Anti-bribery guidance for Not-for-profit organisations
ANTI-BRIBERY GUIDANCE FOR NOT-FOR-PROFIT ORGANISATIONS
Guidance and principles for good practice in anti-bribery programmes for Not-for-Profit Organisations, including those in Education, Arts & Heritage and the Voluntary Sector Transparency International
CONSULTATION DRAFT DEADLINE FOR RESPONSES WEDNESDAY JULY 24th 2013 Responses should be e-mailed to consultations@transparency.org.uk
Anti-bribery guidance for Not-for-profit organisations
HOW TO RESPOND TO THIS CONSULTATION To comment on this document, please send responses by e-mail to the address below. This document is a draft. Its final form will be decided by an expert editorial committee, drawing on the responses to this consultation. We are particularly interested in answers to the following questions: 1. Is the document practical and user-friendly? 2. How do you feel the document could be improved in general? 3. Are there specific sections in which you would like to suggest improvements? 4. Is there anything important you feel has been left out? 5. If you feel you are a low-risk organisation, is this document useful? 6. Do you have any case study material that we could include – we would specifically like to receive positive examples that highlight good practice, for example of a good policy or procedure? DEADLINE RESPONSES TO
WEDNESDAY JULY 24th 2013 consultations@transparency.org.uk
© 2013 Transparency International UK. All rights reserved. Reproduction in whole or in parts is permitted providing that full credit is given to Transparency International UK and provided that any such reproduction, whether in whole or in parts, is not sold or incorporated in works that are sold. Written permission must be sought from Transparency International UK if any such reproduction adapts or modifies the original content. Disclaimer: Every effort has been made to verify the accuracy of the information contained in this report. All information was believed to be correct as of June 2013. Nevertheless, Transparency International UK cannot accept responsibility for the consequences of its use for other purposes or in other contexts. Policy recommendations and best practice guidance reflect Transparency International UK’s opinion. They should not be taken to represent the views of those quoted or interviewed or of members of the editorial committee of Transparency International UK’s partners in the project. Transparency International UK assumes no liability to any third party for the information contained herein, its interpretation or for any reliance of any third party. The document should not be construed as a recommendation, endorsement, opinion or approval of any kind. This Guidance has been produced for information only and should not be relied on for legal purposes. Legal advice should always be sought before taking action based on the information provided.
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CONTENTS 1
Introduction ................................................................................................................................... 5
2
What is bribery? ........................................................................................................................... 7
3
Why pay attention to countering bribery? ................................................................................. 8
4
Risk thermometer ....................................................................................................................... 10
5
The anti-bribery programme ..................................................................................................... 11
6
Top-level commitment ............................................................................................................... 13
7
Risk assessment ........................................................................................................................ 15 7.1
The risk assessment process................................................................................................ 15
7.2
Risk factors............................................................................................................................ 19
8
Effective policies and procedures ............................................................................................ 22 8.1
Common forms of transactional risk...................................................................................... 23
8.2
Associates ............................................................................................................................. 30
8.3
Human Resources ................................................................................................................ 33
8.4
Internal controls ..................................................................................................................... 34
8.5
Stakeholder engagement ...................................................................................................... 35
8.6
Collective action .................................................................................................................... 35
9
Communication and training ..................................................................................................... 36 9.1
Communication ..................................................................................................................... 36
9.2
Training ................................................................................................................................. 37
9.3
Advice and whistleblowing channels ..................................................................................... 38
9.4
Public reporting ..................................................................................................................... 39
10
Due diligence .............................................................................................................................. 40
11
Monitoring and evaluation ......................................................................................................... 42
Anti-bribery guidance for Not-for-profit organisations
Not-for-profit anti-bribery principles 1 The Not-for-profit organisation (NFP) commits to a policy of zero-tolerance of bribery in any form, recognising that bribery is contrary to fundamental values of integrity, transparency and accountability. 2 The NFP implements an anti-bribery programme comprising: 2.1 Top-level commitment The Board of Trustees or equivalent governance body commits to and oversees the antibribery programme and demonstrates visible and active commitment to the implementation of the programme. 2.2 Risk assessment The NFP designs and maintains its anti-bribery programme based on regular risk assessment. 2.3 Effective anti-bribery policies and procedures The NFP designs and implements anti-bribery policies and procedures that are effective and proportionate to the NFP’s particular risks, circumstances and culture, taking into account inherent risks such as locations of the NFP, its sector and organisational risks such as size of the NFP and use of channels such as intermediaries. 2.4 Due-diligence The NFP carries out reasonable and proportionate due diligence on potential associates before entering into contracts with them and then carries out periodic due diligence on them once appointed. 2.5 Communication and training The NFP builds awareness and understanding of its anti-bribery programme among its Board, all employees, volunteers and relevant stakeholders through communication and training. Tailored communication and training are provided based on risk assessments. It reports publicly and regularly on its anti-bribery measures. 2.6 Monitoring and evaluation The NFP monitors the implementation and effectiveness of its anti-bribery programme including undergoing external assurance or certification, as appropriate. The results of monitoring are reviewed regularly by the Board and guide improvements to the programme as necessary.
QUICK START GUIDANCE There are blue highlighted boxes throughout this Guidance to provide a short-cut for those organisations for which it is appropriate to put into place a simplified anti-bribery programme, such as Not-for-Profits with a low risk of bribery.
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1 Introduction The aim of this Guidance is to provide practical advice for not-for-profit organisations (NFPs) of all sizes in the educational, voluntary, arts and heritage sectors on how to implement good practice antibribery programmes. It is produced to complement similar guidance for international development NGOs published in 2011. There are growing risks from bribery for many NFPs as their circumstances change, including expanding into new activities and countries, developing intellectual property and recruiting students and pupils from overseas. There can be severe consequences from a bribery incident, including legal sanctions both for NFPS and their officers as well as reputational and organisational damage. NFPs exposed to risks from bribery need to ensure they have in place good practice anti-bribery systems. To assist in this, in-depth advice is given in this Guidance on types of risk and good practice for countering these. QUICK START GUIDANCE Many NFPs, such as those operating only in the UK with no overseas contacts, will have low risk of bribery but even so they should make sure they are fully aware of the provisions of the UK Bribery Act and implement a simple anti-bribery programme as recommended in Section 5. Use the Risk Thermometer in Section 4 to see if you are likely to be low risk. There has been heightened attention by NFPs to countering bribery driven both by increasing bribery risks as they undertake new activities and by the coming into force of the UK Bribery Act in 2011. NFPs come under the provisions of the Bribery Act if they have commercial activities. The provision in the Act of particular concern is a corporate offence of giving bribes to which the only defence would be that the NFP had in place ‘adequate procedures’ to prevent bribery. As such, NFPs have been reviewing their anti-bribery programmes to ensure that they would stand scrutiny in the event of an incident, but the challenge for NFPs is to know what represents ‘adequate procedures’. A 2012 survey by Baker Tilley of charities found that the majority of the 120 respondents said that the Government had not provided them with sufficient clear advice on the measures they should be adopting to comply with the Bribery Act. This Guidance is based on what TI-UK considers to be good practice for anti-bribery programmes and which will be likely to meet the standard of ‘adequate procedures’. An anti-bribery programme is more than a means for complying with laws. It is an expression of the commitment of an organisation to integrity, values and excellence. This is especially the case for NFPs, which are inherently founded on critical values and commitment to society. This Guidance draws upon the good practice set out in the Business Principles for Countering Bribery developed by Transparency International through a multi-stakeholder process as well as the experience of TI-UK over many years of extensive work with companies and other organisations. It also builds on the Bond Principles published in 2011. The Guidance also draws upon the six Principles of the UK Ministry of Justice Guidance to the UK Bribery Act. THE MINISTRY OF JUSTICE GUIDANCE TO THE UK BRIBERY ACT: THE SIX PRINCIPLES 1. 2. 3. 4. 5. 6.
Proportionate procedures Top-level commitment Risk assessment Due Diligence Communication and training Monitoring and evaluation
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There are varying degrees of bribery risk for NFPs and some will have little risk. The Guidance is designed to offer a baseline approach for those with little risk and substantial advice for those with higher risk. Certainly, more NFPs are being exposed to greater risk from bribery. With the financial environment becoming ever tougher, NFPs are moving into commercial activities to generate income as well as reducing costs through such as outsourcing, finding new ways to deliver services or eliminating processes and activities. NFPs are also expanding their brand, reach and influence. Voluntary organisations are taking on services previously delivered by governments. Education is now a global business with universities and schools establishing campuses abroad, franchising accreditation and exploiting intellectual property through start-ups and commercial ventures. Art galleries and museums are creating satellites and overseas branches and receiving exhibitions and exhibits from all parts of the world.
Changing scope and expanding activities expose a growing number of NFPs to external risks . . . Changing and expanding activities expose a growing number of NFPs to external risks. The risks are fuelled by operations in countries with high levels of corruption, increasing complexity of projects and relying on the integrity and anti-bribery programmes of others such as agents and joint venture partners. External threats are growing too. Corrupt officials may solicit or demand bribes in all types of activity from bids for major contracts to release of goods from customs or entry of an employee at an airport. Arts and heritage organisations may encounter bribery risk in negotiating tours of exhibitions or archaeological digs. Corruption can also head from abroad when countries prone to corruption such as China, India and Russia send larger numbers of students and pupils to the UK. Universities and schools face risks of bribery in student recruitment, agents taking bribes, money-laundered payments for fees or gifts with strings attached. Internally, pressures on budgets and resources can lead to weakening of internal controls for countering bribery. The risk of bribery can never be reduced to zero and low risk NFPs should be make sure they are aware of bribery risks in functions such as purchasing or management of intellectual property.
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2 What is bribery? The NFP first needs to define and understand what bribery is in order to assess bribery risks and then design the anti-bribery programme. Bribery is defined in The Business Principles for Countering Bribery as: ‘The offering, promising, giving, accepting or soliciting of an advantage as an inducement 1 to do something which is illegal or a breach of trust’. QUICK START GUIDANCE Make sure you understand what bribery is and the various forms it can take. This will avoid the risk of overlooking an area of bribery risk. This definition incorporates the notion of abuse of trust which is also at the core of the UK Bribery Act. The Act defines bribery as ‘where a person performs improperly a relevant function or activity. Improper performance will arise if it is intended that, by paying the bribe, the recipient of the bribe would be expected to act otherwise than in good faith, an impartial manner or in accordance with a position of trust.’
“Bribery: The offering, promising, giving, accepting or soliciting of an advantage as an inducement to do something which is illegal or a breach of trust.” The Business Principles for Countering Bribery Bribes can be given or received, promised or expected. They can be payments or in-kind benefits. Bribes given are termed ‘active bribery’ and bribes received as ‘passive bribery’. A bribe can be given before or after the breach of trust takes place such as a kickback following the award of a contract. To set the scene for this Guidance, some examples of common risks of bribery for NFPs are listed below. EXAMPLES OF BRIBERY
Parents offer to make a substantial gift to a school with the proviso that their child is guaranteed admission A potential supplier offers money or a gift to a bursar to win a contract A promised ‘kickback’ is paid after the award of a contract by a charity An overseas heritage site bribes an official from its Culture Ministry to secure permission to loan artefacts to an exhibition in the UK An official at an overseas education ministry is given lavish hospitality and travel expenses for a visit to the UK during negotiations by a UK university related to setting up a campus in the official’s country A joint venture partner is managing the construction of an overseas campus and accepts bribes from contractors An overseas recruitment agent for a school takes bribes from potential students An employee of a university-owned enterprise is bribed to provide information on intellectual property A charity’s manager visits a sister charity abroad in an emerging country and a small bribe (a ‘facilitation payment’) is demanded at the airport by the immigration officer
1 Business Principles for Countering Bribery, Transparency International, http://www.transparency.org/whatwedo/tools/business_principles_for_countering_bribery/1/
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3 Why pay attention to countering bribery? The changing environments for NFPs make risks from bribery higher and the organisation should review periodically whether there are bribery risks and if so what could be the impact of an incident. Most NFPs operating solely in the UK without overseas contacts are likely to conclude that they will be at little risk of bribery but others may be at risk and have not identified this. The 2012 survey by Baker Tilley of 120 charities found that 91% were aware of the Bribery Act but worryingly, only 1% of the charities thought the Bribery Act would have a significant effect on their organisation. QUICK START GUIDANCE Most NFPs operating solely in the UK without overseas contacts are likely to conclude that they will be at little risk of bribery. Use the Risk Thermometer in Section 4 to test if you are likely to be exposed to risk.
The results of a bribery incident can be severe, legally, reputationally and organisationally. There are strict anti-bribery laws and other legislation which can lead to fines and imprisonment for individuals and fines for organisations. Although the Bribery Act has dominated the thinking on legal risks, NFPs should be aware that other jurisdictions’ anti-bribery laws can also present risks as well as moneylaundering regulations and debarment risk related to public procurement. The legal context is discussed in the Annex I. SIGNPOST Size of NFP is not a guide to the need to design an anti-bribery programme but rather the potential risks and their impact. The programme should reflect both the commitment of the NFP to integrity and significant risks identified from risk assessment. NFPs might feel that from a legal aspect there are low risks. This should not be assumed. Many NFPs are substantial organisations and operating in complex areas: universities, schools and museums are building large facilities, charities can employ many thousands globally. The sectors are important in reputation, size and impacts and increasingly are involved with commercial operations. If systemic bribery is discovered involving an NFP, the authorities may prosecute criminally or pursue civil action. For example, the Serious Fraud Office used a Civil Recovery Order under which the Oxford University Press was ordered by the High Court in 2012 to pay nearly £1.9 million following bribery by two wholly owned subsidiaries of its International Division based in Kenya and Tanzania. Legal risks may drive NFPs’ thinking about anti-bribery measures but the governing consideration for NFPs must be how an incident of bribery is incompatible with their purpose and responsibility to society. NFPs, whether universities, voluntary organisations, arts and heritage or other forms have in common that their missions and activities are rooted in high level values and positive contribution to society be it education, cultural, science or community service. Reputational damage can be a major penalty too and this applies especially to NFPs. Bribery and corruption are of high concern for stakeholders. All NFP’s live by their values and reputation and an incident of bribery can lead to loss of confidence and backing of employees, students, supporters, donors, users and clients. It should be remembered that even though there may be no foundation to an allegation of bribery, a public perception of bribery having taken place can be as damaging as an actual occurrence. For this reason, a clear public policy for integrity, including no toleration of bribery supported by an anti-bribery programme, is a reputational protection in the event of an incident.
All NFP’s live by their reputation and an incident of bribery can lead to significant damage with loss of confidence of supporters, donors and contracts.
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Apart from the potential legal and reputational consequences, a bribery scandal can also lead to organisational disruption with diversion of management time, loss of key individuals, and impact on the supply chain. If the NFP’s operations have been reliant to any degree on bribery such as payments made by project partners to local officials, then the project model may be untenable. The NFP needs to know that its activities are run with integrity and not reliant on bribes to smooth the way. Thus, an NFP committed to integrity and countering bribery communicates a strong message that it is determined to live up to its values. If it has identified potential risks then its operations will be more resilient and it will avoid risks of litigation, damage to its reputation and adverse effects on its operations. SOME POTENTIAL IMPACTS OF BRIBERY ON AN NFP
Reputation o Loss of reputation and damage to the ‘brand’ o Alienation of supporters and employees Sanctions o Fines and prison for officers, employees, associates o Civil lawsuits o Debarment from government funding and contracts Operational o Cost of professional fees o Diversion of board and management time o Loss of donors, sponsors, clients, students, associates, contracts or ventures o Organisational activity distorted by bribery o Damage to the supply chain o Dysfunctional or unsustainable activities and projects o Termination of projects before completion o Demotivation of staff and employees
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4
Risk thermometer
This Section gives a ‘Risk Thermometer’ to help NFPs judge whether they could be at risk from the main types of bribery. If the organisation does not appear to be exposed to any of the risks listed in the Thermometer then it is likely to have low risk. This list is indicative and because the NFP does not match against any of the indicators, this does not guarantee you are free from risk of bribery. QUICK START GUIDANCE This section gives a ‘Risk Thermometer’ to help judge whether the NFP could be at risk from one of the main areas of bribery. If the NFP does not appear to be exposed to any of the risks listed in the risk thermometer then it is likely to have low risk though this cannot be certain. Even though the NFP may judge that it has low risk, it should implement a baseline antibribery programme outlined in Section 5.
Risk Thermometer: are you at risk from bribery? If the NFP meets any of the following factors then it could be exposed to bribery risk which warrants attention in designing the anti-bribery programme.
RISK THERMOMETER Operations in countries known to have high levels of corruption Activities based in the UK but involving overseas contacts such as recruitment of foreign students or receipt of exhibitions or artworks from abroad Using overseas intermediaries such as agents or joint ventures Dealing with Foreign Public Officials Bidding for public projects in countries known to have high levels of corruption Depending on critical licenses in countries known to have high levels of corruption Engaging in substantial construction projects whether in the UK or overseas Substantial procurement Receiving payments originating from overseas such as student fees or donations Donations with ‘strings attached’ Board members or employees travelling to countries known to have high levels of corruption Owning intellectual property of high commercial value Granting admissions or awarding qualifications Awarding of honours and benefits such as honorary titles or privileged access Substantial assets such as those held by a foundation or endowment Involved in receipt or giving of hospitality and gifts
SIGNPOST Use the Corruption Perceptions Index published by Transparency International to find out which countries are seen as having public sectors with high levels of corruption http://www.transparency.org/research/cpi/overview
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5 The anti-bribery programme A systematic approach is needed to counter bribery and in this Guidance, the system is called the anti-bribery programme. All NFPs, whatever their size or risks from bribery should conform to the two Principles set out at the front of this Guidance:
To commit to a policy of zero tolerance of bribery To implement an anti-bribery programme.
The anti-bribery programme is the entirety of an NFP’s efforts to counter bribery starting with the commitment to a policy of zero tolerance of bribery. The detail and content of the programme should be designed proportionate to the NFP’s risk approach and assessed risks. This Section outlines the stages for implementing a programme. QUICK START GUIDANCE Whatever your NFP’s size or however low its perceived risk from bribery, follow the process suggested in this section. It is sound organisational practice to address bribery risk quite apart from the provisions required by the Bribery Act. This Guidance recognises that low risk NFPs will not need to invest the same effort or resources as NFPs with higher risk and guidance is given for each step as shown in the boxes highlighted in blue.
There is now general global acceptance on what constitutes good organisational anti-bribery practice. There is now general global acceptance on what constitutes good organisational anti-bribery practice. Transparency International through a multi-stakeholder initiative has developed the Business Principles for Countering Bribery, a voluntary best practice code which has helped shaped other good practice voluntary codes and governmental and inter-governmental guidance. As well as the MoJ Guidance to Adequate Procedures, prominent guidance has been issued by the OECD and the US Department of Justice and the Enforcement Division of the U.S. Securities and Exchange Commission. The underlying system for organisational anti-bribery practice is the same for all forms of organisation, whether companies, public sector or NFPs. The process for developing an anti-bribery programme should follow the stages set out in the chart on the next page. Quick Start Guidance for low risk NPOs is given in the blue shaded boxes. RESOURCES: GUIDANCE ON ANTI-BRIBERY PROGRAMMES Business Principles for Countering Bribery, Transparency International http://www.transparency.org/whatwedo/tools/business_principles_for_countering_bribery Business Principles for Countering Bribery, Small and Medium Enterprise (SME Edition), Transparency International, 2008 http://www.transparency.org/whatwedo/tools/business_principles_for_countering_bribery_sme_edit ion The Bribery Act: Guidance about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing, UK Ministry of Justice, 2010 http://www.justice.gov.uk/downloads/legislation/bribery-act-2010-guidance.pdf A Resource Guide to the U.S. Foreign Corrupt Practices Act, The Criminal Division of the U.S. Department of Justice and the Enforcement Division of the U.S. Securities and Exchange Commission http://www.sec.gov/spotlight/fcpa/fcpa-resource-guide.pdf Good Practice Guidance on Internal Controls, Ethics, and Compliance, OECD 2010 http://www.oecd.org/investment/anti-bribery/anti-briberyconvention/44884389.pdf
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CONSULTATION QUESTION: DOES THIS PAGE CLARIFY OR CONFUSE? PROCESS FOR DEVELOPING THE ANTI-BRIBERY PROGRAMME COMMITMENT TO THE NFP ANTI-BRIBERY PRINCIPLES The Board commits to a policy of zero-tolerance of bribery and to implementing an anti-bribery programme. The Board make clear their commitment (‘tone-from-top’) by statements and actions as part of implementing the programme. For more information see Section 6. Low risk NPO: The Board should discuss why it is important to have a policy and to implement a programme even if the risks of bribery are likely to be low. The statutory responsibilities and legal risks should be reviewed. The Board should agree the no-bribes policy and commit to developing an anti-bribery programme. The discussion and decisions should be documented and the commitment made public. The Board should make clear that it is firmly behind the anti-bribery commitment in its communications and statements.
DEVELOPING THE THE ANTI-BRIBERY PROGRAMME
Assess: Agree the scope of the exercise and the timetable, review relevant laws, identify and obtain information needed and assess the risks of bribery. The anti-bribery programme will be designed to mitigate the prioritised risks as well as aiming to fulfil the values of and commitments of your organisation to integrity. For more information see Section 7. Low risk NPO: Conduct a simple risk assessment which can be a meeting of managers or Board, checking requirements of laws, brainstorming risks, assessing their significance, deciding on actions to address key risks and documenting the review. Check the chart of risks in Section 7.2 to see if any apply to your organisation.
Plan: Design the anti-bribery programme with detailed policies and procedures reflecting your organisation’s values and based on the assessed risks and plan its implementation. Aspects covered should include communication and training, associates, key forms of bribery risk, human resources, whistleblowing and advice lines, internal controls, sanctions, monitoring and reviews. For more information on detailed policies and procedures see Section 8. Low risk NPO: Develop the detailed anti-bribery programme suitable for your low risk NFP. Appoint a person to lead the design of the detailed policies and procedures of the programme. Agree what to do to minimise the risks from bribery for your organisation. This will give the scope of your programme. Write the detailed procedures needed such as purchasing controls, relationships with partners including checks and due diligence, agents, prospective pupils and students; internal and external communications; training; sanctions; monitoring and reviews. Test these on your Board and employees.
Implement: Launch the programme led from the top, underlining the NFP’s commitment to integrity, the major changes and expected results. The launch message should then be followed up by detailed implementation managed by a senior manager including a communication campaign, using a variety of communications channels, resources, and tools. Management should support this by presenting to employees and attending events. Low risk NPO: Appoint a person with responsibility for the programme. Communicate the programme to your people and include it in induction of recruits, regular training and employee terms of employment. Make use of free training resources such as that offered by TI-UK. Provide Board, employees and volunteers with written details of the programme. Ensure procedures are implemented fully in purchasing or managing intellectual property.
Monitor and evaluate: Monitor the effectiveness of the anti-bribery programme, provide regular reports to management and the Board on the application of the programme. Make improvements based on the results of reviews or incidents. See Section 11 for more information. Low risk NPO: Carry out periodic reviews to check progress and that the bribery risks remain low. Look out for changes in circumstances such as starting activities involving overseas countries. Document all reviews and make documented reports periodically to the Board. Obtain an independent view if possible, or benchmark peer NFPs to check that the approach is appropriate and working.
Report: Report internally and externally to stakeholders on the anti-bribery programme and the results. This will strengthen reputation and make clear the NFP’s commitment to key stakeholders including employees and associates. Reporting helps drive performance. See section 9.3 for more information. Low risk NPO: Refer to the anti-bribery policy and programme in internal and external communications to show that measures are in place and carry out periodic reviews. Although risks may be low, potential associates such as funders will want to know about the anti-bribery measures.
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6 Top-level commitment MINISTRY OF JUSTICE GUIDANCE: TOP LEVEL COMMITMENT (PRINCIPLE 2) “The top-level management of a commercial organisation (be it a board of directors, the owners or any other equivalent body or person) are committed to preventing bribery by persons associated with it. They foster a culture within the organisation in which bribery is never acceptable.”
The first task of an NFP, when starting out on the road to designing an anti-bribery programme is for the Board of Trustees or equivalent body (termed ‘the Board’ in this Guidance) to commit to the principles set out in this Guidance of a policy of zero toleration of bribery and the creation of an antibribery programme. The Board’s commitment should also extend to establishing a culture of integrity for the NFP within which the anti-bribery programmer will be implemented. QUICK START GUIDANCE The Board or equivalent body should formally agree a policy of zero-tolerance of bribery and to implementing an anti-bribery programme which will be limited in scope and depth, proportionate to the assessed low risk.
The policy, if it does not already exist, could be implicit in existing organisational values, statements or procedures. The policy should state that it extends to all the activities of the organisation including Board members, employees and volunteers, and also associates acting on behalf of the NFP such as agents and project partners. The policy should be made public. It is the Board’s responsibility to ensure that management, employees, volunteers, associates and other key stakeholders are aware of its commitment to the policy of zero tolerance of bribery. The Board and management should aim to create a culture in the NFP which comprises the following:
Integrity and zero-tolerance of bribery are fundamental and non-negotiable Employees, volunteers and associates know what is expected of them Anti-bribery objectives are set by management Organisational structures for countering bribery are designed and responsibilities assigned Policies and procedures are designed and implemented proportionate to the assessed risks Employees, volunteers and associates are given the information, skills and resources they need to comply with the policy of zero tolerance of bribery It is made clear that the NFP is prepared to forego projects and contracts rather than pay bribes and will support employees in this Sanctions are implemented for breaching the anti-bribery policies, consistently, fairly and openly
The Board should consider how the current organisational culture supports implementing the antibribery programme. The organisation will likely have defined its organisational values or the values will be incorporated in its founding document such as a University Charter. Questions to consider will include such as:
Do the values cover aspects related to anti-bribery including a commitment to integrity and operating fairly? What do stakeholders expect of the organisation? What could be the significant bribery risks for the organisation? What are the provisions of relevant laws? Have there been any incidents or concerns in the organisation, associates or peer organisations?
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Is the anti-bribery culture of the NFP conducive for the anti-bribery commitment? What expertise lies in the organisation related to countering bribery? What knowledge and expertise exists in the Board related to countering bribery? What capacity does the organisation have to allocate resources and time for the anti-bribery commitment? Do functions such as legal, HR, finance and audit have the resources and expertise to support the implementation of the anti-bribery programme?
This initial review will give the Board and senior management a feel for the nature and demands of the task ahead. The Board should also agree the risk approach which will shape the attention given to the anti-bribery programme, allocation of resources and the scope and detail of the policies and procedures. The Board needs to be seen to be firmly committed to both to the policy and to ensuring the antibribery programme is implemented. Implementation of the programme will be shown though ways such as public statements and internal and external presentations. The Board must also oversee the anti-bribery programme including receiving reports, challenging and questioning management on the design and implementation of the programme and requiring that the anti-bribery programme is kept up-to-date to meet changes in the organisation or external environment.
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7 Risk assessment MINISTRY OF JUSTICE GUIDANCE: RISK ASSESSMENT (PRINCIPLE 3) “The commercial organisation assesses the nature and extent of its exposure to potential external and internal risks of bribery on its behalf by persons associated with it. The assessment is periodic, informed and documented.� As part of the NFP’s overall risk assessment methodology, it should have a process to review and identify potential risks. The risk assessment process is the foundation for designing an effective antibribery programme. It will involve the whole organisation as Board, management, employees and volunteers can all contribute by looking out for any concerns in the course of their activities. This Section sets out the risk assessment process and then describes some of the factors that can lead to bribery risk.
The risk assessment process is the foundation for designing an effective antibribery programme. QUICK START GUIDANCE Many NFPs will consider that bribery risk is unlikely given the nature of their particular operations especially if they operate only in the UK. Even so, bribery can always be a risk, for example in the purchasing function or when the organisation manages intellectual property of high commercial value. Your organisation should carry out a simple risk assessment process which can be a meeting of managers or Board, checking the requirements of the UK Bribery Act, brainstorming risks, deciding their significance. Take account of the factors listed in this section that can enhance risk.
7.1
The risk assessment process
Risk assessment should be carried out when the organisation first designs its anti-bribery programme and will then be a regular exercise to monitor, improve and ensure that the anti-bribery programme is updated and remains effective as circumstances and risks change.
QUICK START GUIDANCE Risk assessment can be a simple approach based on the stages shown below. For example, identifying risk can consist of a simple discussion by the Board and management based on the experience of the NFP, brainstorming areas that might cause risk of bribery and then deciding if they are significant.
The risk assessment stages 1. 2. 3. 4. 5. 6. 7.
Board: commitment and support for the risk assessment process Board and management agree the risk approach Deciding and implementing the risk assessment methodology Identifying the bribery risks Assessing the risks Mitigating the risks Reviewing risks regularly 15
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8. Reporting on risks SIGNPOST Internal and external environments are dynamic and risks may change accordingly. Your organisation should check its anti-bribery programme periodically to ensure it remains adequate. Board commitment The Board will set the tone for risk assessment. The Board should make sure it understands the risk assessment process, decide what its input should be and how it will receive reports and reviews. It should assign responsibility for implementation of risk assessment to the executive director, bursar or a senior officer. The Board itself should contribute to the process by suggestions for risks and reviewing the results of the process.
“The responsibility for the management and control of a charity rests with the trustee body and therefore their involvement in the key aspects of the risk management process is essential, particularly in setting the parameters of the process and reviewing and considering the results” Charities and Risk Management, Charity Commission, June 2010 Risk approach The Board, with senior management, should decide the NFP’s risk approach (often called ‘risk appetite’) which will define the attention to be given to risk assessment and the time and resources to be devoted to the controls to mitigate or avoid risks. As set out in the Guidance to the UK Bribery Act, an organisation’s efforts should be reasonable and proportionate. For an NFP, this means reasonable in the eyes of stakeholders and proportionate in terms of the mission, values, size and resources of NFP and the nature of the risk and its potential impact. NFPs are enshrined with particular responsibility to perform to the highest values and are likely to adopt a cautious risk approach even where a potential bribery risk is likely to have low impact on achievement of objectives. It must be recognised that the risk of bribery can never be reduced to zero. Controls may be circumvented and people may be negligent or ignorant of procedures. Zero tolerance expresses the anti-bribery stance of the NFP. It does not mean that the NFP will have failed if it experiences a bribery incident but that it will treat incidents with concern and actions. Risk assessment methodology The NFP will need to decide how practically it is going to carry out risk assessment. This includes:
Appointing the person or team to carry out the review and deciding if it is to be a permanent function or to be recreated each year (an external party could be engaged by the NFP for this purpose as employees may find it easier to speak to a third party) Scoping the exercise and budgeting for the resources Identifying potential risks as discussed below Documenting the exercise for use in future reviews and as an audit trail if needed for any risks or incidents that might be discovered
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Identifying bribery risks The next stage in the process is to identify inherent bribery risks. These are the risks of bribery if no controls were applied to counter them. In this way the NFP should be able to gather information about all relevant potential bribery risks and avoid being influenced by existing approaches and controls. The challenge is to ensure that all relevant risks are identified for consideration and brainstorming will help at this point. While an NFP may approach the risk assessment process with commitment and thoroughness, the following threats could affect the review:
Overconfidence about the effectiveness of current anti-bribery controls Operating on a culture of trust or ‘family’ and assuming trust will not be breached Accepting current practices – ‘it has always been done this way’ Resistance from managers and employees – ‘risk assessment is an aspersion’
There should be a thorough process of consultation, information gathering and analysis that brings into view all relevant risks. Management, employees and associates will have a good idea where the risks of bribery lie. The consultation process, in itself, is a message about the NFP’s anti-bribery commitment to anti-bribery. The conclusion of this stage will be an inventory of risks which will be used for the next stage of assessing the risks. The risk identification process should be open and questioning. For example, is the organisation diversified and widespread or tightly controlled from the centre and what are the implications of this? Is the NFP too reliant on third parties for anti-bribery measures? How reliant is the NFP on government funding or contracts and how does it interact with governments and public officials? WAYS OF IDENTIFYING BRIBERY RISKS
Discussion in the Board - this will focus on strategic and organisational risks Review of whistleblowing and hotline use Past incidents and their impact Self-assessment Web and literature searches Interviews and surveys of staff, academic faculty, employees and associates such as suppliers and intermediaries, donors, sponsors, supporters, alumni Brainstorming and facilitated group discussion workshops Interviews of peer NFPs Advice from professional advisers – accountants, auditors, legal, anti-bribery consultants; and Discussions in countries with the local Embassy or High Commission, Chamber of Commerce, NGOs such as Transparency International chapters or Global Compact Networks
Assessing risks The next step is to assess the identified risks and decide their likelihood and the potential severity. The assessment can be both quantitative and qualitative. A scoring of risks provides a systematic framework to assist management in directing its attention to significant risks but significant bribery can occur in areas which may fall outside the higher scored risks. For instance, countries prone to bribery risk may be identified using Transparency International’s Corruption Perceptions Index but bribery can take place also in countries seen as good performers. While these incidents may be infrequent, the material impact of an incident can be high. A qualitative input can help avoiding overlooking the exceptional but high impact risks. The NFP, based on its risk assessment and risk approach, will then select the risks which it will plan to counter.
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Mitigating the assessed significant risks An NFP will have an existing range of controls in place to counter bribery and these should be matched and evaluated against the identified risks. This will enable risks to be identified that are inadequately managed by these existing controls. The process can also identify risks that are overmanaged by existing controls. There are two options to deal with significant residual risks (risks that cannot be mitigated through existing anti-bribery controls). One is to develop detailed policies and procedures to counter the risks. For example, an NFP may stop using agents and deal directly with associates. The other option, less suitable in most instances, is to withdraw from the risk area. For example, a university may decide that a country has too high a level of corruption to warrant remaining in the country or that a partner in a joint venture is not meeting the required standard for anti-bribery measures and the association should be ended. These are drastic approaches but may sometimes be necessary where countering risks is unlikely to work. Thought should be given before entering a market or joint venture on how the NFP could extricate itself if bribery enters the picture and cannot be remedied. SIGNPOST When countering bribery, attention should be given to other forms of corruption such as fraud and money-laundering as they can generate an environment for bribery to flourish.
Reviewing risks regularly Risk assessments should be repeated regularly to reflect changing circumstances. The results of risk assessment should be reviewed by senior management and any concerns identified. A report should be made regularly to the audit committee and the Board on the review. It is good practice to report publicly on the risks the NFP may face and the measures taken to mitigate the risks. Law may require the NFP to make a risk statement as is the case for larger UK charities.
RESOURCES: RISK ASSESSMENT Anti-Bribery Risk Assessment, Transparency International UK, 2013 http://www.transparency.org.uk/our-work/publications Charities and risk management: a guide for trustees, Charity Commission, 2010 http://www.charity-commission.gov.uk/Publications/cc26.aspx OECD Risk Awareness Tool for Multinational Enterprises in Weak Governance Zones, OECD, 2006 http://www.oecd.org/daf/inv/mne/weakgovernancezonesriskawarenesstoolformultinationalenterprises-oecd.htm
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7.2
Risk factors
An NFP’s risks of bribery will depend on its individual circumstances but there are some common factors that accentuate bribery risks. Risk factors are internal or external circumstance that could make it more likely that bribery will occur. For example, a risk that a bribe may be paid in relation to a public contract is likely to be greater in a country where corruption is rife. It can be argued that internal risk factors should not exist as they are within the control of the NFP and should be remedied by changing the anti-bribery controls. Risk factors can apply to more than one type of bribery risk. Some main risk factors are listed below and then three external factors are described. SOME SIGNIFICANT BRIBERY RISK FACTORS FOR NFPS Context Risk factor External
Internal
Countries of operation Sectors with known high risk Foreign Public Officials Urgency Greater good Other corruption
Critical skills reside in one employee Influx of new staff or volunteers Dependent on partner organisation Local staff
Countries with high levels of corruption Construction, facilities management, logistics The Bribery Act creates an offence related to Foreign Public Officials Overriding or circumvention of controls at time or crisis or urgency such as such as disaster relief, speed orders, critical supplies The need to meet the mission of the NFP overrides the bribery policy e.g., bribes to speed critical food supplies through customs Corruption by an employee such as receipt of excessive hospitality, fraud or money laundering opens the door to bribery approaches by corrupt associates The employee may be vulnerable to bribery because of his/her influential position The staff or volunteers may not be imbued with the NFP’s integrity culture or lack skills to deal with bribery The NFP is totally or largely reliant on its partner to run a project The NFP is totally or largely reliant on local staff to run a project
Countries of operation: In some countries corruption is prevalent and the risks are extremely high. Some NFPs may decide to avoid high risk countries but for NFPs such as aid and development charities this will not be an option. Other NFPs which do have a choice where they operate may nevertheless decide to operate in high risk countries if they believe that they have an adequate antibribery programme to counter the risks. Sector risks: The construction sector according to Transparency International’s surveys is the sector with the highest risk of bribery. Some NFPs are involved with substantial construction projects, often run by partners and involving many third parties, cultural, commercial, governments and donors. For example, some universities and schools are in joint ventures overseas involving construction of campus buildings. Museums and galleries are expanding nationally and globally. The Louvre Abu Dhabi is due to open in 2015 under an agreement between the governments of Abu Dhabi and France. The Guggenheim has opened museums in Bilbao, Berlin and Venice with Abu Dhabi opening in 2015. Creations of campuses or galleries are major undertakings. The logistics sector is vulnerable to facilitation payments and these can be demanded of all forms of NFP. Examples are release of food from customs, permits for utilities for community projects, export of artworks or approvals of visas for students. Foreign Public Officials: Foreign Public Officials present concerns related to the UK Bribery Act, which in Section 6, provides for a bribery offence where there is an intention to influence a Foreign Public Official (FPO) in their capacity as an FPO, or an intention to retain a business advantage or 2 create one for the NFP. The Bribery Act defines an FPO but even so there is uncertainty. The 2 “’Foreign public official’” means an individual who—(a) holds a legislative, administrative or judicial position of any kind, whether appointed or elected, of a country or territory outside the United Kingdom (or any subdivision of such a country or territory), (b) exercises a public function — (i) for or on behalf of a country or territory outside the United Kingdom (or any subdivision of such a country or territory), or (ii) for any public agency or public company of that country or territory (or subdivision), or(c) is an official or agent of a public international organisation”. The Bribery Act 2010.
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definition does not include foreign political parties or candidates for office. Because of the risk of an offence under Section 6 of the Bribery Act an NFP must apply good practice and due diligence in its relationships with associates to check if there is anybody involved as an officer or a consultant who could be an FPO. An FPO can include executives of companies running outsourced services for government such as health, education or community services or private architects or engineers retained by government agencies to design or supervise the construction of public buildings. It is uncertain if control of a company by the government, such as a national airline or a bank, makes its employees FPOs. Until clarification emerges from the law courts, the NFP should assume the widest definition of an FPO. Even if the NFP has defined explicitly what it means by an FPO, it may be unclear if an FPO is involved in a contract. The NFP should take care not to offer benefits to FPOs such as hospitality, gifts and travel where it could be construed that the benefits were given with the intent of influencing the FPO to obtain or retain a commercial advantage. RESOURCES: MAPPING COUNTRY AND SECTOR RISKS There are a number of resources that can be referred to in mapping country and sector risks. Transparency International provides surveys and reports which can be downloaded at www.transparency.org
Corruption Perceptions Index: an annual survey which ranks countries and territories based on how corrupt their public sector is perceived to Bribe Payers Index: ranks the likelihood of companies from 28 leading economies to win business abroad by paying bribes Global Corruption Barometer: the largest cross-country survey to collect the general public’s views on, and experiences of, corruption. In 2010 and 2011 the Barometer interviewed more than 100,000 people in 100 countries Country reports: country specific surveys of national integrity
The Business Anti-corruption Portal: provides practical advice for smaller companies including country surveys and information http://www.business-anti-corruption.com/
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SCENARIO 1: SCHOOL’S JOINT VENTURE IN SE ASIA INVOLVING CONSTRUCTION A UK school has entered into a joint venture on a 30% minority basis with a school in a SE Asian country known for high risk of corruption to form a joint academy which will deliver joint courses in the country as well periods of study in the UK. Comments There are several high risks. The venture is located in a country known for corruption and entails a major construction project, foreign public officials (FPOs) are involved and the school is a minority partner. Schools and universities engaged in joint ventures should ensure: Due diligence is carried out on partners before commitment to the venture The anti-bribery programme of the venture is adequate and that the venture has contractual provision for observance of the programme They do not rely entirely on their partners for anti-bribery measures but oversee and monitor the project as well Preventive measures and monitoring are carried out to prevent that any interactions with Foreign Public Officials do not involve benefits for them and risk an offence under the UK Bribery Act. They report publicly on ventures, how the anti-bribery programmes are applied and the results of monitoring
SCENARIO 2: UNIVERSITY NEGOTIATING A PUBLISHING AGREEMENT WITH A CHINESE UNIVERSITY A UK university is negotiating a major publishing contract with a Chinese university for a range of scientific and technical books and online education. It is the Chinese New Year and the University negotiators, mindful of the Chinese custom of gifts and that they are negotiating a publishing deal, give their counterparts fine antiquarian books tailored to the status of the recipient. Comment: Although gift giving is a custom in China, the gifts of antiquarian books seem excessive in value. The state in China controls all institutions including universities and therefore the Chinese negotiators would likely be FPOs and the gifts could be an offence under the Bribery Act.
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8 Effective policies and procedures MINISTRY OF JUSTICE GUIDANCE: PROPORTIONATE PROCEDURES (PRINCIPLE 1) “A commercial organisation’s procedures to prevent bribery by persons associated with it are proportionate to the bribery risks it faces and to the nature, scale and complexity of the commercial organisation’s activities. They are also clear, practical, accessible, effectively implemented and enforced.” The next stage is to design and implement detailed policies and procedures to counter significant risks identified through the risk assessment process described in Section 7. The policies and procedures should be proportionate to the identified risks and provide reasonable assurance that the NFP will comply with its no-bribes policy. A manager should be appointed with responsibility for the policies and procedures and to ensure they are implemented, documented and kept upto-date. The procedures should be communicated and issued in the main languages of employees.
The detailed policies and procedures should in particular cover the following areas which are then described in detail.
Transactions at risk from bribery High risk operational functions Human resources Associates Internal controls Collective action
The MoJ Guidance to the Bribery Act identifies three critical areas for policies and procedures which are: communication and training; due diligence; monitoring and evaluation. These are described in Sections 9, 10 and 11 respectively. SIGNPOST The success of implementing the programme will depend greatly on the ability of the support functions such as the legal department, human resources, finance and internal audit.
High risks fall into areas of activity, transactions or involvement with associates. Transactions are operational activities of the NFP involving exchanges with other parties. Associates are the parties appointed by the NFP such as agents and joint venture partners or service providers. The risks for the two areas are listed below and then described giving details of the specific risks and how they can be countered.
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8.1
Common forms of transactional risk
This Section looks at the activities or transactions where bribery can commonly be a risk. It states the risks and then suggests some ways of preventing the risks. The NFP should implement the following general approaches:
Analysing how bribery can occur in the transaction activity Developing procedures to counter the risks Developing tailored communications describing the risks, the relevant policies and procedures and ways of countering the risks Tailored training for employees assessed as operating in high risk areas Full documentation of activities Close monitoring and regular reviews
TRANSACTION RISK AREAS Purchasing Bids for contracts Critical licences Recruitment Hospitality, gifts and travel expenses Facilitation payments Fund raising and sponsorship Education sector specific transactions: student recruitment and entry, accreditation, validation and franchises, marketing and award of qualifications, outsourcing of teaching, intellectual property 8.1.1
SECTION 8.1.1 8.1.2 8.1.3 8.1.4 8.1.5 8.1.6 8.1.7 8.1.8
Purchasing and contracting
Risk: Purchasing is vulnerable to the receipt of bribes (passive bribery) and risks are higher when the NFP is involved in major projects such as awarding IT contracts or building facilities. The bribes can take the form of kickbacks paid after the contract has been awarded and once the briber has generated the funds to reward the corrupt purchasing employee. Contracts involving construction or international logistics have especially high bribery risks. Prevention: Bribery risk can be countered by internal controls comprising checks and balances in drawing up the requests for purchase and approvals of contracts and rotation of staff. When setting the specifications for a contract, the NFP should have checks in the process to ensure that the specifications are not distorted to match one particular supplier’s product or services thereby excluding or putting at a disadvantage other potential suppliers. Rush orders are vulnerable to bribery as the urgency can circumvent normal controls. These should be documented and reviewed formally by senior management. The NFP should communicate to potential suppliers its commitment to antibribery and to fair trading. Contracts involving major construction should be monitored closely especially in countries with high corruption or where reliance has to be placed on an associate for the construction project. Checks should be made during the contract implementation phase as it is often in this phase that the greater part of bribery takes place.
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CASE STUDY 1: UNIVERSITY PROCUREMENT BRIBERY In March 2013 the Independent Commission Against Corruption (ICAC), New South Wales, Australia, stated that a university manager could face prosecution, after finding that he had solicited $225,000 in cash, travel and gifts from four suppliers. The manager had corruptly received the money and benefits between 2006 and 2011 while head of engineering services at the University of Technology (UTS) Facilities Management Office in Sydney. He allegedly solicited and received $119,000 of the money through his family company from the suppliers. The funds were disguised as payment for work carried out, or goods supplied by the manager’s family company that it did not do or supply. During the years, all four contractors invoiced UTS for a total of $17.8 million for work they performed for the university. Comment: Purchasing is an area of bribery risk that is not related to country risk. If an NFP has significant purchasing activities then it should assess the risks and create internal controls accordingly.
8.1.2
Bids for contracts or projects
Risk: NFPs can be involved in bids for major contracts or projects. The education sector is now a global commercial sector with universities and schools bidding for government contracts, creating ventures to exploit technology and knowledge and marketing to recruit students. Voluntary organisations are involved in bidding for contracts to provide services. Bribes may be offered or solicited for awarding contracts or projects especially in the high risk corruption countries. If the bids are made through an intermediary this adds an extra dimension of risk. Bribes may be cash but could be in-kind such as educational scholarships for relatives of the official who decides a contract. Prevention: Employees should be given assurance that they will not be penalised for losing a contract or project for refusing to pay a bribe. Where a competitor is believed to have offered a bribe to win a contract, the NFP should consult the local Embassy or High Commission to see if the matter could be taken up with the authorities. Activities, calls and meetings related to the bid should be documented. CASE STUDY 2: UNIVERSITY PUBLISHING HOUSE BRIBED TO WIN CONTRACTS Oxford University Press (OUP), a wholly owned subsidiary of the university, was ordered by the High Court in 2012 to pay nearly £1.9 million after two wholly owned subsidiaries of its International Division based in Kenya and Tanzania, bribed government officials for contracts to supply school textbooks in east Africa. The subsidiaries made payments directly or through agents to obtain contracts. Two of these were financed by the World Bank which uncovered the corruption. An OUP internal inquiry had found concerns relating to contracts entered into between 2007 and 2010. The Serious Fraud Office said that there was no evidence of boardlevel connivance in relation to the bribery, and the products supplied were of a "good standard" and provided at market values. Comment: These contracts would be assessed as high risk in any risk assessment being located in countries where corruption is prevalent and involving government officials. The OUP’s internal controls should have been designed to deal with such risks. Importantly, the SFO found that the OUP had conducted itself in a manner which fully met the criteria set out in SFO guidance on self-reporting matters of overseas corruption. It is important that when controls have failed that the NFP takes urgent action to strengthen its anti-bribery programme. In this case, OUP introduced enhanced compliance procedures which were subject to review by a monitor who had to report to the Director of the SFO within twelve months, with additional and separate reporting to the World Bank. The monitor had to meet strict criteria, including clear independence from the OUP.
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SCENARIO 3: EDUCATIONAL CONTRACT TIED TO AWARD OF HONORARY DEGREE A university is negotiating with an overseas education ministry for an important contract. The minister of education for the country decides to visit the UK and his officials make known that it would be appropriate if, during his visit to the university, an Honorary Degree could be conferred on the Minister. The university declines respectfully advising that this would not accord with the process for Honorary Degrees. The university is advised in due course that it has not been granted the contract. Comment: The university rightly assessed that giving an Honorary Degree would be a bribe. While the loss of the contract was an immediate penalty for holding to the policy, in the long term the university should be able to use its reputation for integrity to be viewed as a favoured partner and its no-bribery stance may also deter solicitation of bribes when bidding for other contracts. .
8.1.3
Critical licences, permits or certification
Risks: There are a vast range of approvals and licenses that may be needed to enable the activity of an NFP and in corrupt countries they can be associated with demands for bribes for the necessary approvals to be given. As the licences or approvals are usually official, they will likely involve a Foreign Public Official. The World Bank monitors the level of approvals required to carry out business in countries and has found a correlation between the level of perceived corruption in a country and the number of requisite approvals. Another risk is that increasingly, organisations including NFPs are requiring evidence of standards from their suppliers such as labour standards certification and this may have been obtained by the supplier through bribery. Prevention: As the range of potential approvals is large, the NFP as part of its controls should maintain a register of licences and approvals and evaluate the processes needed to obtain them and any associated risks of bribery. The NFP should check that its suppliers are entitled to certificates. Similarly for universities and schools, checks will need to be made on the educational qualifications and visas of applicants. Training should be given to employees and partners on how to resist demands. Collective action may be a way of eliminating demands. 8.1.4
Recruitment of employees
Risk: Bribery can occur in recruitment such as hiring local staff for a community project in a developing country or workers in a joint venture for construction of a campus or depot. The bribes are paid by recruits to get appointed and the corruption can become systemic. The result will be that inappropriate employees are recruited who lack both skills and integrity. Prevention: The NFP should set and apply objective criteria for advertising and interviewing, build checks and balances into the recruitment process and document the entire process. Local opinions should be sought from contacts in the community on how it sees the fairness of the NFP’s recruitment. Appropriate due diligence should be applied when appointing local senior management and employees who are likely to be placed in positions of risks from bribery. Checks should also be made to determine if a potential employee has a link to a government official or someone who could influence a decision favourably for the NFP. This does not mean that a bribery risks necessarily exist but the NFP will be able to make sure that it handles such appointments correctly and can defend them should there be investigation by authorities or public criticism.
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8.1.5
Gifts, hospitality and travel expenses
QUICK START GUIDANCE Make sure your NFP has policies and procedures for gifts and hospitality. These activities can occur for any NFP, and there can be risk of inappropriate activity. It is important that your employees know the policies and how to handle situations where they may occur. Undue gifts or hospitality offered at the time discussion of a contract or grant could be considered bribery. Risks: Gifts and hospitality and to a lesser amount, travel expenses (to enable such as visits to Head Office or projects), have been the subject of much discussion in relation to the Bribery Act. This is because a strict interpretation of the Act could mean that such activities risk being viewed as bribes. They could also be viewed as bribes if they involve a Foreign Public Official and are made with the aim of retaining or obtaining an advantage in the conduct of business and if they confer an advantage directly or indirectly on an official. The UK Ministry of Justice while recognising that these expenses could be used as a subterfuge for bribery, attempted to clarify the position and give reassurance to organisations that believed they were acting with adequate procedures. Its Guidance states: "Bona fide hospitality and promotional, or other business expenditure which seeks to improve the image of a commercial organisation, better to present products and services, or establish cordial relations, is recognised as an established and important part of doing business and it is not the intention of the Act to criminalise such behaviour. The Serious Fraud Office in guidance issued in October 2012 also provided reassurance stating “companies that provide reasonable and proportionate hospitality or promotional expenditure, working in a good faith way with the published protocol principles, are unlikely to be criminally penalised”. The challenge for NFPs is that it is often hard for employees to know where to draw the line between what is a reasonable and bona fide expenditure and what is unreasonable expenditure made to influence an official. Also, these activities can often draw an employee unwittingly into a situation where improper behaviour subsequently results. Prevention: TI’s view is that good practice permits promotional expenditures, including gifts and hospitality, where they are transparent, proportionate, reasonable and bona fide. If NFPs follow this good practice then such expenditures are unlikely to be considered an offence by the authorities under the Bribery Act. However, NFPs in making such expenditures must ensure they have implemented adequate policies and procedures. This means giving clear guidance to Board and employees on giving or receiving gifts and hospitality. If the NFP has operations in countries where there are gift-giving cultures then tailored guidance and training will be needed to help the employee deal with situations where gifts are offered or expected. Employees should also be advised and trained on the NFP’s policies on hospitality and expenses and how they can avoid being drawn inadvertently into receiving inappropriate hospitality. SCENARIO 4: HOSPITALITY AND TRAVEL GIVEN IN NEGOTIATION FOR A MUSEUM EXHIBITION A UK museum is negotiating to receive a major exhibition as part of a world tour of the exhibition to three countries. There are known to be several capital cities in the running for the much sought-after exhibition which is under the auspices of the originating country’s government. The museum invites the officials from the Arts Ministry and the exhibition curators and managers to visit them in the UK to see their museum’s plans for accommodating and promoting the exhibition. Thanks to help from a generous supporter, the UK museum is able to pay first class travel expenses, including a stay at one of London’s best hotels, and arranges a programme of expensive entertaining events around the visit. Comment: The museum is negotiating a contract and is giving lavish travel expense and hospitality to influence the people who will decide on the contract. The deciding parties include Foreign Public Officials. This could be an offence under the Bribery Act. It is not unreasonable for the overseas people to visit London to make a judgement on the candidacy of the bidding museum but the travel and hospitality is excessive even if funded by a friend of the museum .
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SIGNPOST Provide guidance and training to employees on policy and procedures for giving and receipt of gifts, keep values of gifts to modest levels, design a gifts matrix to set financial values for countries, keep a register of gifts received and given and have regular oversight of the register by a senior manager.
8.1.6
Facilitation payments
Risks: Facilitation payments are a risk in countries where corruption is common. They can be demanded from employees wishing to enter countries, to move goods through customs or across borders or to gain approvals such as licences. Facilitation payments are ‘small unofficial payments made to secure or expedite the performance of a routine or necessary action to which the payer of the 3 facilitation payment has legal or other entitlement.’ Facilitation payments are a severe problem for voluntary organisations working in overseas aid. Prevention: An NFP should ensure it has a policy to prohibit facilitation payments and to review its policy and procedures regarding facilitation payments. The NFP needs to identify where facilitation payments are taking place or likely to take place and then develop strategies to counter them. The Serious Fraud Office issued Guidance in October 2012 which made clear that it would prosecute on instances of facilitation payments if there were to be a realistic prospect of conviction. This gives no comfort but it can be assumed that the prime risk of prosecution will be for organisations that make consistent and systemic use of facilitation payments. TI-UK, in concordance with the Bribery Act, defines facilitation payments as bribes but recognises that organisations which decide to prohibit such payments cannot eliminate them overnight. Organisations need to develop procedures and training and gain commitment from employees to deal with this difficult issue and, where possible, especially in larger organisations, to use their influence and reputation to counter payments in countries where demands for such payments are rife. This will include encouraging and supporting developments in the countries to reduce the demands for facilitation payments. All employees and agents should be made aware of the policy of prohibiting facilitation payments. The NFP should research how such payments could occur in its activities and design procedures to counter these circumstance. Employees and volunteers should be given training, including negotiation skills on how to resist demands. Leaflets or cards can be provided in the local languages where the employees and volunteers travel, explaining that the NFP does not make such payments. There will be costs, delays and inconveniences as a result of implementing the process of resisting demands. The NFP should consider building time into projects to allow for delay at customs as a consequence of the refusal to pay; employees may have to miss flights to make their point with airport officials or be prepared to incur the delay of a visit to a police station when a bribe is demanded for an alleged traffic offence. The challenges related to facilitation payments can be immense especially for voluntary organisations working in overseas aid. Solutions have to be sought in ways such as collective action and representations to governments. Organisations working together can tackle payments demanded at customs or depots to release goods or by officials at the airport asking for payments for ‘incorrect’ visas. Organisations may be able to make representations jointly to the authorities and ask for action. Embassies, High Commissions and chambers of commerce may be able to assist too .
3
The Business Principles for Countering Bribery, Transparency International
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SCENARIO 5: FACILITATION PAYMENTS TO ENTER A COUNTRY A manager from a charity travels frequently to an emerging market where the charity has projects. Invariably, a facilitation payment is demanded by a passport official when the employee enters the country. The charity has a strict policy not to pay facilitation payments so rather than go to the trouble of arguing with the officials the employee has paid the bribes out of the employee’s own pocket and has never mentioned this to the charity. Other employees raise a concern that the manager never has trouble on entry and on questioning the manager reveals that bribes have been paid out of personal funds. Comment: Employees may chose to pay the bribes themselves to avoid delay and feel that they that are not affecting their employer in doing so. Nevertheless they are acting as employees and the NFP is liable for their actions. Also, the NFP’s name will be attached to the bribery and the employee is undermining the NFP’s efforts to eliminate the payments. The payments could detract from the NFP building its reputation in the market as an organisation that implements a strict nobribes policy.
8.1.7
Fund raising
Risks: NFPs rely extensively on donations, gifts, grants, endowments and sponsorships. Donations are made without expectation of return but it is common when a donation is made for the recipient to acknowledge this in a public credit. However, donors may seek substantial privileges as well. Prevention: The NFP in negotiating donations should take care not to offer benefits to the donor as this could not only endanger the charitable status of the payment but could be judged as a bribe. A well known risk for universities or schools is the prospective large donor who attaches a condition to the donation that a child or other relative is given a place at the university or school. Arts organisations may be able to award privileges or titles and should make sure that these are awarded following established and transparent criteria. Money laundering is a related risk and checks should also be made that the source of funds comprising the donation is legitimate. Consideration should be given to carrying out due diligence. Internal checks and balances should be designed to prevent kickbacks with regard to grants and sponsorship fees. 8.1.8
Education sector
Risks: The education sector is particularly at risk, having many forms of transaction vulnerable to bribery owing largely to the globalisation of education and the high importance of educational qualifications. There are other areas of risk too and some of these can exist in the home country such as procurement, construction projects and intellectual property. Intellectual property is potentially a high risk area for bribery. Employees can be targeted and led into bribery through a staged programme of hospitality and gifts which prepares the ground for solicitation and extortion. The common practice of universities and schools paying commissions to agents for students or pupils recruited may also be an offence under the Bribery Act as agents might give impartial advice to students on suitable universities or schools but steer them to the one paying commissions to the agent. While this Guidance focuses on anti-bribery measures, other forms of corruption such as money-laundering and fraud need to be taken into account as they can foster an environment for bribery. Partner organisations may be engaged in corrupt activities in other areas unrelated to their association with the NFP but a background of corruption creates an environment where integrity is unvalued, controls are lax and it could drag the educational body into a public scandal.
SOME TRANSACTION BRIBERY RISKS FOR THE EDUCATION SECTOR Recruitment and Agents for universities accept bribes from students or families or pay bribes admissions to assist students to get visas Sponsored students from a government or a company may have been funded with laundered money or selected through the influence of bribery or to be used as bribery to gain influence 28 DRAFT: June 2013
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Franchises and accreditation Intellectual property
Potential pupils are funded by laundered money. Students bribe to obtain false degrees and achievements in order to meet admission criteria Agents paid on commission do not select students on a fair basis Institutions obtain a franchise through bribery; relax the rules for admission and evaluation of students; accept bribes to award degrees or to tolerate plagiarism and examination fraud Information and expertise is stolen though bribery
Prevention: Universities and schools need to implement a range of measures to counter these risks. Due diligence, ‘know-your-party’, suspicious action reports to the authorities and continual monitoring are key activities and include carrying out checks on potential and current associates to ensure they have adequate anti-bribery procedures and are not involved in bribery. The source of funds for students from countries where corruption is rife should be screened to check money-laundering is not a factor. Payments should not be accepted from offshore trusts. Transparency of operations in admissions and marking builds the confidence of applicants and the public in selection processes and can make it more difficult for corrupt associates to operate. New technologies can be used to monitor operations to detect inconsistencies and improve the administration of admissions and examinations. Those involved with intellectual property should receive training on hospitality, gifts and expenses, routes often used to suborn an employee before making larger bribes to obtain information.
“Academic institutions possess intellectual property that many people would give their right arm for.” Professor Eric Thomas, President of Universities UK and vice-chancellor of the University of Bristol, The Financial Times, 11 April 2013. . CASE STUDY 4: UK UNIVERSITIES USE AGENTS EXTENSIVELY TO RECRUIT OVERSEAS STUDENTS It was reported in a Times Higher Education investigation in 2012 that UK universities recruited more than 50,000 international students through commission payments to overseas agents, spending close to £60 million on the practice in 2010-11. Almost all money paid to recruitment agents was on a per-student commission basis. The survey found that in certain respects, most universities had little idea how their agents were operating. Some seven in ten said they did not know how many students were charged separate fees by agents in addition to the commission payments made by universities. A 2012 investigation by The Daily Telegraph found official agents boasting that they could secure places for overseas students with far worse A-level results than those expected of British pupils. Comment: Due diligence needs to be carried out on agents before appointing them and then they need to be monitored closely to prevent bribes being given to agents to promote the interests of students with inferior qualifications. Another risk is that agents acting on commission from a university might not reveal this and advice presented as being impartial when it is not. Universities should monitor their agents closely to ensure their agents declare if they working under commission and that they are not receiving bribes from applicant students. CASE STUDY 5: UNIVERSITY SPORTS BETTING BRIBERY Three men pleaded guilty in an alleged scheme to fix a University of San Diego basketball game. They were among ten people charged with running a sports betting business to fix West Coast Conference games. Those charged included the school's all-time leading scorer, a former coach and a former player. Comment: This US example illustrates that bribery can happen at home and can be in an activity that might easily be overlooked in a risk assessment.
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RESOURCE: CODE OF ETHICS FOR STUDENT RECRUITMENT AGENTS The seven principles of the ‘London Statement’ - a code of ethics brokered by the British Council in March 2012, in which agents are requested both to avoid and to declare conflicts of interest, as well as to be ‘transparent in fees to be paid by students and commissions paid by providers’. If an agent is working for more than one university then an additional consideration is that the agent should provide advice which is fair and balanced and meets the student’s needs.
8.2
Associates
Many bribery scandals have involved bribery carried out by associates, particularly agents and joint ventures and the NFP needs to design policies and procedures to prevent the risk of its associates using bribery on its behalf. The Bribery Act is drawn widely with respect to bribery carried out by another person associated with the commercial organisation as it states that an associated person is one who provides services for or 4 on behalf of the organisation . In such a case, an NFP may become criminally liable under Section 7 of the Act, subject to it being able to offer the defence of ‘adequate procedures’. Associates include subsidiaries and investments, agents, joint ventures, franchisees, suppliers and contractors. NFPs may be using agents for services such as recruiting overseas students. Voluntary organisations, arts and heritage bodies, universities and schools may be engaged in joint ventures for overseas projects such as delivering aid projects or building campuses. The Bribery Act has heightened the attention given to the risk of bribery being carried out an NFP’s behalf by an associate. The Act is drawn widely with respect to bribery, stating that an associated 5 person is one who provides services for or on behalf of the organisation . In such a case, an NFP may become criminally liable under Section 7 of the Act, subject to it being able to offer the defence of ‘adequate procedures’. NFPs may be using agents for services such as recruiting overseas students. Voluntary organisations, arts and heritage bodies, universities and schools may be engaged in joint ventures for overseas projects such as delivering aid projects or building campuses. There are some general procedures based on the Business Principles for Countering Bribery that should be applied to countering bribery related to associates.
The NFP should implement its anti-bribery programme in all entities over which it has effective control. Where the NFP does not have effective control of an entity it should use its influence to encourage an equivalent anti-bribery programme in associates with which it has significant relationships. The NFP should undertake properly documented, reasonable and proportionate anti-bribery due diligence on associates when entering into a relationship and once the associate is appointed, repeat the due diligence periodically (due diligence is described in full in Section 10) The NFP should avoid dealing with entities known or reasonably suspected to be paying or receiving bribes The NFP should perform reasonable and proportionate monitoring on a continuing basis of its significant relationships. This can include the right to inspection of books and records The NFP should document relevant aspects of the implementation of its programme or equivalent by associates The associate should be supported where appropriate by providing training and advice on anti-bribery measures In the event that policies and practices of the associate are inconsistent with the NFP’s programme, the NFP should take appropriate action which can include requiring correction of
4 The Bribery Act, section 8 (1) 5 The Bribery Act, section 8 (1)
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deficiencies in the implementation of the associate’s programme or the application of sanctions The NFP should have a right of termination in the event that associates engage in bribery or act in a manner inconsistent with the NFP’s programme Periodic renewal of contracts The NFP should ensure it has identified all its associates and documents the relationships with them
The risk assessment process should identify potential risks from bribery for each form of associate. The particular risks for forms of associate are described below with suggestions for countering the risks. RESOURCES: ASSOCIATES Anti-corruption clause, International Chamber of Commerce, 2012 http://www.iccwbo.org/Advocacy-Codes-and-Rules/Document-centre/2012/ICC-Anti-corruptionClause/ Supplier workbook, Sedex, 2013 http://www.sedexglobal.com/resources/supplier-workbook/
8.2.1
Agents
Risk: Agents are high risk areas especially if there is substantial engagement with government officials. Agents can be used by schools and universities to recruit students, by arts organisations to arrange performing arts tours or negotiate exhibitions and by voluntary organisations to deliver projects. Agents acting on their own initiative in their work for the NFP may become involved in bribery and thereby implicate the NFP without its knowledge. Agents can become involved in bribery in ways such as accepting bribes from prospective students, arranging visas, obtaining licenses and obtaining release of goods from customs. An NFP could be liable for an offence under the Bribery Act for bribery by an agent acting on its behalf. Prevention: Full due diligence should be used when appointing an agent. Once appointed, agents should be monitored regularly to check that they remain in compliance with the NFP’s anti-bribery programme. The potential agent should be required to provide details of its shareholders, directors, other clients, any involvement with public officials and its resources and capabilities to perform the required service. This information then needs to be independently verified. The NFP should ensure that fees paid to agents are appropriate for the services carried out and do not provide scope for the agents to pay bribes. Existing agents should continue to be subjected to due diligence as they may not have undergone the due diligence procedure originally or substantive changes may have occurred since due diligence was last carried out. The process for appointing and managing an agent should be underpinned by documentation and monitoring throughout the life of the relationship. The NFP should also periodically seek the views of local organisations and the community to check current opinion of the agent’s standing and integrity.
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SCENARIO 6: AGENCY FOR DANCE COMPANY PAYS KICKBACKS TO THEATRES A dance company is arranging an overseas tour in a country with high corruption. It appoints a local dance agency to negotiate bookings with theatres. The agency charges high fees for its services saying that the negotiations are demanding and complex. The agency is successful in arranging the tour and the fees obtained from the theatres are at a good level. During the course of the tour, the dance company administrator learns that it is common practice for the theatre managers to ask for a kickback of fees. The administrator confronts the agency which admits the payments but says that without them the tour would not have happened. Comment: The dance company should have taken advice before entering into the tour and would have learned that it was likely that bribes would be required to gain bookings. The options would have been either not to become involved in such a tour or to insert checks and controls into the project including a lower fee to the agency, detailed accounts and drawing on local advice such as the British Council representative and the British Embassy or High Commission. As bribes appear to have been paid, the dance company should consult its legal advisers with a view to reporting the concern to the authorities.
SCENARIO 7: LICENSE FOR LOAN OF ARTEFACT FOR AN EXHIBITION IN THE UK A UK museum is mounting a major exhibition about an ancient civilisation. An artefact held in the country where the civilisation was located is of highest importance to the exhibition but the country authorities are known to be reluctant to release the artefact ostensibly on grounds that it is too delicate to travel. The UK museum has appointed at short notice a local dignitary who claims high level contacts, as its representative to negotiate with the Head of Antiquities in the Culture Ministry. The representative has asked for a substantial fee but assures the UK museum it will be money well spent as he is sure he can negotiate the license. He keeps to his word and the licence is given within a few days of the representative being appointed. Comment The UK museum may have associated itself with bribery as it appears to have appointed an agent without due diligence, who is not an art expert and has been given a substantial fee which allows room for a bribe to be paid. The surprisingly speedy resolution of the matter is a concern as is the involvement of a Foreign Public Official. The museum needs to investigate how the approval was obtained and if bribery is suspected then, subject to legal advice, report the suspicion to the UK authorities.
8.2.2
Joint ventures
Risk: An NFP entering into a joint venture or consortium (‘venture’) will be attaching its reputation to the venture and may also be liable criminally under the Bribery Act and in the civil courts if the venture becomes involved in bribery. Some NFPs, notably universities, are investing in or controlling joint ventures such as overseas campuses and this may involve government support and FPOs. Prevention: If the NFP has effective control of a venture it should require the venture to have policies and procedures that align to the NFP’s anti-bribery programme. As with agents, the NFP should carry out due diligence before entering into joint ventures and should have a procedure to assess the existence and scope of issues that could affect its partners or the operation of the ventures. If an NFP does not have effective control then, following due diligence, it should require the venture to have an anti-bribery programme that is consistent with that of the NFP. Otherwise the NFP might be associated with activities that are of a lesser standard than that it sets for itself. How this is accomplished will depend on the degree of influence that the NFP has and the willingness of its partners to accept an anti-bribery programme. If the partners fail to implement adequate anti-bribery procedures then the NFP may be faced with the difficult task of withdrawing from the venture if it believes that bribery is likely to take place.
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8.2.3
Suppliers and contractors
Risk: Contracting and purchasing are highly vulnerable to bribery and kickbacks. Some NFPs have significant purchases of supplies and services, commission construction projects which are in a sector prone to corruption and they are increasingly outsourcing critical activities such as information technology, research or teaching. Any supplier can be a risk if it is making bribes as part of its association with an NFP. Apart from legal risk, corrupt suppliers are a risk to the NFP’s operations – they represent an unstable supply source with possibly loss of critical supplies owing to bribery investigations, they cannot be relied on in negotiations and they may attempt to bribe employees. Prevention: Due diligence should be applied to prospective suppliers on a systematic, reasonable and proportionate basis recognising that there may be many suppliers in a supply chain. The NFP should communicate its anti-bribery programme to bidders and suppliers, require contractually that suppliers and contractors have adequate anti-bribery programmes and carry out appropriate monitoring to ensure their compliance. 8.2.4
Subsidiaries and investments
Risk: Some universities are forming subsidiaries to carry out commercial ventures and investing also in ventures. The university could be liable legally for the actions of a subsidiary that becomes involve in bribery. An NFP’s reputation is also at stake and dependent on the behaviour of all aspects of its operations including subsidiaries. Prevention: If an NFP has effective control of a subsidiary, regardless of the location of the subsidiary or the nationality of its decision-making management, the NFP should require the same level of implementation of its anti-bribery programme as that of its own. This requirement may be difficult to meet in some countries where anti-corruption efforts are weak and foreign investors are not allowed to hold a controlling interest in local business entities. In an extreme case of concerns that a subsidiary or investment is involved in bribery or other corrupt practices, the NFP may need to contact law enforcement agencies or disengage from the investment. Investments in ventures need attention too, based on due diligence and monitoring, based on a reasonable and proportionate approach. A scandal attached to an investment could be as damaging as if it were a subsidiary.
8.3
Human Resources
Human Resources (HR) is a critical contributor to building the commitment of the NFP’s employees to the no-bribes policy. HR touches on all aspects of implementation of the anti-bribery programme as the programme will succeed only if it has the understanding and commitment of employees. HR policies and procedures should be designed to support the anti-bribery programme. These include recruitment, induction/orientation, training, performance appraisal, recognition, promotion and sanctions procedures. The HR function touches on all aspects of the NFPs’ anti-bribery programme and should contribute to programme in the following ways:
Recruitment: design procedures to recruit people who will meet the NFP’s standard of integrity this includes appropriate due diligence Induction/orientation: include information on values and the anti-bribery programme Contracts: require employees and board members to sign periodically that they have read and understand the NFP’s code of conduct Contribute to the content of communications and training Incorporate integrity performance including anti-bribery in appraisal and recognition – this can assess employees on how they represent the NFP – ‘integrity ambassadors’ – and contribute to improvement of procedures and risk identification
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8.4
Sanctions: provide and communicate clearly to employees the appropriate sanctions that will be applied in the event of a bribery violation – these must be seen to be applied openly and consistently and to support the zero tolerance policy
Internal controls
All NFPs must have internal controls in place to comply with laws and these should be extended to the anti-bribery programme. The NFP’s internal controls must provide reasonable assurance that payments and receipts or use of assets are properly authorised by management and ultimately by the Board. A bribery incident represents a breach of the NFP’s controls. Internal controls systems are the policies and procedures that help ensure that the Board’s and management’s directives are carried out and meet the NFP’s governance policies. Internal controls have been defined as a process, carried out by the board of directors, trustees or equivalent body and implemented by management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in effectiveness and efficiency of operations, reliability of 6 financial reporting and compliance with applicable laws and regulations. Internal accounting controls should be designed to ensure that no one employee has responsibility for more than one step in a transaction. There should be separation of responsibilities with different employees initiating the transaction, physical handling of goods and of cash, authorising or receiving payments and recording the transaction in the books of account. Accurate accounting and record keeping is of the utmost importance as this provides an audit trail and allows checks to be made that proper procedures are being followed. It can also provide evidence in the case of a bribery incident. QUICK START GUIDANCE Your NFP should have internal controls that include checks and balances to prevent bribery and especially check those for purchasing. The controls should include separation of responsibilities with different employees for the various phases of a transaction from its initiation to it being recorded in the books.
. . .the NFP’s internal controls must provide reasonable assurance that payments and receipts are properly authorised by management and ultimately by the Board The Board is ultimately responsible for the system of internal controls although it is customary to delegate to management the task of establishing, operating and monitoring the system. To build the confidence of stakeholders, the NFP should be transparent and disclose in its public reporting an assessment of the effectiveness of its internal controls. As described earlier in this guidance, the anti-bribery controls should be designed based on an assessment of risk of bribery in the NFP’s operations. However, controls in the form of policies and procedures are insufficient on their own. Internal audit is part of internal controls (and also the monitoring and evaluation process). The Board is ultimately responsible for the system of internal controls although it is customary to delegate oversight responsibility to an audit committee and to management the task of establishing, operating and monitoring the system. The internal auditor will report to the audit committee. The internal auditor might look at reputational risk, operational risk or strategic risk. Bribery and related corruption risks will form part of the internal audits. To build the confidence of stakeholders, the NFP should be transparent and in its public reporting give an assessment of the effectiveness of the internal controls.
6 The Committee of Sponsoring Organizations,
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8.5
Stakeholder engagement
Stakeholders are those who have a substantive or material interest in the NFP such as employees, government funding departments, corporate supporters, international partners and those who use the NFP’s services whether students, overseas communities or arts audiences. The NFP should define which stakeholders are important related to the anti-bribery programme and how they could be involved. This can be in ways such as identifying risk to contributing to the design of the anti-bribery programme. Engagement can range from simply interviewing a few people or by a more extensive process of survey, discussions and focus groups.
8.6
Collective action
When operating in countries with high corruption it can be difficult for organisations to operate or win contracts in an environment where bribes are demanded or solicited at every turn. While large global NFPs may be able to use their reputation, resources and experience to resist attempts at bribery, smaller NFPs will find it less easy to deal with pervasive bribery.
Collective action offers a way for NFPs and others to join together to gain greater strength to counter the threats of bribery Collective action offers a way for NFPs and others to join together to gain greater strength to counter the threats of bribery. Collective action takes many forms depending on the local context, nature of the market or projects, risks of bribery and the mix of available companies and organisations. Examples of three forms are given in the table below. Collective action examples Form Project
Integrity commitment
Advocacy
Description Integrity pacts can be used where the bidders or project participants make a commitment to no bribery with agreed sanctions and an independent external monitor. A range of organisations come together to commit publicly to no bribes – this raises public attention and can pressure governments and authorities to act on anti-corruption NFPs join together to lobby and carry out advocacy on an issue
Examples The building of a university campus or arts centre; commodity auctions such as coffee in Kenya where TI Kenya is the external monitor The Convention on Business Integrity, Nigeria, which includes companies and ministries in its signatories as well as the Lagos Business School Publish What You Pay: a global coalition of 650 civil society organisations working to achieve an open and accountable extractive sector
RESOURCE: COLLECTIVE ACTION Fighting Corruption through Collective Action: A guide for business, World Bank Institute and others, 2008 http://info.worldbank.org/etools/docs/antic/Whole_guide_Oct.pdf
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9 Communication and training MINISTRY OF JUSTICE GUIDANCE: COMMUNICATION, INCLUDING TRAINING (PRINCIPLE 5) “The commercial organisation seeks to ensure that its bribery prevention policies and procedures are embedded and understood throughout the organisation through internal and external communication, including training, that is proportionate to the risks it faces.”
Communication and training are critical areas for countering bribery and form Principle 4 of the MoJ Guidance to the Bribery Act. Advice and whistleblowing channels are an important aspect of communication and are described in Section 9.3. Public reporting is important in letting stakeholders know about the NFP’s anti-bribery policy and programme and how it is progressing. This is described in Section 9.4.
9.1
Communication
Communication and training are critical areas for countering bribery. Communication is the way an NFP will let its employees, volunteers, associates and other stakeholders know its stance on antibribery and the detailed policies and procedures for implementation of the anti-bribery programme. Messages will need to be renewed regularly to ensure employees, volunteers, and contractors working within the NFP do not forget the importance of the anti-bribery programme in their daily work. Emphasis will need to be placed on those employees who are most at risk, such as those in the purchasing department or capital assets procurement.
QUICK START GUIDANCE Include a statement of your policy of zero tolerance of bribery in your employee contract and give a description of the policy and the anti-bribery programme in relevant internal communications. Refer to the policy and anti-bribery programme on your website and describe how it is put into practice. Incorporate reference to the anti-bribery programme in your training. NFPs with low risk may not wish to invest in developing anti-bribery training but can look to sector associations to provide resources or work with other NFPs to provide joint training. TI-UK provides a free training module. Internal communications can often have external impact and in turn external communications may be seen by employees. The information provided through internal communication should include responsibilities, internal controls, how to use advice and hotlines, particular areas of risk such as hospitality, gifts, facilitation payments and sanctions for breaches of policies. Board members and employees should be required to sign regularly that they have read and understood the code of conduct including the anti-bribery programme. Surveys can b carried out to check that employees understand the responsibilities and issues attached to anti-bribery conduct. Communications should be adapted in content and language to reflect varying audiences, localities, languages and countries. The channels can include websites, intranet, mobile technology, postings on bulletin boards, handbooks, employee manuals, newsletters, employee meetings, hot lines and help lines, annual reports and sustainability reports. External communication of the anti-bribery programme emphasises the NFP’s commitment to not tolerating bribery and allows funders, sponsors, associates and the public to understand the ways in which it is addressing the issue. In this way the NFP can build the confidence of stakeholders in its anti-bribery measures and at the same time deter those who might wish to solicit bribes. Public reporting is a significant way of communicating externally and is described in Section 9.4.
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9.2
Training
All employees and Board members should, as part of regular organisational training, receive information about the anti-bribery programme. They should be required to attend training courses within a short period after launch of the anti-bribery programme. This will enable the core content of the anti-bribery programme to be communicated but importantly will allow employees to understand the programme in depth discuss any issues or concerns. The feed-back from the training will be valuable in indicating how well received it is by employees and may also help in shaping improvements to the programme. Formal training can be supplemented by informal gatherings at which employees can exchange experiences and solutions. This can overcome initial reactions to the effect that guidance material is theoretical, impractical and not relevant to the individual employee. Recruits (including appointments to the Board) should be given training in the programme following joining the NFP. Tailored training should be provided for functions which have particular needs and risks such as procurement, those who manage overseas contracts, managing projects or agents or employees who travel to or work in countries known to have corruption risks. Training should also be considered for important associates such as project partners or agents . CASE STUDY 6: GOOD PRACTICE COMMUNICATION AND TRAINING A charity works in education in sub-Saharan African countries. Its anti-bribery programme delivers workshops that introduce the definitions and legal implications of bribery; an anti-bribery champion is appointed from each office; and country-specific example scenarios and proven methods of resisting bribery are appended to the policy. The content of training should cover the policies and procedures and what this means in practice for employees. Case studies and dilemmas are valuable in presenting issues and taking employees through the complexities of situations they may meet. Negotiation training can be given where employees are likely to face demands or extortion (for instance when faced by physical threat). The training should explain how to seek help or advice or raise concerns.
RESOURCES: TRAINING Doing Business without Bribery, Transparency International UK, 2012 http://www.doingbusinesswithoutbribery.com/ http://www.transparency.org.uk/our-work/publications/94-ti-uk-doing-business-without-briberytrainers-handbook RESIST: resisting extortion and solicitation in international transactions. A company tool for employee training, Transparency International and others, 2012 http://www.transparency.org/whatwedo/pub/resist_resisting_extortion_and_solicitation_in_internat ional_transactions
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9.3
Advice and whistleblowing channels
Advice lines and whistleblowing channels can have an important role in an effective anti-bribery programme and many bribery violations have been exposed through whistleblowing. While attention is largely given to whistleblowing channels, management should encourage employees to use the advice lines before considering raising a matter in the whistleblowing channel. Very often an employee’s concern may be simply getting advice on how to deal with a dilemma or interpretation of a policy. The whistleblowing line should be designed for raising concerns or allegations. Whistleblowing channels can also be made available for third parties such as suppliers or project partners. Advice and whistleblowing channels should be confidential or anonymous according to the laws of the particular jurisdiction. The use of whistleblowing channels is growing, fostered by legislation such as the UK Public Interest Disclosure Act (PIDA) 1998 which applies across the private and voluntary 7 sectors as well as to public bodies. QUICK START GUIDANCE If your NFP already has advice and whistleblowing channels then include provision for reporting concerns about bribery. If such channels are not in place you could consider introducing them to your NFP as they have wider value than just inquiries and concerns other than just those relating to bribery. It should be made clear that the use of whistleblowing channels is encouraged and employees and volunteers will not be victimised or suffer for whistleblowing. If whistleblowing channels are not effective, employees lack confidence in the confidentiality or think they could be penalised, the danger is that employees will go outside the organisation to media. Such an outcome would be unsatisfactory for the NFP and also for the employee as there would not be an ordered way in which the concern could be addressed. Thus, it is in the interest of all parties that whistleblowing channels work well. Responsibility for managing the advice and whistleblowing channels should be allocated to a staff unit, which will report on the management and performance of the channels to senior management or a Board member. It could be decided that greater confidence would be provided to employees if the whistleblowing channel were to be supplied by an independent provider appointed by the NFP. Security can be provided, for example by confidential telephone services or intranet sites through which employees and partners can address concerns or pass information. To make such services effective, genuine concerns must be listened to and acted upon in a timely manner. Reports should be given periodically to senior management and possibly the Board on the issues raised, the actions taken and the promptness with which inquires were dealt and the satisfaction levels of users of the channels. There should be a system in place for proper documentation and filing of the concerns raised; their handling and the outcomes. The experience gained from the advice lines and whistleblowing channels can be used to improve the anti-bribery programme. RESOURCES: WHISTLEBLOWING Whistleblowing Arrangements Code of Practice, PAS1998/2008, BSI, The Code was drafted by Public Concern at Work http://www.pcaw.org.uk/bsi International Chamber of Commerce Guidelines on Whistleblowing http://www.iccwbo.org/Advocacy-Codes-and-Rules/Document-centre/2008/ICC-Guidelines-onWhistleblowing/
7 http://www.legislation.gov.uk/ukpga/1998/23/section/1
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9.4
Public reporting
Public reporting is an aspect of external communication. This is regular reporting to stakeholders on the NFP’s anti-bribery programme and its progress. Reporting can be in the Annual Review or Sustainability Report if you produce one. SIGNPOST Whether large or small, the NFP should report regularly to its stakeholders on its achievements, sustainability and risks and issues. There has been substantial growth in public reporting by organisations including NFPs. Stakeholders are expecting greater transparency of organisations on how they act responsibly and sustainably on material topics and the risks that could affect achievement of organisations’ aims. Public reporting is important to countering bribery as transparency is a defence against corruption. Reporting can give confidence to stakeholders on the NFP’s anti-bribery measures and performance enhance the reputation of the NFP for not paying bribes and assist in deterring attempts at bribery by making known the commitment of the NFP to not paying bribes. Reporting also drives performance. Stakeholders wish to be able to find easily the information they need and the Global Reporting Initiative (GRI) was formed for this purpose. Many organisations align their reporting to the GRI Sustainability Reporting Framework which includes integrity and anti-corruption indicators. It has also developed sector supplements including one for NGOs. Amnesty International and WWF International report aligned to the Supplement Framework, A small number of universities report against the GRI Framework including the University of Massachusetts Dartmouth and Ball State University. Reporting by an NFPs should reflect its size, nature of the organisation and the demands of its stakeholders. Consideration should be given to publishing not only the code of conduct and antibribery policies but the risks identified and the effectiveness of measures being taken. Large charities are already required by law to report on their risks. RESOURCES: PUBLIC REPORTING NGO Sector Supplement, Global Reporting Initiative https://www.globalreporting.org/reporting/sector-guidance/ngo/Pages/default.aspx Global Compact-Transparency International Reporting Guidance on the 10th Principle against Corruption http://www.unglobalcompact.org/docs/issues_doc/AntiCorruption/UNGC_AntiCorruptionReporting.pdf
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10 Due diligence MINISTRY OF JUSTICE GUIDANCE: DUE DILIGENCE (PRINCIPLE 4) “The commercial organisation applies due diligence procedures, taking a proportionate and risk based approach, in respect of persons who perform or will perform services for or on behalf of the organisation, in order to mitigate identified bribery risks.”
QUICK START GUIDANCE Make sure potential associates are bona fide by simple checks such as references and web searches. Require payments to be made through banks. Proposals that payments or fees should be made in cash will be a red flag. Due diligence on associates is a key part of adequate procedures. The Ministry of Justice Guidance to the Bribery Act states: ‘Due diligence procedures are both a form of bribery risk assessment and a means of mitigating a risk. By way of illustration, a commercial organisation may identify risks that as a general proposition attach to doing business in reliance upon local third party intermediaries. Due diligence of specific prospective third party intermediaries could significantly mitigate these risks. The significance of the role of due diligence in bribery risk mitigation justifies its inclusion here as a Principle in its own right’. Even so, the Baker Tilley survey found that only a third of charities surveyed conducted due diligence on partners, staff, agents, suppliers, beneficiaries and countries, with similarly low numbers having 8 implemented a range of other measures.
“. . . only a third of charities surveyed, conducted due diligence on partners, staff, agents, suppliers, beneficiaries and countries . . .” Baker Tilley 2012 The NFP should have a policy and procedure for due diligence to be carried out before entering into relationships and for it to be repeated periodically. The Ministry of Justice Guidance advises that due diligence should be applied to prospective associates on a systematic, reasonable and proportionate basis. Anti-bribery due diligence is the research, investigation, assessment and monitoring of relationships to ensure that the NFP is associated only with organisations and personnel that will behave in a manner consistent with the NFP’s anti-bribery programme. As an NFP will have a number of relationships where risk could apply, it should have a procedure to decide the scope and depth of due diligence for each. This could range from required in-depth due diligence on all agents being appointed in countries prone to corruption to selective due diligence assessed on the significance of a supplier to the continuity of the NFP’s work. Due diligence may be carried out by the NFP or consultants or a combination of both. The process will check on the capabilities of the partner, the adequacy of its anti-bribery programme and whether there are any known concerns or ‘red flags’ such as the presence on its board of an FPO, ‘shadow directors’ or a history of past bribery. The NFP should consider the extent to which it should apply ‘know-the-party’ due diligence as a consistent procedure when entering into an association with an organisation. It should also decide if it should repeat due diligence on associated organisations periodically. When carrying out due diligence check the following:
Prospective associates are reputable and financially sound and have the resources and expertise to be able to carry out their activities for the NFP
8 Managing charities – Risks and opportunities: a leadership survey, Baker Tilley, Winter 2011/2012
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No past or current allegations of corruption, convictions or prosecutions involving other parties, their boards, officers or employees Prospective associates have adequate anti-bribery programmes Bribery is not part of the potential associate’s activities e.g., a group of proposed students is sponsored by a company and there is suspicion they have been sponsored as bribes for parents who are the company’s customers That the funds or assets brought by an associate are not from money-laundering of the proceeds of crime or bribery Whether potential joint venture partners are government owned - distribution of payments to officials who act as directors or officers of the joint venture could be construed as improper payments Whether there are FPOs involved with the associate Whether people in relevant business sectors, embassies and business associations are aware of any potential issues or concerns
RESOURCE: DUE DILIGENCE Anti-bribery due diligence for transactions, Transparency International UK, 2012 http://www.transparency.org.uk/our-work/publications/10-publications/227-anti-bribery-duediligence-for-transactions
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11 Monitoring and evaluation MINISTRY OF JUSTICE GUIDANCE: MONITORING AND REVIEW (PRINCIPLE 6) “The commercial organisation monitors and reviews procedures designed to prevent bribery by persons associated with it and makes improvements where necessary.” Monitoring and evaluation is the stage where the NFP checks the degree to which its anti-bribery programme is working effectively, meeting the anti-bribery objectives of the NFP and is in compliance with the Bribery Act and other laws. NFPs operate within ever-changing environments, internally and externally, and the monitoring and evaluation process should be regular and used to generate any necessary improvements. Lessons will be learned from incidents whether allegations without basis or actual bribery incidents. QUICK START GUIDANCE Appoint a person to be responsible for ensuring periodic reviews to check that the bribery risks remain low and that the existing anti-bribery programme is adequate. Look out for changes in circumstances such as starting activities involving overseas countries. Document all reviews and make reports periodically to the Board. Obtain an independent view if you can or benchmark peer NFPs to check that your approach is appropriate and working. The NFP should assign responsibility for monitoring the anti-bribery programme to a senior manager. The Board (or a Board committee) should carry out oversight of the effectiveness of the anti-bribery programme. The Board should receive reports on the results of regular monitoring, internal audits, external assurance and reviews and assessments by management and details of actions they have initiated. The reports should identify deficiencies and recommendations for actions and improvements. It is the responsibility of the Board, in discussion with management, to decide whether actions taken were appropriate to deal with the risks and to improve the effectiveness of the antibribery programme and what further steps are necessary. Internal audit Internal audit is part of the monitoring process. It is usual for internal auditors to conduct operational as well as financial audits. In some organisations the internal auditor is also involved in an advisory capacity when employees have concerns about the propriety of a transaction or seek guidance. Certification and independent assurance Certification and independent assurance are part of monitoring. An independent review can assure the Board and management about the design and working of the anti-bribery programme, contribute to the programme’s improvement and help promote the reputation of the NFP for integrity. Certification or assurance can also be valuable when seeking grants and donations as evidence of the quality of the NFP’s systems. Certification and assurance of anti-bribery programmes are in their early stages but NFP’s may wish to consider undertaking certification using the British Standards Institute anti-bribery certification standard published in 2011. The International Standards Organisation is developing a global certification standard. Transparency International has published a Framework for Corporate Anti-bribery Assurance but such assurance of anti-bribery is in its infancy. RESOURCES: CERTIFICATION AND ASSURANCE BSI 10500 Specification for an anti-bribery management system (ABMS), BSI, 2011 http://shop.bsigroup.com/ProductDetail/?pid=000000000030238856 Assurance Framework for Corporate Anti-bribery Programmes, Transparency International, 2012 http://www.transparency.org/whatwedo/pub/assurance_framework_for_corporate_anti_bribery_pro grammes
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Managing and learning from allegations or incidents of bribery A zero tolerance policy for bribery does not guarantee that an NFP will be free from bribery. Incidents may occur and can range in severity from a small facilitation payment to large systemic bribery used to win contracts. NFPs should have in place procedures to manage and learn from incidents. The 2012 Baker Tilley survey of 120 charities showed that just under half of respondents had a Major Incidence Response Plan for any allegation of fraud and corruption but only 44% of these indicated 9 that their plan was comprehensive. Incidents can be brought to light in many ways. These can include self-assessment, internal audits and external assurance, allegations made through the whistleblowing channel, comments made by employees and third parties such as media, fellow NFPs, associates or members of the public. The reports may vary in substance from vague allegations to charges supported by substantial documented evidence. The NFP depending on its exposure to bribery should design procedures to respond to an incident should it occur. The procedures should cover the following aspects:
Notification to senior management and the Board Appointment of a manager to handle the incident response An internal and external communication plan which can be adjusted according to the severity of the incident Immediate and thorough investigation initiated as soon as the allegation or incident is found or notified – delay can result in loss of evidence, aggravation of an offence, uncertainty among employees and exposure to adverse media comment Consultation with legal advisers to decide if an allegation is of sufficient weight and credibility 10 to merit reporting to the UK authorities and if relevant, to authorities in other jurisdictions such as the US Department of Justice – then, if judged to be required, report the incident Documentation of the investigation Application of appropriate sanctions Using the experiences to improve the anti-bribery programme and develop case histories for use in training
A critical decision for the NFP when becoming aware of an allegation of bribery is to decide whether to self-report to the authorities. Legal advice should be sought on this. The concern for the NFP is whether the incident has substance or is a vague allegation and whether it involves a material bribe. In this context, the SFO may act in relation to violations of other UK laws such as the Proceeds of Crime Act or money laundering legislation or report the incident to overseas jurisdictions laws. 11
The SFO published updated guidance on self-reporting in October 2012 in which it indicated that commercial organisations should self-report but even so, self-reporting would be no guarantee that a prosecution would not follow. Each case would turn on its own facts. The SFO stated that if there were a realistic prospect of conviction, it would prosecute if it were in the public interest to do so. The fact that a corporate body had reported itself would be a relevant consideration to the extent that, for a self-report to be taken into consideration as a public interest factor tending against prosecution, it must form part of a "genuinely proactive approach adopted by the corporate management team when the offending is brought to their notice". For NFP’s that have operations that could bring them under the jurisdiction of the US, the guidance is clearer from the Department of Justice and the Securities and Exchange Commission. They advise that
9 Managing charities – Risks and opportunities: a leadership survey, Baker Tilley, Winter 2011/2012 10 Employees and others may also be obliged to report under money laundering regulations. 11 http://www.sfo.gov.uk/bribery--corruption/corporate-self-reporting.aspx
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they place a high premium on self-reporting, along with cooperation and remedial efforts, in 12 determining the appropriate resolution of FCPA matters.
SIGNPOST If an NFP finds an allegation of bribery then, subject to the nature of the incident and legal advice, it should self-report to the SFO and other relevant authorities. Failure to do so with subsequent discovery by the SFO of the incident could lead to a hostile prosecution by the SFO with more severe penalties than if convicted following self-reporting.
RESOURCES: SELF REPORTING Compliance Toolkit, Chapter 3 – Fraud and financial crime, Section H, p43, Charity Commission
http://www.charitycommission.gov.uk/our_regulatory_activity/counter_terrorism_work/complianc e_toolkit_index_3.aspx
FCPA Compliance Guidance 2012, Self-Reporting, Cooperation, and Remedial Efforts, p 54, US Department of Justice and Stock Exchange Commission, 2011 http://www.sec.gov/spotlight/fcpa/fcpa-resource-guide.pdf.
12 A Resource Guide to the U.S. Foreign Corrupt Practices Act, The Criminal Division of the U.S. Department of Justice and the Enforcement Division of the U.S. Securities and Exchange Commission http://www.sec.gov/spotlight/fcpa/fcpa-resource-guide.pdf
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Checklist A checklist of around 70 self-assessment indicators will be provided in the final version.
Annex I: the legal context A section describing the UK Bribery Act will be provided in the final version.
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BACKGROUND INFORMATION Transparency International is the world’s leading non-governmental anti-corruption organisation. With more than 90 chapters worldwide, and an international secretariat based in Berlin, TI has global influence and extensive expertise. Transparency International UK is the UK chapter of Transparency International and is dedicated to combating corruption in the public and private sectors by building constructive partnerships and developing practical tools to tackle corruption. Author: Peter Wilkinson Publisher: Transparency International UK
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