Corruption Risk Assessment

Jasmeet Wadehra

General Counsel

International Paper – India

Corruption Risk Assessment

Law Enforcement and Regulators

Need to focus time, effort and resources

Supports risk awareness and structured

decision making

Highlighted in FCPA & Bribery Act guidance

Complexities of multi-jurisdiction business

Ministry of Justice (out of 6 key principles) lists risk assessment :

• “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.”

FCPA Guidance highlights importance of risk assessment: “Assessment of risk is fundamental to developing a strong compliance program...

One-sizefits-all compliance programs are generally ill-conceived and ineffective because resources inevitably are spread too thin... Devoting a disproportionate amount of time to policing modest entertainment and gift-giving instead of focusing on large government bids, questionable payments to third-party consultants, or excessive discounts to resellers and distributors may indicate that a company’s compliance program is ineffective.”

Source: Transparency International UK’s Diagnosing Bribery Risk: Guidance for the Conduct of Effective

Bribery Risk Assessment

Reputation

Compliance with laws and avoiding prosecutions or fines

Conducting business ethically

Revenue, profitability and share value targets

CSR and/or Sustainability

Maintaining strong relationships with government and/or business partners

Fulfilling ethical compliance requirements imposed by a customer

Access to particular markets (e.g. public procurement opportunities within the EU)

Defining acceptable levels of variation in

performance

Zero tolerance – a misnomer?

Example: Determining limits of gifts &

entertainment, disclosure decisions, etc.

Acceptance – treating a risk and its consequences as a cost of doing business (for non critical matters)

Avoidance – decision to cease a particular activity or exit a market to eliminate risk completely

Reduction – implementation of programs, processes and controls to reduce risk to acceptable levels

Sharing – includes insurance, outsourcing, joint ventures and other forms of business partnering

Cost/benefit analysis of responses to risks

Internal

• Line managers

• Functional managers External

• Opinion releases and similar sources from the DoJ and SEC

• Past legal cases relevant to the business

• Guidance from industry bodies

• Professional advisers

• Independent experts such as NGOs

• Customers

• Peer companies

• Embassies/consulates

• Industry bodies

Open consultation helps in sending right signals.

Modes include workshops, interviews, questionnaires or risk template to be filled in by

information providers (Validation important)

TI Corruption Perceptions Index

TI Bribe Payers Index

TI Global Corruption Barometer

TI National Integrity Studies

World Bank Governance Indicators World Bank Ease of Doing Business Report

Categories (UK MOJ Guidance)

• Country risk

• Sectoral risk

• Transactional risk

• Business opportunity risk

• Business partnership risk

Enforcement of anti-bribery legislation

Lack of transparency in business dealings

Impenetrable bureaucracies

Need to use intermediaries to gain access to people in positions of

power

Lack of an established rule of law

Lack of a truly independent and impartial judiciary

Lack of effective democratic institutions

Lack of independent media

Pressure to conform to specific cultural norms and customs or

unfamiliar business practices

which may conflict with applicable anti-bribery laws

The prevalence of requests to make ‘grease’ or ‘facilitation’

payments’ to expedite processes.

• There is regional variation within countries

• Risks may vary significantly between sectors and business models

Requirement to operate in high risk countries High degree of government interaction High levels of regulation High value, complex and/or long term contracts Multiple business partners, stakeholders and/or

complex contractual or corporate structures

Examples: Extractive industries Large scale infrastructure

Subject matter of transaction Identity and nature of counterparty Degree of transparency Criticality of supply of services/goods

(importance/urgency)

Examples: Sales to government customers, particularly in higher risk countries Gifts, hospitality and travel expenditure Use of company assets for the benefit of third parties Charitable and political donations Sponsorships Giving employment to persons connected with government officials Obtaining licences, permits and regulatory clearances of any kind Movement of goods across borders and related activities Lobbying governments on policy, legislation and/or regulations

MoJ Guidance defines this risk as follows:

Such risks might arise in high value projects or with projects

involving many contractors or intermediaries; or with projects which

are not apparently undertaken at market prices, or which do not have

a clear legitimate objective

Examples:

Costs of goods or services out of proportion to value received

Intermediaries or other third parties whose contribution is unclear

The procurement of goods or services with uncertain purpose

Intermediaries Sales agents, distributors, contractors and sub-contractors, customs

agents and freight forwarders, lobbyists, lawyers, tax advisers, advertising agents, event organisers, visa agents, introducers, consultants

Joint Ventures

• certain markets may have this as the only option of doing business

• liability for acts of venture or partner

• legal form, control, etc. are important considerations

Consortia

Likelihood

Impact

3D approach

Mapping risks to controls

Gap analysis

Remediation

Follow up, monitoring and enforcement

Reporting

Risk Id Risk Area Description Active/

Passiv

e

Public/Pri

vate

Risk

Rating

Business

Unit/

Function

Associated

Parties

1 Cash

Payments

2 Gifts

3 Travel,

Hospitality,

Entertainmen

t

4 Sponsorship

s and grants

5 Charitable

donations

6 Political

donations

Risk Id Risk Area Description Active/

Passiv

e

Public/Pri

vate

Risk

Rating

Business

Unit/

Function

Associated

Parties

7 Discounts

and rebates

8 Employment

9 Sales

10 Customs

11 Lobbying

12 Licenses and

permits

13 Tax

14 Legal

disputes

15 Anti-

Counterfeitin

g

Risk Id Risk Area Description Active/

Passiv

e

Public/Pri

vate

Risk

Rating

Business

Unit/

Function

Associated

Parties

16 Joint

ventures

17 Acquisitions

18 International

mobility

19 Security

20 Corporate

Social

Responsibilit

y

21 Intermediarie

s

22

23

Q & A