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The management of corruption risks in the IBEX 35 companies.

Analysis of the quality

of the information

Analysis of 2016

Executive summary

2 The management of corruption risks in the IBEX 35 companies

About Observatorio de RSC

The Observatorio de RSC was created in 2004 by several organizations that were already working independently in the study and promotion of CSR. The actual member organizations are Alianza por la Solidaridad, Anesvad, Ayuda en Acción, Cáritas, CECU, CCOO, Spanish Red Cross, Economistas sin Fronteras, Entreculturas, Fundadeps, Manos Unidas, Oxfam Intermón, USO and ONGAWA. Since its inception, the Observatorio de RSC has published several reports and held numerous meetings. It also takes part of international networks such as the European Coalition for Corporate Justice and OECD Watch.

About the Project team

Director: Orencio Vázquez Oteo.

Coordination: Ana Illescas y Elena Salgado.

Analysis Team: Eva Algaba, Inmaculada Salve, Ana Bravo Acha, Mario Enrique Sánchez Ritcher, Ana Illescas Núñez, Renato Siboni, Andrés Lara, Oscar Sierra Martín, Ester Oliveras, Carlos Soria Cáceres, Concepción Sacristán, Marta Sosa, Elena Salgado, Mercedes Torras Montoya, Gaia Salizzoni, Costanza Tesei, Orencio Vázquez Oteo.

Study carried out with funding from the Spanish Ministry of Employment and Social Security


I. OBJECTIVE AND METHODOLOGY .................................................................. 4

OBJECTIVE AND METHODOLOGY Methodology 5

II. EXECUTIVE SUMMARY ................................................................................... 7

EXECUTIVE SUMMARYTotal Scores 8

EXECUTIVE SUMMARYCommitment and total score 9

EXECUTIVE SUMMARYPerception of corruption 10

EXECUTIVE SUMMARYInternational Presence 11

III. BREAKDOWN OF THE MOST RELEVANT INDICATORS .............................. 13

MOST RELEVANT INDICATORSInstitutional coherence 13

MOST RELEVANT INDICATORSDue diligence 19

MOST RELEVANT INDICATORSTaxation and money laundering 24

EXECUTIVE SUMMARY Taxation and money laundering 26

MOST RELEVANT INDICATORSAccountability 30

31

ANNEXES .......................................................................................................... 37


I. OBJECTIVE AND METHODOLOGY

The objective of the study is to evaluate, through the analysis of relevant indicators, the degree of companies’ public commitment to the fight against corruption and to assess the degree of information they provide as regards bad business practices in the various territories where they operate. These indicators incorporate economic information, information on the various forms of corruption, and on the use of different control mechanisms such as independent directors, lobbying or the contributions to political parties and fiscal strategy. The analysis is carried out from a Corporate Social Responsibility (CSR) perspective.

The study also seeks to assess the extent to which information provided as regards of corruption prevention mechanisms is incorporated in specific documents beyond the annual accounts and whether reference is made to it in the social responsibility reports. The purpose of this study is not to evaluate the veracity of the published data, nor the real implementation of the policies and processes identified by the companies in their reports.

The documents considered in the analysis are, among others, the annual accounts, corporate governance reports, tax policies, CSR policies, board of director’s regulations, audit committee reports and corporate responsibility reports relating to 2016.

The objective of the study "The management of

corruption risks in the IBEX 35 companies. Analysis of the quality of the information

provided as of December 31, 2016”, is to evaluate the

quality of the information provided by companies

included in the IBEX 35 stock exchange index, on aspects

related to corruption and bad business practices from a

broad perspective.


OBJECTIVE AND METHODOLOGY Methodology

Table.1 Dimensions and key analysed indicators

INSTITUTIONAL POSITIONING AND COHERENCE

Commitment Leadership Independence of directors Conflicts of interest within the Board

of Directors Revolving doors Risk management within the Board Lobby Management of lobby activity

DUE DILIGENCE

Anti-corruption policy Facilitation payments Hospitality, gifts, travels y

entertaining Conflicts of interest Political parties’ contributions Donations and sponsorship Corruption risks Anti-corruption programme Anti-corruption training Supply chain management Market competition

TAXATION AND MONEY LAUNDERING

Presence in tax havens Presence in tax niches Activity in tax havens/niches Volume of operations in tax

havens/niches Subsidies and state aid Corporate structure Tax rate Money laundering and terrorist

financing

DETECTION, ACCOUNTABILITY AND RESPONSE

Non-financial controls Financial controls Legal Auditing Anti corruption auditing Fines, judicial rulings and disputes Management of irregular practices Transparency Law Whistle blower channel


OBJECTIVE AND METHODOLOGY Methodology

Each indicator is evaluated based on whether it meets the demanded requirements. If the indicator is met, the depth of the information is analysed in relation to the aspect under analysis. The gradient ranges from 1, -equivalent to scarce information-, to 4, -equivalent to complete information-.

The magnitude of the analysis covers the 35 companies of the IBEX 35 index pertaining to six activity sectors:

Incomplete information

Complete Information

Scarce information

Anecdotic information

Basic Materials, Industry and Construction

Financial and real state

ICTs Oil and Gas Consumer services

Consumer goods


II. EXECUTIVE SUMMARY

HOW TRANSPARENT ARE THE LARGEST SPANISH COMPANIES? The table below shows the ranking of the IBEX 35 companies in terms of transparency. Following the scale of 0 to 4, companies with a higher score demonstrated a higher level of transparency in 2016.

Table 2. Final score of IBEX 35 companies.

Source: prepared by the authors based on results.

COMPANY IC DD TM A TOTAL

REPSOL 1,25 1,45 0,88 1,00 1,18

IBERDROLA 1,50 1,45 0,63 1,00 1,18

ENDESA 1,13 1,18 1,29 0,57 1,05

ARCELORMITTAL 1,38 1,45 0,00 0,88 0,98

ENAGÁS 1,25 1,09 0,43 0,88 0,93

RED ELÉCTRICA 1,00 1,36 0,43 0,71 0,93

GRIFOLS 1,13 1,55 0,00 0,71 0,92

GAS NATURAL FENOSA 0,88 1,09 0,88 0,50 0,86

ACCIONA 0,88 1,45 0,13 0,63 0,84

INDRA 1,13 0,82 0,75 0,50 0,80

TELEFÓNICA 1,13 1,00 0,00 0,88 0,78

MEDIASET 0,38 0,55 1,57 0,50 0,72

BBVA 0,88 0,82 1,00 0,14 0,72

GAMESA 1,25 0,82 0,38 0,25 0,69

ABERTIS 1,13 0,73 0,14 0,71 0,68

CELLNEX 1,25 0,73 0,14 0,57 0,68

INDITEX 1,13 0,82 0,13 0,57 0,68

CAIXABANK 0,88 0,82 0,29 0,63 0,67

COMPANY IC DD TM A TOTAL

BANKIA 0,88 0,38 0,63 0,60

BANKINTER 0,50 0,27 1,14 0,38 0,54

AENA 0,63 0,18 0,50 1,00 0,54

DIA 0,88 0,64 0,14 0,43 0,53

BANCO SANTANDER 0,75 0,36 0,88 0,00 0,48

BANCO POPULAR 0,25 0,45 0,57 0,57 0,46

ACERINOX 0,63 0,55 0,29 0,25 0,44

ACS 0,50 0,55 0,38 0,25 0,43

MAPFRE 1,00 0,27 0,38 0,14 0,43

MELIÀ 0,50 0,27 0,13 0,57 0,36

IAG 0,50 0,55 0,00 0,25 0,35

FERROVIAL 0,63 0,09 0,00 0,25 0,23

BANCO SABADELL 0,25 0,18 0,29 0,14 0,21

MERLIN PROPERTIES 0,25 0,27 0,00 0,29 0,21

AMADEUS 0,25 0,36 0,00 0,14 0,21

VISCOFÁN 0,38 0,18 0,29 0,00 0,21

TÉCNICAS REUNIDAS 0,13 0,27 0,00 0,00 0,12

IC Institutional Coherence DD Due Diligence TM Tax and Money Laudering A Accountability


EXECUTIVE SUMMARYTotal Scores

0 1 2 3 4

Graphic 1. Total score

Source: prepared by the authors based in results.

It Is important to remark that even the companies that have obtained the best scores in the report do not reach what is considered to be a satisfactory level of information- three are the companies that have a score higher than 1.

0 0,2 0,4 0,6 0,8 1 1,2 1,4

TÉCNICAS REUNIDASAMADEUS

BANCO SABADELLMERLIN PROPERTIES

VISCOFÁNFERROVIAL

IAGMELIÀ

ACSMAPFRE

ACERINOXBANCO POPULAR

BANCO SANTANDERDIA

AENABANKINTER

BANKIACAIXABANK

ABERTISCELLNEX

INDITEXGAMESA

BBVAMEDIASET

TELEFÓNICAINDRA

ACCIONAGAS NATURAL FENOSA

GRIFOLSENAGÁS

RED ELÉCTRICAARCELORMITTAL

ENDESAIBERDROLA

REPSOLMEDIA

Media IBEX 35: 0,62

EXECUTIVE SUMMARYCommitment and total score

The following graphic represents the correlation between the public commitments assumed by the IBEX 35 companies and the overall score obtained in the report. The trend line confirms the relationship between the two variables.

Graphic 2. Corporate commitment zero tolerance/ final score


0

0,2

0,4

0,6

0,8

1

1,2

1,4

0 0,5 1 1,5 2 2,5 3 3,5 4

Tota

l sco

re

Zero tolerance commitment towards corruption

BBVA and Caixabank stand out for showing a high commitment of zero tolerance towards corruption. However, the total score obtained is low.

Técnicas Reunidas obtains 0 in commitment and 0,12 in the overall score.

Iberdrola has 4 in commitments and 1,18 in the overall score.

Técnicas Reunidas

Iberdrola

ArcelorMittal

BBVA

Caixabank

Banco Popular


EXECUTIVE SUMMARYPerception of corruption

The following table reports the business activity sectors identified by Transparency International (TI) in its Bribe Payers Index (BPI) in relation to its level of exposure to corruption risks. The sectors have a score on a scale of 0-10, where the maximum score of 10 corresponds to those sectors with the lowest level of risk, and 0 corresponds to those sectors with the highest risk of corruption.

In general, a significant correlation has been identified between the level of risk perception and the results obtained in this study, except in the case of the Public Works and Construction sector, which presents the highest level of corruption risk according to the Transparency International scale (5.3 - which corresponds to a high level of bribery) and yet is the sector that obtains the lowest score in the present study, only behind Light Industry, which has a low TI corruption perception index.

Table 3. Perception of corruption and final score

Source: prepared by the authors based on BPI and results.

Sector (BPI) Scores BPI (1 low risk; 11 high risk)

Average Observatorio de RSC

Light manufacturing 1 (7,1) 0,45 ICTs 2 (7) 0,51 Financial and real state 3 (6,9) 0,48 Consumer services 4 (6,8) 0,53 Telecommunications 5 (6,7) 0,73 Heavy manufacturing 6 (6,5) 0,71 Power generation and transmission 7 (6,4) 0,93 Pharmaceutical and healthcare 8 (6,4) 0,92 Oil and gas 9 (6,2) 1,18 Utilities/Power installation 10 (6,1) 1,01 Public works and construction 11 (5,3) 0,46


EXECUTIVE SUMMARYInternational Presence

According to the Transparency International’1 index there is a wide presence of IBEX 35 companies in countries with extreme or high risk of corruption,.

Table 4. International presence

1 https://transparencia.org.es/wp-content/uploads/2017/01/mapa_ipc-2016.pdf

Peru 21

Paraguay 6

Brazil 25

Argentina 17

Ecuador 11

Bolivia 6

Russia 11

China 22

South Africa 10

Angola 2

Egypt 9

Tunisia 6

Morocco 16

Libya 2

Algeria 13

Malaysia 9

Vietnam 5

India 19

Indonesia 8

Thailand 7

Filipinas 6

Honduras 6

Dominican Rep. 11

Colombia 20

Venezuela 12

México 27

Panamá 10

Oman 6

Saudi Arabia 9

Yemen 2

Croatia 5

Bulgaria 8

Romania 10

Hungary 11

Greece 12

Turkey 14

Italy 21


EXECUTIVE SUMMARYInternational Presence

Table 5. Higher presence through partnerships in countries with high and extreme perceptions of corruption


Company Activities in countries with high perception of

corruption/ number of companies

ACS 45

Inditex 44

Amadeus 36

Gamesa 32

ArcelorMittal 27

Company Activities in countries with extreme perception of corruption/ number of

companies

Amadeus 8

ACS 7

Repsol 6

Técnicas Reunidas 2

Banco Santander 2


III. BREAKDOWN OF THE MOST RELEVANT INDICATORS

MOST RELEVANT INDICATORSInstitutional coherence

Zero tolerance to corruption

29 of the analysed companies have a public anti-corruption commitment. In contrast, Bankinter, Banco Sabadell, Merlín Properties, Amadeus, IAG y Técnicas Reunidas do not explicitly show this commitment.

Evidence of board and senior management involvement in the fight against corruption.

Only 24 companies demonstrate a clear position about the leadership of his Administration Council on these issues.

Independence of directors

Enagás stands out for the approval of policies, regulations and code conduct on the part of the Council of Administration that leads the development of strategies and allocation of responsibilities to the different Directions of the group.

IAG does not declare an explicit commitment to tolerance 0 to corruption in any of the documents analysed.

The figure of independent directors emerged as a mechanism for protection and good governance following the scandals that revealed a lack of protection for external investors with respect to the possible opportunism of the company's directors and controlling shareholders (Hay Derecho Foundation). However, the independence of these directors is also essential to ensure that business practices are properly exercised in the company and that they act as a filter or control mechanism for corruption in its different forms. In order to guarantee independence and to enable directors to carry out their monitoring function, it is essential that they do not share links with the company's executives or directors, that they have extensive knowledge of the company's business, that their good repute is proven, that they have sufficient training and information, that the selection and election process is impartial and that their remuneration is adequate and balanced.



Independence of directors: selection process

There are 30 companies that claim to select independent directors for their knowledge and experience in areas considered critical to the company. This represents 85.71% of the total number of IBEX 35 companies.

It should be noted that 24 (68.57%) state that the selection process ensures that the independent director is not affected by relationships or interests that may compromise his or her ability to exercise his or her judgement with impartiality and objectivity, and 20 (57.14%) state that they have processes in place to ensure that independent directors have no family, professional, commercial or other similar ties with those holding executive positions within the company.

None of the IBEX 35 companies provides for the agreement of the minority shareholders represented at the general meeting in the election of the independent director.

Only three of the analysed companies have at least one independent director from outside the corporate world that also has extensive knowledge and experience in corporate integrity.

Independence of directors: training, information and external advice

In order to preserve independence, it is necessary for the company to allow and facilitate the director to acquire the necessary experience through training and external advice. 5 out of 35 companies consider the possibility of training for self-employed workers at the beginning and during their term of office. However, none of the 5 provide details about the frequency, number of hours or the exact training subjects.

ArcelorMittal requires proven international experience, a broad understanding of the industries in which ArcelorMittal operates, and an understanding of the social, political, and environmental challenges and difficulties the company faces. However, they do not provide information on either of the two issues.

Reyes Calderón, an independent director of Banco Popular, has led numerous economic analysis and research projects and has published several articles on topics of interest and specialization: corporate governance, business ethics, codes of good governance, transparency and reputation crises.

Banco Sabadell and Técnicas Reunidas report the existence of two training plans for advisors.

According to several press articles, Jaime Castellanos, independent director of Acciona, maintains a friendly and business relationship with Mr. José Manuel Entrecanales, executive chairman of the company.

Gonzalo de la Hoz, an independent advisor at Bankinter, is also a board member of Bankinter Global Services, S.A. and Director of Línea Directa Aseguradora, S.A., both companies of the Bankinter group. He has been Chief Executive Officer of Línea Directa Aseguradora from May 1995 to February 2008. He was previously Chief Operating Officer (Media) of Bankinter



Although the 35 IBEX 35 companies contemplate the possibility for independent directors to have the advice and assistance of independent third-party experts, none of them report on the use of this service during 2016. This, despite the fact that the profile of independent directors, such as Acciona, is sometimes not based on previous knowledge and experience in the company's areas of activity. Several companies have also been found to limit this possibility in certain cases.

Another form to guarantee a sufficient diligence in the performance of directors’ duties is to guarantee sufficient time to analyse provided information, investigate and prepare the sessions. Only 10 companies undertake to provide information more than 5 days in advance. Considering the complexity and technicality of the issues involved, having less time could hamper the ability to prepare sessions, with effectiveness and due diligence,

Independence of directors: number of independent directors in the board and on key committees

One of the corporate governance recommendations that has been most widely implemented in the practice of the Boards of Directors is that of the number of independent directors representing at least half of the total number of persons in the Board. There are still 16 IBEX 35 companies that do not have a majority of independents on the board. These 16 companies are ACS, Cellnex, Banco Popular, Bankinter, Viscofan, Aena, Caixabank, Mapfre, Gas Natural Fenosa, Inditex, Mediaset, Meliá, Acerinox, Endesa, Ferrovial and Repsol. It would be justified in Aena, Inditex, Meliá and Mediaset as they have controlling shareholders of over 30% of the capital. Meliá and Mediaset as they have controlling shareholders of over 30% of the capital.

Independence of directors: Mandate limitation.

Discussions on the issue have drawn attention to the importance of limiting the term of office of this type of directors. The Capital Companies Law (LSC) establishes that those who have been directors for a continuous period of 12 years may not be considered independent. Only 1 of the 35 companies establishes a shorter term of office than that established by the LSC.

Merlin Properties provides that, in the case of external advice, directors may request the hiring of legal, accounting, financial or other experts at the company's expense. However, the request may be rejected because the cost is unreasonable, may pose a risk to confidentiality, and may be waived by in-house technicians.

Abertis provides directors with documentation one week in advance of the meetings so that they have time to prepare for the session. REC and Gamesa do so six days in advance.

The cases of Gas Natural Fenosa (6 independents in a total of 17) and ACS (4 independent over 16) stand out negatively.

The director and co-founder of Gamesa, Juan Luis Arregui, now an independent director, was appointed to the Board for the first time in 1976.

Indra limits the re-election of independent directors to 3 consecutive terms, a total of 9 years.


MOST RELEVANT INDICATORSInstitutional coherence.

Independence of directors: remuneration

The CNMV Good Governance Code establishes that “the remuneration of the board of directors shall be adequate to attract and retain directors of the desired profile and to reward the dedication, qualifications and responsibility required by the position without compromising the independence of judgment of the non-executive directors”. In this respect, none of the companies analysed provides information that would make it possible to know whether the income received due to their membership to the Board exceeds one fifth of their total annual income or another percentage thereof.

In 6 of the analysed companies the remuneration of the independent directors exceeds the annual average of the Ibex: Inditex (the annual average remuneration of its independent directors is 230.000 euros), Endesa (246.000), Banco Santander (271.890), BBVA (295.880), Repsol (319.500) e Iberdrola (343.180).

Table 6. Average compensation per company (the 12 companies with the highest deviation above and below the total average)

Companies Average salaries (in thousands of euros)

Difference from the total average (175 mil)

Iberdrola 343,18 -168,18 Repsol 319,50 -144,50 BBVA 295,88 -120,88 Santander 271,89 -96,89 Endesa 246,20 -71,20 Inditex 230,00 -55,00


Cellnex 84,00 91,00 Meliá 80,60 94,40 Abertis 70,25 104,75 DIA 65,80 109,20 Merlín properties 48,00 127,00 Aena 10,50 164,50

The average remuneration of independent directors in 2016 was 175,000 euros. A total of five independent advisors, in three societies, had retribution higher than 500,000 euros. These Companies are Banco Santander, Iberdrola and IAG



Independence of directors: dedication

Another issue that may affect the independence and dedication of the independent director is his/her membership to other boards. In this regard the CNMV’s Good Governance Code establishes that the Board should determine in its rules the maximum number of company boards to which its directors may be members.

Only REC establishes that the independent directors cannot take part in more than 2 listed companies’ boards. Aena, Gamesa, Mediaset and Viscofan set the limit in 3 boards. In the upper tier of permissiveness are Amadeus, DIA and IAG, which establish the possibility of their directors to belong to a total of 6 boards.

Revolving doors2

There are 21 IBEX 35 (60%) companies with directors who have held positions of responsibility in the public administration for at least the last 10 years, contrary to the recommendations established by some organisations, including Hay Derecho Foundation and Transparency International. Of these 21 in 17 companies, they are independent. They are Endesa, Banco Sabadell, Repsol, Técnicas Reunidas, Telefónica, Red Eléctrica, Enagás, Iberdrola, Banco Santander, Acerinox, GNF, Amadeus, AENA, Bankinter, Ferrovial, Mediaset and Gamesa.

Lobby

Of the total number of IBEX 35 companies, only 7 provide information on their registration as an interest group in the official registers set for this purpose. These companies are Cellnex, Indra, Telefónica, ArcelorMittal, Gamesa, Iberdrola and Repsol. On the other hand, although they are officially registered in some transparency registers, the following companies do not report their registration.

2 Se define como puertas giratorias aquel fenómeno que hace referencia al movimiento de profesionales entre el sector público y el sector privado con el objetivo de explotar su tiempo de servicio a favor del que sea su empleador actual. En España, el fenómeno de las puertas giratorias en el ámbito estatal está regulado en la Ley 3/2015, de 30 de marzo, reguladora del ejercicio del alto cargo de la Administración General del Estado. La Ley establece limitaciones para el ejercicio de actividades privadas durante un periodo de tiempo determinado con posterioridad al cese del alto cargo. En la ley estatal el periodo establecido es de dos años.

Only Red Eléctrica establishes a limitation of two Board of Directors.

In 2016, Inditex shared two independent directors with other IBEX 35 companies: Pablo Isla, on the Board of Directors of Telefónica, and Rodrigo Echenique, on the Boards of Directors of Merlín Properties and Banco Santander.

Companies with significant public participation such as Indra and REC have persons who have held positions of political relevance in the Public Administration, among their directors



Table 7. Companies registered in transparency registers that do not inform about it in their corporate memories

Company EU Registry CNMC Registry Abertis x Acciona x Aena x

Amadeus x BBVA x Caixabank x DIA x Enagás x Endesa x

Ferrovial x IAG x Mediaset x Red Eléctrica x x Banco Sabadell x Banco Santander

x


The information is practically inexistent in relation to lobbying actions carried out indirectly through business associations or clubs.

Management of lobbying activity

Traditionally, lobbying in Spain has been carried out by trade unions and business/sector organisations. However, there is a growing tendency, especially on the part of large private corporations, to carry out their own lobbying instead of relying on the representation of third parties. In the absence of legislation, it is particularly important for these companies to self-regulate this activity through the approval of a Code of Conduct for lobbyists that establishes the guidelines for action set by the company on its behalf vis-à-vis third parties. Together with specific training on the risks associated with this activity, as well as appropriate control and monitoring mechanisms. Only 2 companies report about an internal lobby management system.

Although voluntary and free of charge, in March 2016, the National Commission on Markets and Competition (CNMC) launched its Register of Interest Groups, whose registration implies adherence to a decalogue of good practices in relations with the public sector and more specifically with the CNMC.

ArcelorMittal devotes a section on its website to describe its positioning and to explain how it performs this practice and where it is registered. Thus, he says that is registered in the EU lobby portal, in the US and in Brazil. It also says to work directly with steel associations in other countries such as Mexico, South Africa, or Ukraine.

Particularly noteworthy is Abertis, who in December 2016 approves the "lobby advocacy" policy, although, for the purposes of this report, it has hardly had an impact. Enagás has established the Code of Conduct for the Transparency Registry of the EU as a frame of reference in its relations with public administrations.


MOST RELEVANT INDICATORSDue diligence

Anti-corruption policy.

Only 13 of the IBEX 35 companies (37.14%) have a specific public policy on corruption. The companies that do have this policy are Repsol, Grifols, Acciona, Caixabank, GNF, REC, Telefónica, Abertis, ArcelorMittal, DIA, Enagás, Endesa, and Iberdrola. Although only three companies extend compliance with the policy to suppliers and business partners, in addition to considering the different types of behaviour, (Telefónica, Enagás and Grifols) and/or mention the material aspects from the point of view of corruption (Grifols).

Facilitation payments3

20 companies report on their position and management of this type of bribery, representing 57.14% of the total number of companies analysed. Of the 20 companies, only 8 extend this commitment to trading partners and/or recognise situations where facilitation payments cannot be avoided, (e.g. where health, safety or welfare is at risk) and define clear procedures on how to deal with these situations. No company provides data by country and/or about carried out evaluations.

3 Facilitation payments are understood as a minor bribe and also called “grease payment’’, made in order to ensure or accelerate the execution of a habitual or necessary act to which the person making the payment in question is already entitled" (Transparency International, Anticorruption Glossary, p.20). The lack of standardization and generalization in the classification of facilitation payments - a company can operate in a country where facilitation payments are strictly prohibited and, in another country, where they are allowed under certain circumstances - causes companies to act with a special diligence and include in its internal rules procedures and commitments that contemplate this type of behaviour.

Técnicas Reunidas and Banco Santander claim they have "anti-corruption policies" but these are not public.

Grifols' policy is open to third parties and also regulates aspects related to the sector of activity (grants, training, medical travel).


MOST RELEVANT INDICATORSDue Diligence

Hospitality, travels, gifts and entertainment

Of the companies that comprise the IBEX 35, 85.71% report on their position and management of these and other special types of expenses. The 5 companies that do not provide information on this aspect are: Banco Popular, Bankinter, Banco Sabadell, Abertis and DIA

Contributions to political parties

There are 27 IBEX 35 companies that report on their position and management of contributions to political parties. Of these, only two extend their public position on the financing of political parties to dependent foundations and candidates. These companies are Acciona and Red Eléctrica, although in the latter case leaves that possibility open to the case of donations to political party foundations when these are used for "purposes aligned with the company's strategy". Those positions that are based on compliance with the relevant legislative frameworks are not clear, as there is a risk of a regulatory vacuum in those countries where party financing is not regulated. This is the route taken by Inditex, Repsol and ArcelorMittal.

Acerinox prohibits any form of gift to Spanish or foreign public officials, auditors, directors of Acerinox and its subsidiaries, or to their family members, that may influence the independence of judgment or induce them to guarantee any kind of favour'.

ACS affirms that it has not made "financial contributions to political parties in 2016“ but does not specify if it extends to foundations and candidates, in fact, the Foundation for Analysis and Social Studies (FAES), linked to the PP, appears as one of the main sponsorships of the ACS Foundation (note 1) during 2016, like the Pablo Iglesias Foundation, linked to the PSOE, in 2015.

The Organic Law 3/2015, of 30 March, on the control of the economic and financial activity of political parties prohibits direct donations to political parties made by private companies. However, these restrictions were

not imposed to political parties’ foundations.

nota 1: http://www.fundacionacs.com/actividades/1.html

nota 2: https://www.vozpopuli.com/economia-y-finanzas/empresas/ACS-Faes-Partido_Socialista_Obrero_Espanol_PSOE-Florentino_Perez-FAES-Fundacion_Pablo_Iglesias-PP-PSOE_0_937406288.html



Corruption risks

Of the total number of the IBEX 35companies, only 10 (28.57%) provide some type of information on corruption risks, although this information is generally not relevant. The companies are: Acciona, ArcelorMittal, BBVA, Enagás, Gamesa, Gas Natural Fenosa, Iberdrola, IAG, Repsol and Telefónica. Most companies do not provide this type of information or refer only to a generic risk identification or assessment, where corruption risks are not identified individually. In some cases, they claim that the risks of corruption are included among the legal risks, but without further detail.

Anti- corruption programme

Of the 35 companies of IBEX 35, only 9 provide information on an Anti-Corruption Programme. The companies that do report are: Acciona, DIA, Endesa, Gamesa, Grifols, Iberdrola, Mediaset, Red Eléctrica and Repsol. In these cases, the information is not very relevant, it is of little detail and is limited in most cases to a referral to the criminal compliance systems, without detailing an anti-corruption programme with lines of action based on a risks map, specific priorities, resources allocated to it, the persons in charge, specificities by areas, business lines and countries, number of evaluations, etc

Iberdrola explains the risk assessment procedure, indicates that it identifies the main markets where it buys supplies and there are corruption risks based on the Transparency International Index, identifying Mexico and Brazil with the highest risk.

Acciona states that it has incorporated new compliance risks in the risk map: corruption in international commercial transactions, alteration of prices in contests and public tenders, bribery and corruption among others.

One of the essential elements within the company’s due diligence process is the assessment of the actual and potential risks that the company faces in its operations and activities. This assessment should be made taking into account variables that have a major influence on the level of risk, such as the sector of activity and size, the countries in which it operates, the scope of its supply chain and whether or not it is linked to public administrations, whether through subsidies, public contracts or loans. The range of corruption risks that the company may face is very wide, including, among others: bribery in all its forms, money laundering, conflicts of interest, alteration of market competition, financing of political parties, their candidates or foundations, or influence peddling, among many other conducts.

ACS does not report about any specific anti-corruption risk assessment. None of the documents analysed (ACS and subsidiaries) mention specific actions to assess corruption risks and other related issues such as fiscal responsibility or respect for free competition.

Arcelormittal indicates that employees who are working in countries considered at high risk of corruption will receive special training in anti-corruption matters, "particularly if they interact with government employees. 76% of employees were trained in 2016.



An important aspect in the crime prevention phase that facilitates the identification and reporting of inappropriate conduct is the deployment of anti-corruption training and awareness-raising activities addressed to all members of the company, both to the Board and to management directors, middle managers and employees. Only 10 companies provide information on anti-corruption training, which represents 28.57% of the total. It should be noted that in most cases the information provided by these companies is limited to presenting general data of training on codes of conduct, without specifying concrete corruption issues, areas, business lines, countries or employee responsibility.

Another relevant aspect is the rise of relocation of work and production centres to countries that are often characterised by cheap labour and vague legislation. Another common practice is the internationalisation of the business, which, in addition to expanding its activities in countries of five continents, also involves the establishment of supply chains of enormous magnitude, leading to complex networks of partners and suppliers. An analysis of the public information for 2016 shows that 17 of the 35 companies analysed provide some type of information on their supply chain management in relation to corruption, among which Iberdrola and Grifols stand out positively.

In general terms, the information provided does not allow to know exactly how the company manages the risks of corruption throughout its supply chain, or whether it effectively controls and verifies the non-existence of non-compliance by third parties within the chain, or whether it has mechanisms in place to respond to possible cases. In some cases, they simply require adherence to the Global Compact.

Market competition

There is a clear intersection between corruption and anticompetitive practices, and this is particularly evident within the area of private contracting. According to Allen, Qian, & Shen (2015), the ideal measure to fight against corruption is to effectively introduce competition among the dominant actors4. In a situation of multiple actors offering the same good or service, prices are established competitively and the pernicious effect of corruption is minimized.

4 Allen, F., Qian, J., & Shen, L. (2015). Corruption and Competition. London: Imperial College London.

Banco Sabadell has a Code of Conduct for Suppliers in which refers the fact that its adherence to the United Nations Global Compact implies its commitment to support and apply the fundamental principles in the fight against corruption.

Iberdrola stands out for the quality of its supply chain management information. It has an explicit commitment; anti-corruption criteria in the selection of suppliers; specific clauses related to the prevention of corruption; an ethical mailbox as a channel of communication with suppliers; and supplier evaluations.



In this context, only 14 of the IBEX 35 companies provide information on any kind of generic commitment to anti-competitive, anti-trust or monopolistic practices, which translates into 40% of all companies. In addition, a large number of companies with a clear position on this also have fines and sanctions or pending legal cases in competition matters. There are practically no samples of policies or procedures aimed at making the commitment not to infringe free competition effective.

Ferrovial has a "Corporate policy on competition", which, however, is not publicly accessible.


MOST RELEVANT INDICATORSTaxation and money laundering

There is a close relationship between operations carried out through tax havens and illicit activities resulting from corrupt or bad business practices. The 75% of international corruption cases occur through companies registered in tax havens, according to Transparency International (TI). We can cite countless cases -Enron, WorldCom, Parmalat, BBVA, Ballena Blanca, Gürtel, Púnica, Malaya- that show that tax havens and, in many cases, other countries that do not have this status under current regulations, are a necessary element in most corruption schemes. It is also surprising to see how territories that are no longer considered tax havens by Spanish and OECD legislation -because they have signed automatic information exchange agreements- still put hurdles to the action of tribunals.5 6.

The Company indicates the tax havens and/or niches7 in which it has presence.

Only 10 companies expressly state, beyond the information appearing in the appendix to the annual accounts, that they are present in tax havens (28.51% of those analysed) and 2 (5.71% of those analysed) do so in relation to their presence in tax niches.

Although the vast majority of the companies analysed do not expressly declare their presence in tax havens and/or niches, 1,380 companies have been identified as being located in tax havens or niches. This represents an increase of 96 companies or 8.4% over the previous year.

5 http://www.vozpopuli.com/actualidad/nacional/Mariano_Rajoy-Andorra-Visitas-Antoni_Marti-visita-oficial-cuentas-Pujol-investigacion_0_769123095.html 6 http://www.diariolanube.com/suiza-se-niega-facilitar-la-justicia-espanola-la-informacion-bancaria-de-barcenas-y-correa/2015/01/16/

7 We consider as tax niches, those territories that are not included in the official tax havens lists but still provide for tax facilities and opacity.

Beyond the presence detected through the annual accounts on niches and tax havens (45 companies), it was found that representatives of Ferrovial Services Australia PTY Limited (100% owned by Ferrovial) declared that the Group had subsidiaries in 2016 in a tax haven (Bahamas) and several tax niches that are not mentioned in the 2016 Integrated Annual Report (Tunisia, Dominican Republic, Bolivia and Uruguay).

1.380 societies in tax

havens/niches in 2016

281 with operational

activity

1.099 without operational

activity in the country


MOST RELEVANT INDICATORS Taxation and money laundering

Most of the analysed companies do not refer to what they consider to be a tax haven or a tax niche. Those who do it just refer to Spanish Government official lists or to those of the OECD. Such is the case of Telefónica, Gamesa, Repsol and Enagás. Endesa is the only company that, in addition to the Royal Decree and the OECD list, also mentions the Tax Justice Network list.

Table 8. The 5 IBEX 35 with mayor presence in tax havens

Company Nº subsidiaries Tax haven/ Niche

Banco Santander 349 Guernsey, Isle of Man, Jersey, USA Delaware, Ireland, Uruguay, Switzerland, Paraguay, Panama, Bahamas, Puerto Rico, Singapore, Malta, South Africa, The Netherlands, Hong Kong, Gibraltar, Dubai, Saudi Arabia, Cayman Island

ACS 197 Saudi Arabia, Barbados, Bermuda, Cyprus, United Arab Emirates, USA Delaware, Philippines, Gibraltar, Mauritius, The Netherlands, Guatemala, Hong Kong, Ireland, Cayman Island, Luxemburg, Panamá, Puerto Rico, Singapore, Dominican Rep., South Africa, Switzerland, Botswana, Uruguay, Islas Fiji, Macao, Dubai

ArcelorMittal 128 Luxemburg, Singapore, Switzerland, South Africa, Saudi Arabia, The Netherlands, Panamá, Bermuda, Mauritius, Hong Kong, USA Delaware, Liberia, United Arab Emirates.

Repsol 97 Bahamas, Barbados, Bolivia, The Netherlands, Cayman Islands, Virgin Islands, Luxemburg, Singapore, Switzerland, Bermuda, Mauricio

Inditex 69 The Netherlands, Ireland, Switzerland, Hong Kong, USA Delaware, South Africa, Macao, Taiwan, Macedonia, Luxemburg, Monaco, Montenegro, Uruguay, Puerto Rico

Banco Santander

ACS Repsol

Inditex 349

197

97

69

ArcelorMittal 128

AENA is the only company that does not have presence in tax havens/ niches


EXECUTIVE SUMMARY Taxation and money laundering

Graphic 3. Top 5 most "frequented" tax havens by IBEX 35 companies in 2016

Source: own elaboration.

USA Delaware 515

ABERTIS INFRAESTRUCTURAS, S.A. Acciona, S.A Acerinox ACTIVIDADES DE CONSTRUCCIÓN Y SERVICIOS S.A AMADEUS IT HOLDING, S.A. ArcelorMittal Banco Bilbao Viscaia S.A. Banco Santander S.A Enagás, S.A Endesa S.A Ferrovial S.A GAMESA CORPORACIÓN TECNOLÓGICA S.A. Grifols S.A. IBERDROLA, S.A. INDRA Industria de Diseño Textil, S.A. (Inditex) International Airlines Group, S.A Mediaset Melià Hotels International, S.A. Merlin Properties SOCIMI, SA Técnicas Reunidas S.A Viscofan, S.A.

The Netherlands

173

ABERTIS INFRAESTRUCTURAS, S.A. Acciona, S.A. ACTIVIDADES DE CONSTRUCCIÓN Y SERVICIOS S.A. (ACS) AMADEUS IT HOLDING, S.A. ArcelorMittal Banco Bilbao Vizcaia S.A. Banco Santander S.A BANKIA (BANKIA S.A. Cabecera del Grupo BANKIA) Cellnex Telecom SA Enagás, S.A Endesa S.A Ferrovial S.A Gas Natural SDG, S.A. IBERDROLA, S.A. Industria de Diseño Textil, S.A. (Inditex) International Airlines Group, S.A Merlin Properties SOCIMI, SA Red eléctrica corporación, S.A Repsol, S. A. Técnicas Reunidas S.A Telefónica, S.A.

Hong Kong

Luxemburg

USA Delaware 515

79

48

Ireland 103

173

The Netherlands


EXECUTIVE SUMMARY Taxation and money laundering

Ireland 103

ABERTIS INFRAESTRUCTURAS, S.A. ACTIVIDADES DE CONSTRUCCIÓN Y SERVICIOS S.A. (ACS) AMADEUS IT HOLDING, S.A. Banco Bilbao Vizcaia S.A. Banco Santander S.A Bankinter, SA Ferrovial S.A GAMESA CORPORACIÓN TECNOLÓGICA Gas Natural SDG, S.A. Grifols S.A. IBERDROLA, S.A. INDRA Industria de Diseño Textil, S.A. (Inditex) International Airlines Group, S.A MAPFRE S.A. Telefónica, S.A.

Luxemburg 79

ABERTIS INFRAESTRUCTURAS, S.A. Acerinox ACTIVIDADES DE CONSTRUCCIÓN Y SERVICIOS ArcelorMittal Banco Bilbao Vizcaia S.A. Banco Santander S.A Bankinter, SA Caixabank, S.A Cellnex Telecom SA Endesa S.A Ferrovial S.A GAS NATURAL SDG, S.A. IBERDROLA, S.A. Industria de Diseño Textil, S.A. (Inditex) International Airlines Group, S.A MAPFRE S.A. Melia hotels international, S.A. Red eléctrica corporación, S.A Repsol, S. A.

Hong Kong

48

Acciona, S.A Acerinox ACTIVIDADES DE CONSTRUCCIÓN Y SERVICIOS S.A. (ACS) AMADEUS IT HOLDING, S.A. ArcelorMittal Banco de Sabadell, S.A Banco Popular, S.A Banco Santander S.A Grifols S.A. Industria de Diseño Textil, S.A. (Inditex) International Airlines Group, S.A MAPFRE S.A.

The conclusions of the latest study done by the Dutch NGO SOMO, "Tax games: the race to the bottom" are worrying. If the current downward trend continues in 2052, a tax rate of 0% will be reached. In the 1980s, the average rate in Europe was over 40%. Today it's under 25%. In Spain, the share of corporate income tax in total revenue rose from 22% in 2007 to 11.5% in 2017.


MOST RELAVANT INDICATORSTaxation and money laundering

In 2016, the number of subsidiaries of IBEX 35 companies domiciled in Delaware (USA) was 515, more than double the number identified in 2012 (194). According to the analysis carried out, more than 66.60% (343 companies), of these 515 companies, share the same two postal addresses in the small city of Wilmington (70,000 inhabitants):

1209 Orange Street, Wilmington, Delaware 19802 (Corporation Trust Centre)

2711 Centreville Road, Suite 400, Wilmington, Delaware 19808, (Corporation Service Company)

Volume of transactions in tax havens/ niches

10 of the 35 analysed companies provide some type of information on their activities in tax havens/niches. On the other hand, only Banco Santander and Repsol provide information on the corporate income tax the paid in those territories where they operate and that are considered tax havens or niches.

The analysis, in accordance with the methodology used by the Observatorio de RSC,concludes that, all IBEX 35 banks posses subsidiaries located in territories considered as tax havens and/or niches, in 2016.

Table 9. Number of financial sector companies located in tax havens

Source: prepared by the authors based on results

Company N. societies in tax havens

Banco Santander 349

BBVA 53

Banco Sabadell 9

Bankia 5

Bankinter 2

Caixabank 1

Banco Popular 1

TOTAL 410

Grifols, Cellnex, Enagás, Inditex, Ferrovial, Grifols, Gamesa, DIA and Acciona, among others, do not provide relevant information on their operations in territories considered as tax havens or niches, despite the fact that they declare not to operate or use legal structures in order to avoid taxes.

Only Endesa presents relevant information on the activities of companies located in tax niches that are recognised as such by the Tax Justice Network.

During 2016, Banco Santander's was one of the main Spanish actors involved in the "Panama Papers" and "Bahamas Leaks" scandals.

The majority shareholders, in Acciona, Ferrovial and Grifols, -in some cases controlling shareholders-, have shares in companies located in the Netherlands


MOST RELEVANT INDICATORSTaxation and money laundering

The company reports on the fight against money laundering and financing of terrorism

Of the 35 companies analysed, a total of 10 provide information on the existence of specific mechanisms for the prevention of money-laundering in their sphere of activity.

The risk of money laundering is particularly evident in the financial sector, which is also a key actor in practices such as tax evasion and tax avoidance.

The company disclose the received subsidies and public aid

There are 12 companies out of the 35 that comply with this indicator, although only Mediaset and Enagás provide complete information and Repsol, Caixabank and Banco Popular provide information that even it’s not complete provides for more detail than the others.

In some cases, although the company claims not having received significant subsidies or public aid during 2016, the reception of some subsidies was identified through the official website infosubvenciones.

Among the 10 companies that give information, Merlín Properties is not included. None of the construction companies gives information in this regard.

Banco Santander Investment S.A (subsidiary) received EUR 23,944,566.41 in three grants from the Ministry of Economy, Industry and Competitiveness. (source: Infosubvenciones). However, it claims not to have received significant subsidies in 2016.

Enagás provides extensive information on the public subsidies received this year, presenting various classifications according to their purpose and according to who grants them (EU, Spanish State and Autonomous Community).

The aim of the indicator is to analyse the quality of the information provided by the company on how it combats money laundering in its sphere of activity (applicable to all countries and business lines). has a document adapted to the business in which it describes and evaluates its exposure to ML risk, whether there is a technical prevention unit with the necessary human and technical resources, whether it has procedures, manuals and computer applications adapted to the business, whether it carries out audits and provides training for employees, among other aspects.


MOST RELEVANT INDICATORSAccountability

Financial and non- financial controls

According to the United Nations, for an anti-corruption programme to be effective, the company must ensure that all its business activities are properly executed, especially in areas exposed to corruption risks. To this end, it must implement a system of internal controls, including both financial and non-financial controls, that provide reasonable assurance about the effectiveness and efficiency of the company's operations, the reliability of its information, disclosure practices and its compliance with applicable internal laws, regulations and policies.

Only 7 of the 35 IBEX companies provide information on the establishment of non-financial controls. Those controls that range from contracting processes that are done through competitive and transparent manners and in which at least three competitors have participated, or that have a procedure that requires two people to evaluate bids and award contracts. Only 5 companies provide this complete information (14.28%).).

Legal external auditing

In Spain, in recent years, the work of the auditors has been widely questioned following failures to detect problems and accounting holes in the accounts of some companies. For example, Deloitte's indictment for alleged irregularities committed in the audit of Bankia's accounts at its flotation (2011) and for which it also has been sanctioned with 12.4 million by the Institute of Accounting and Auditing of Accounts (ICAC) based on the lack of transparency and for not following the technical standards of auditing. The cases of Pescanova and the auditing firm BDO (years 2013) or Gowex and the auditing firms M&A and Ernst & Young (year 2013), the CAM and KPMG (year 2010), CCM and Ernst & Young (year 2010), among others, are also close examples of malpractice of the auditing function8 9.

8 El papel de las auditoras en los escándalos financieros 9 Escándalos sonados de auditoras

Mediaset establishes exhaustive controls to verify all the collection and payment operations of its revenue and cost operation

Iberdrola establishes financial and non-financial control mechanisms for the prevention of bribery and corruption in procurement processes. It includes a minimum number of three valid bids must be obtained for each procurement, the separation of procurement activities from provision activities and the payment of invoices to suppliers.

Iberdrola appears as a supposed necessary subject and beneficiary in the Castilla y León plot investigating the wind farm concessions for the years 2005-2015, in which the company Iberdrola is accused of paying 47 million euros "without any business logic".



The four most popular auditors hired by IBEX 35 companies:

13 9 8 5

Only 5 companies out of 35 (22.85%) provide information on how they guarantee the independence of the external audit firm.

A key aspect of the auditor's independence risks is the length of time the audit firm has been working for the same company due to the threat of familiarity. For this reason, a maximum duration of the audit engagement linking a statutory auditor or audit firm to a given audited entity is set. The new Audit Act provides for a duration of not less than three years and a prohibition on exceeding the total recruitment period, including extensions, of a maximum duration of ten years. However, 43% of the companies analysed had been working with the same auditing firm for more than ten years as of December 2016, far exceeding the current legislation.

Table 10. Companies that have been working with the same firm for more than 10 years

Another aspect that may compromise independence is that the revenue received by the auditing firm from services other than the statutory audit service exceeds those from the statutory audit service. Thus, if the percentage of income from services other than statutory audit is higher than the total invoiced, the risk of lack of independence will also be higher.

Companies Working years

Banco Popular 35 years

Banco Sabadell 34 years

Técnicas Reunidas 28 years

Gas Natural Fenosa 26 years

Grifols 26 years

DIA 25 years

Enagás, Iberdrola, Mapfre and Banco Santander are the only ones that offer information on the contracting process of the auditing company, although the information is not complete.

ArcelorMittal sets a 3-year limit for the permanence of the service with the same auditing company.

PWC Consultores has been the auditor of the Grupo Banco Popular for 35 years (97% of the years the company has been audited).



In this sense, none of the 35 companies prohibits contracting services other than statutory audit with the same auditing company. Telefónica, however, is the only IBEX 35 company that, despite not expressly prohibiting it, does so in practice.

The following chart shows the proportion of statutory audit services out of the total services billed to the audit firm:

Graph 4: Percentage of legal audit services out of total turnover by sector of activity10


In four of the six sectors represented in the selective IBEX 35, turnover from services other than statutory audit exceeds 25% of total turnover. In most cases, the nature of these services is not disaggregated. The Consumer Services sector appears to be the least compliant with standards, with 36% of revenues going to other services.

The analysis shows that 2 companies exceed the international standards recommended by the Proxys Advisors: Acciona (59%) and Aena (51%). In addition, in 22.8% of the IBEX 35 companies, revenues from services other than statutory audit accounted for more than 40% of total revenues.

10 Sectors: Consumer services; Basic Materials, Industry and Construction; Technology and Telecommunications; Oil and Energy; Financial and Real State Services; Consumer Goods.

0% 5% 10% 15% 20% 25% 30% 35% 40%

Bienes de Consumo

Servicios Financieros e Inmobiliarios

Petróleo y Energía

Tecnología y Telecomunicaciones

Materiales Básicos, Industria yConstrucción

Servicios de Consumo

59.02% of Acciona's total turnover is allocated to services other than legal auditing.



Table 11: % legal audit services over total invoicing by company

Company % services billing other than statutory audit/total invoicing

Acciona 59,02%

Aena 50,76%

Endesa 50,07%

Acerinox 48,04%

Técnicas Reunidas 47,80%

Another aspect that increases the risk of a lack of independence is the lack of transparency about the breakdown of the different services provided. What we see in our analysis is that practically all companies make an excessively generic breakdown of concepts, which shows a clear lack of transparency in this regard. Only 4 of the 35 companies (Enagás, Iberdrola, Merlin Properties and Telefónica) provide detailed information on the services contracted, i.e. on concepts and amounts.

Figure 5: Breakdown of audit services vs. other services11


11 Green: Statutory Audit Services. Purple: Services other tan statutory audit

0% 20% 40% 60% 80% 100%

Acciona

Aena

Endesa

Acerinox

Técnicas Reunidas

Servicios de auditoría legal Servicios diferentes de la auditoría legal



Anti- corruption audits

In addition to having strong internal controls to prevent and detect corruption, the company must also monitor whether this system of internal controls is being effective. This requires internal audits of both operational processes and specific areas of the company that have a higher exposure to corruption risks. In the analysis, 7 of the 35 companies (20%) provide information on the existence of a control audit system for corruption. However, all of them contain very general and descriptive information, providing at most some data on the number of audits carried out or the percentage they represent, but without providing any further breakdown by country. Nor is any information provided regarding frequency, coverage throughout the company, areas covered or results. Only one company in the construction sector, Acciona, reports the existence of internal audits on corruption.

Fines, judgments and litigation

There are 25 IBEX 35 companies that provide some type of information on complaints, fines, judgments and/or litigation in corruption and competition matters, however, in almost all cases they only mention sanctions imposed by the National Commission of Markets and Competition.

Detailed information on invoiced audit services

+ Limitation of services other than the legal audit with the same company

+ Information on the audit firm's hiring process

+ Approval of the audit firm and remuneration by the general meeting of shareholders

3 out of 35

Telefónica

Iberdrola

Enagás

1 out of 35

Telefónica

3 out of 35

Iberdrola

Mapfre

Banco Santander

1 out of 35

Viscofan

Mediaset reports that the Internal Audit Department carries out the analysis of the risks related to corruption in the lines of activity that have the greatest impact on the Group. In 2016, four of the Group's business units were analysed, representing 80% of its activities.

ArcelorMittal provides very detailed information on the open cases it has pending - classified by subject matter, country, concepts and claimants.

Acciona, Ferrovial, Técnicas Reunida or ACS, despite having been involved in various corruption cases, make no mention of them in the documentation analysed. Some of these cases are Zaragoza Plaza, Acuamed, Palau, Odebretch Tranvía de Parla, Rio Magdalena, the award of the Quito metro, Son Espases, Escombreras Desalination Plant, César, Gürtel and Unio among others.


MOST RELEVANT INDICATORSAccountability Transparency Law

Law 19/2013 of 9 December on transparency, access to public information and good governance is applicable to 19 of the companies analysed. Of these, only 2 comply with the obligations established in this law: Repsol and Aena.

Whistle blower Channel

An integral part of anti-corruption programmes in terms of corporate transparency are the company's internal reporting channels. The figure of the whistle-blower is considered one of the main tools to fight corruption. Whistle-blowers are key national and global players in detecting and preventing corruption in the private sector. To ensure a complete reporting process, four features can be highlighted. The process has to be: confidential; accessible; efficient; and transparent

Of the total number of companies analysed, 35 provide information on the existence of a complaints channel, although most of them do not specify in detail the complaints management process or the procedure for implementing the envisaged guarantees.

Observatorio de RSC considers that as a minimum the company should provide information about the type of complaint; the origin of the complaint; the period under study; and the region from where the complaint is referred.

An essential condition for ensuring transparency and a proper functioning of the Complaints Channel is the prohibition of retaliation and the confidential treatment of complaints. Thus, only 27 guarantee both aspects of their public information. Those who do not report on both aspects are Banco Popular, Bankia, Banco Santander, Caixabank, Mapfre, Gas Natural Fenosa, Mediaset, Merlín Properties, ArcelorMittal and Ferrovial.

Data on complaints should be reported, reporting on number of complaints received, type of complaint and country. Thus, only 10 out of 35 companies provide this type of information.

Telefónica stands out for having two different complaint channels: the SOX Whistle blower Channel and the Responsible Business Principles Channel.

Aena has a specific section on its corporate website that brings together the information required by law: contracts and agreements with government agencies, organizational structures - among others.

ArcelorMittal has a Whistle blower Policy and a Whistle blower Policy section on the website

The Transparency Law 19/2013 applies to all business organisations and private entities with public subsidies of more than €100,000 or at least when 40% of their annual income comes from public funds, provided they reach a minimum of €5,000.



Another important aspect is the information about management responsibilities. The report considers, on the one hand, whether the company informs about the body or area in charge of its management and whether its independence or capacity (allocated resources) is clearly stablished. Only 5 companies report on a external management of the complaints channel: Grifols, Bankia, Repsol, Endesa and IAG.

Finally, only 6 companies report on how they raise awareness and promote the figure of the complainant: Mapfre, Repsol, Telefonica, Abertis, DIA and Endesa.

Graphic 6. Breakdown of complaints channel

Source: prepared by the authors based on results

35 provide information on the existence of a complaints channel

27 prohibit reprisals and ensure

confidential treatment of reports

5 report external management of the complaints channel

6 provide information on how they raise awareness and promote the figure of the complainant

10 report data on complaints by number, type or country


ANNEXES

INDUSTRY SECTOR COMPANY NAME WEB

Consumer Goods (Food and Beverages; Textiles, Clothing and Footwear; Paper and Graphic Arts; Automotive; Pharmaceuticals and Biotechnology; Other Consumer Goods)

Grifols www.grifols.com Viscofan www.viscofan.com Inditex www.inditex.com

Basic Materials, Industry and Construction (Minerals, metals and metal products processing; Manufacture and assembly of capital goods; Construction; Construction materials; Chemical industry; Engineering and others; Aerospace)

Acerinox www.acerinox.com/es/index.html Acciona www.acciona.es ACS www.grupoacs.com Ferrovial www.ferrovial.es Técnicas Reunidas www.tecnicasreunidas.es ArcelorMittal www.arcelormittal.com

Oil and Gas (Oil, Electricity and gas, Water and others, Renewable energies)

Enagás www.enagas.es Endesa www.endesa.com Gamesa www.gamesa.es Gas Natural Fenosa www.gasnaturalfenosa.es Iberdrola www.iberdrola.es Red Eléctrica www.ree.es Repsol www.repsol.com/es

Technology and communications (Telecommunications and others; Electronics and software; Technological hardware and equipment)

Indra www.indra.es Telefónica www.telefonica.es Cellnex http://www.cellnextelecom.com

Consumer services (Trade; Media and advertising; Transport and distribution; Motorways and car parks; Other services)

Abertis www.abertis.com Aena http://www.aena.es/es/corporativa/corpor

ativa.html Amadeus www.amadeus.com/es DIA www.diacorporate.com/es IAG - Iberia www.es.iairgroup.com Mediaset www.mediaset.es Melia www.meliahotelsinternational.com

Financial and Real Estate Services (Banks and savings banks; Insurance; Holding companies; SICAV; Real estate and other; Investment services; Listed funds; Private equity; Private equity; SOCIMI)

Banco Popular www.bancopopular.es Banco Sabadell www.bancsabadell.com Banco Santander www.bancosantander.es Bankia www.bankia.es Bankinter www.ebankinter.com BBVA www.bbva.es Caixabank www.caixabank.com Mapfre www.mapfre.com Merlín Properties www.merlinproperties.com/

Documents

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