan
28
160
Cambodia
20
61
Slovakia
47
94
Armenia
36
127
Comoros
28
160
Eritrea
20
63
Cuba
46
94
Benin
36
127
Gambia
28
160
Venezuela
20
63
Ghana
46
94
Colombia
36
127
Lebanon
28
163
Chad
19
63
Saudi Arabia
46
94
Djibouti
36
127
Madagascar
28
163
Equatorial Guinea
19
66
Jordan
45
94
India
36
127
Mali
28
163
Guinea-Bissau
19
67
Macedonia (FYR)
44
94
Philippines
36
127
Nicaragua
28
163
Haiti
19
67
Montenegro
44
94
Suriname
36
127
Pakistan
28
167
Yemen
18
69
Italy
43
102
Ecuador
35
127
Russia
28
168
Syria
17
69
Kuwait
43
102
Moldova
35
136
Bangladesh
27
168
Turkmenistan
17
69
Romania
43
102
Panama
35
136
Cote d’Ivoire
27
168
Uzbekistan
17
72
Bosnia and Herzegovina
42
102
Thailand
35
136
Guyana
27
171
Iraq
16
72
Brazil
42
106
Argentina
34
136
Kenya
27
172
Libya
15
72
Sao Tome and Principe
42
106
Bolivia
34
140
Honduras
26
173
South Sudan
14
72
Serbia
42
106
Gabon
34
140
Kazakhstan
26
174
Sudan
11
72
South Africa
42
106
Mexico
34
140
Laos
26
175
Afghanistan
8
77
Bulgaria
41
106
Niger
34
140
Uganda
26
175
Korea (North)
8
77
Senegal
41
111
Ethiopia
33
144
Cameroon
25
175
Somalia
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COMBATING CORRUPTION ACROSS THE VALUE CHAIN
THE LEGISLATIVE LANDSCAPE The introduction of the US Foreign Corrupt Practices Act in 1977 represented the world’s first legislation to govern bribery by domestic (US) businesses of foreign government officials in foreign markets. This ground-breaking legislation was the catalyst for a number of international initiatives, and the late 1990s saw an exponential growth of anti-corruption instruments.
International initiatives (selection)
Domestic legislation (selection)
OECD Anti-Bribery Convention [1997]
United States: Foreign Corrupt Practices Act [1977]
I nter-American Convention Against Corruption [1997]
India: Prevention of Corruption Act [1988]
ouncil of Europe Criminal Law Convention on C Corruption [1999]
Russia: Federal Law No. 273-FZ [2008] Brazil: Law No. 10467 [2002]
ADB-OECD Action Plan for Asia-Pacific [2001]
United Kingdom: Bribery Act [2010]
ouncil of Europe Criminal Convention on C Corruption [2002]
hina: Amendment No. 8 to Article 164 Criminal C Law [2011] – Foreign Bribery Article
UN Convention Against Corruption [2003] frican Union Convention on Preventing and A Combating Corruption [2004] G20 Anti-Corruption Action Plan [2010]
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National legislation followed in a variety of other countries, and governments in emerging markets have been strengthening their legal framework in the last few years.
COMBATING CORRUPTION ACROSS THE VALUE CHAIN
A comparison of the UK Bribery Act 2010 and the US Foreign Corrupt Practices Act 1977 Provisions
Bribery Act
Foreign Corrupt Practices Act
Prohibition on bribery of foreign public officials (FPO)
Yes (section 6)
Yes, the FCPA applies only to bribery of foreign officials (15 U.S.C. §§78dd-1(a) and (f)3)
Yes, the main provisions of the Bribery Act apply to the private sector/ individuals as well as the public sector/ individuals (with the exception of the FPO offence)
Not covered but private commercial bribery is illegal under the laws of most US states4
Yes (section 2)
Not covered but receiving a bribe is illegal under other sectorial legislation, eg. for public officials5
The general offences of bribing another (sections 1 and 2) require an intention to elicit “improper performance”. However, no ‘corrupt’ or ‘improper’ intent is required under the section 6 FPO offence6
In alleging violations of the bribery provisions of the FCPA, the government must show that the defendant had the requisite state of mind with respect to the action, ie. negligence, recklessness, intent (15 U.S.C. §78dd-1(f))7)
The Bribery Act does not permit an exception for facilitation payments
Permitted under very limited circumstances when paid to foreign officials in order to expedite or secure the performance of a “routine government action”. This excludes a decision by a foreign official to award new business or to continue business with a particular party, eg. to obtain a license or to be granted a concession (15 U.S.C. §78dd-1(b) and §78dd-1(f) 8)
The Bribery Act makes no specific provision for promotional expenses but the UK Ministry of Justice Guidance for the Bribery Act 2010 gives concrete examples of gifts and hospitality under the scope of the sanctions9
Yes, affirmative defence for reasonable and bona fide business expenses that are directly related to the promotion, demonstration or explanation of products or services (demonstration or tour of a pharmaceutical plant) or in connection with the execution of a particular contract with a foreign government
Prohibition on private-toprivate bribery
Prohibition on receipt of a bribe
Intention
Facilitation payments
Promotional expenses
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COMBATING CORRUPTION ACROSS THE VALUE CHAIN
Provisions
Bribery Act
Foreign Corrupt Practices Act
Extra-territorial application
Yes, persons are liable for giving, receiving a bribe, and FPO offenses committed outside the UK if they have a “close connection” with the UK
Yes, the FCPA applies to violative acts by US issuers, domestic concerns and their agents and employees that occur wholly outside US territory, and to acts by US citizens or residents, wherever they occur Yes, a US company can be held vicariously liable for acts of its employees and agents
Corporate liability
Yes, corporate liability under the Bribery Act provisions. Specific liability for the “failure of commercial organisations to prevent bribery” offence (section 7). It applies to (i) UK entities that conduct business in the UK or elsewhere; and (ii) any corporation wherever formed, which carries on business or part of a business in the UK (section 7)10
Third parties
A corporate offence of “failure to prevent bribery” has been created under section 7 of the Bribery Act. The offence is one of strict liability for acts of “associated persons” (eg. intermediaries or third parties) who perform services for or on behalf of a company. It is however a defence to this provision for organisations to show that they have in place “adequate procedures” to prevent bribery11
Yes, the FCPA prohibits corrupt payments through intermediaries. It is unlawful to make a payment to a third party, while knowing that all or a portion of the payment will go directly or indirectly to a foreign official. The term ‘knowing’ includes conscious disregard and deliberate ignorance. Intermediaries may include joint venture partners or agents
Failure to keep accurate books and records
Covered by other legislation (for example, the Companies Act 2006 and additional statutory requirements in the financial services sector)
Yes
Individuals: up to ten years’ imprisonment and unlimited fines
Corporations and other business entities are subject to a fine of up to $2,000,000 per violation. Officers, directors, stockholders, employees and agents are subject to a fine of up to $250,000 per violation and imprisonment for up to five years. Under the Alternative Fines Act, the actual fine may be up to twice the benefit that the defendant sought to obtain by making the corrupt payment. Fines imposed on individuals may not be paid by their employer or principal
Companies: unlimited fines Criminal penalties
The Sentencing Council has recently issued guidelines on fraud, bribery and money laundering sentences for corporate offenders which will come into force in October 201412
© 2014, Transparency International
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Overview of anti-bribery legislation in selected emerging markets Brazil
Russia
India
China
Criminal Code amended by Law No. 10,467 [2002]
Federal Law No. 273-FZ [2008]
Prevention of Corruption Act (1988)
Criminal Law
Yes
Yes (criminal and civil codes)
No, but Prevention of Corruption (Amendment) Bill 2011 has received cabinet approval and is awaiting consideration by Parliament
Yes (Article 164)
Private-to-private bribery
No (but civil liability action possible)
Yes (Art. 204 Criminal Code)
No
Yes
Receipt of a bribe
Yes
Yes
Yes
Yes (Article 385)
Facilitation payments prohibition
Yes
Yes
Yes (section 7 PCA)
“Procedural payments” prohibited
No (but civil liability action possible)
No
Extra-territorial application is only in relation to the actions of Indian public officials abroad
No
Yes
Yes (Art. 291.1 Criminal Code)
Yes
In domestic bribery only (Article 388 and 392)
Covered by other legislation
Covered by other legislation
Covered by other legislation
Covered by other legislation
Individuals: yes – imprisonment and fines
Individuals: yes – administrative and criminal sanctions
Individuals: yes – imprisonment and fines
Companies: no (but civil liability action possible)
Companies: yes – administrative sanctions
Companies: fines and criminal conviction (based on decisions of the Supreme Court of India)
Individuals: yes – imprisonment and confiscation of property
Legislation13
Prohibition on bribery of foreign public officials (FPO)
Extra-territorial application
Third parties Failure to keep accurate books and records
Criminal penalties
Companies: administrative fines, blacklisting systems, revocation of the business license and confiscation of illegal earnings
© 2014, Transparency International
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COMBATING CORRUPTION ACROSS THE VALUE CHAIN
Summary actions Ensure you have adequate procedures in place to counter the risk of bribery and corruption. These should include: • T op-level commitment: The Board and Senior Management should commit to and oversee the zero tolerance policy and anti-bribery and corruption programme, demonstrating visible and active commitment to the implementation of the programme. • R isk assessment: Undertake regular bribery and corruption risk assessment to underpin the programme. • E ffective anti-bribery policies and procedures: Design and implement anti-bribery and corruption policies and procedures that are effective and proportionate to your organisation’s risks, circumstances and culture. • D ue-diligence and procedures for third parties: Carry out reasonable and proportionate due diligence on potential associates before entering into contracts with them and put in place procedures for managing the associated risks on an on-going basis.
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COMBATING CORRUPTION ACROSS THE VALUE CHAIN
• C ommunication and training: Build awareness and understanding of your anti-bribery and corruption programme among the Board, employees, volunteers and relevant stakeholders through communication and appropriate training. Report publicly on the antibribery and corruption measures. • M onitoring and evaluation: Monitor the implementation and effectiveness of the anti-bribery and corruption programme. The results of monitoring should be reviewed regularly by the Board and guide improvements to the programme as necessary. • C ollective action: Consider alliances with likeminded organisations and related stakeholders with the aim to jointly counter corruption and enhance transparency in business.
Useful links Transparency International resources
Legislation, conventions and guidance
• T ransparency International (TI) Business Principles for Countering Bribery
• U K Ministry of Justice Guidance for the Bribery Act 2010
• Transparency International UK – The Bribery Act
• S erious Fraud Office – Bribery and corruption US Department of Justice Resource
• TI-UK Publications. Examples: – U K Bribery Act Adequate Procedures – A nti-Bribery due diligence for transactions – H ow to Bribe: A Typology of Bribe Paying and How to Stop It • Doing Business Without Bribery e-Learning • TI-UK Business Integrity Programme www.transparency.org.uk
• Guide to the US Foreign Corrupt Practices Act • United Nations Convention against corruption • OECD – Anti-bribery instruments and initiatives
Further resources This briefing is the first in a series exploring the extended value chain. To find out more, visit cgma.org/valuechain CIMA Anti-Bribery resources CGMA Magazine, Six fraud and corruption trends for 2014
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COMBATING CORRUPTION ACROSS THE VALUE CHAIN
References 1. T ransparency International’s FAQs on corruption, accessed April 2014 2. The Business Case against Corruption. A joint publication by the International Chamber of Commerce, Transparency International, the United Nations Global Compact and the World Economic Forum Partnering Against Corruption Initiative (PACI), accessed April 2014 3. Transparency International’s FAQs on corruption, accessed April 2014 4. David M. Howard, Cheryl A. Krause and William Gibson, Private commercial bribery: the next wave of anti-corruption enforcement?, accessed April 2014 5. United States Office of Government Ethics, 18 U.S.C. § 201: Bribery of public officials and witnesses, accessed April 2014 6. UK Ministry of Justice Guidance for the Bribery Act 2010, accessed April 2014
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7. T he Business Case against Corruption. A joint publication by the International Chamber of Commerce, Transparency International, the United Nations Global Compact and the World Economic Forum Partnering Against Corruption Initiative (PACI), accessed April 2014 8. D avid M. Howard, Cheryl A. Krause and William Gibson, Private commercial bribery: the next wave of anti-corruption enforcement?, accessed April 2014 9. U K Ministry of Justice Guidance for the Bribery Act 2010, accessed April 2014 10. ibid 11. ibid 12. T he Sentencing Council, Fraud, Bribery and Money Laundering: Corporate Offenders Definitive Guideline, accessed April 2014 13. G etting the Deal Through, ‘Anti-Corruption Regulation in 50 Jurisdictions Worldwide’ Law Business Research Ltd, London, 2013
Acknowledgements
Transparency International
This report was written by Pavel Goulko and edited by Robert Barrington of Transparency International UK with Tanya Barman, Head of Ethics, CIMA. Transparency International UK, CIMA and the AICPA would like to thank Rob Smith for his advice and expertise.
Transparency International UK (TI-UK) is the country’s leading anti-corruption organisation and part of the global Transparency International (TI) movement. With colleagues working in more than 100 countries, TI has unparalleled global understanding and expertise on bribery and corruption.
Thanks to CIMA’s General Charitable Trust for funding this project.
© 2014, Transparency International, the American Institute of CPAs and Chartered Institute of Management Accountants. All rights reserved. This material may be shared and reproduced for noncommercial purposes in online format only, subject to provision of proper attribution to the copyright owner listed above. For information about obtaining permission to use this material in any other manner, please email copyright@cgma.org All other rights are hereby expressly reserved. The information provided in this publication is general and may not apply in a specific situation. Legal advice should always be sought before taking any legal action based on the information provided. Although the information provided is believed to be correct as of May 2014, be advised that this is a developing area. Transparency International, the AICPA or CIMA cannot accept responsibility for the consequences of its use for other purposes or other contexts.
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COMBATING CORRUPTION ACROSS THE VALUE CHAIN
The information and any opinions expressed in this material do not represent official pronouncements of or on behalf of AICPA, CIMA, the CGMA designation, the Association of International Certified Professional Accountants or Transparency International. This material is offered with the understanding that it does not constitute legal, accounting, or other professional services or advice. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information contained herein is provided to assist the reader in developing a general understanding of the topics discussed but no attempt has been made to cover the subjects or issues exhaustively. While every attempt to verify the timeliness and accuracy of the information herein as of the date of issuance has been made, no guarantee is or can be given regarding the applicability of the information found within to any given set of facts and circumstances.
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