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Anti corruption and sustainability regulation and disclosure trends

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Presentation on Anti corruption and sustainability regulation and disclosure trends. April 2013.

Presentation on Anti corruption and sustainability regulation and disclosure trends. April 2013.

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  • 1. Global Anti-Corruption and SustainabilityRegulation/Disclosure TrendsToby Webb, Founder, Ethical Corporation andStakeholder Intelligence. Lecturer, CorporateResponsibility, Birkbeck, University of LondonJakarta Training Workshops April 2012 Session ThreeToby.Webb@stakeholderintel.com
  • 2. Which are the significant shifts?• UK Bribery Act 2010• US FCPA 1977• OECD/UNCAC• Dodd Frank Act 2010• Lacey Act / EU TimberRegulation 2010• CSR “Laws” / Reporting
  • 3. UK Bribery Act (2010/11)• Created Crimes ofbribery• Being bribed• The bribery of foreignpublic officials• The failure of acommercialorganisation to preventbribery on its behalf
  • 4. UK Bribery Act: "the toughest anti-corruptionlegislation in the world"• Maximum of 10 yearsimprisonment• Unlimited fines• Confiscation of property• Disqualification of directors• Near-universal jurisdiction,prosecution of individual orcompany with links to theUnited Kingdom, regardlessof where the crimeoccurred.• Weak enforcement so far…Mabey and Johnson: Fined under UK Bribery Act
  • 5. US Foreign Corrupt Practices Act 1977• The “big beast” of anti-corruption enforcement• Applies to any personwho has a certaindegree of connection tothe United States andengages in foreigncorrupt practicesKBR: $579 million FCPA fine in 2009.Chairman and CEO: 30 months in jail.Paid back $11 million to company
  • 6. FCPA: Not just for US Citizens or Companies• FCPA makes it “unlawful for aU.S. person, and certainforeign issuers of securities, tomake a payment to a foreignofficial for the purpose ofobtaining or retaining businessfor or with, or directingbusiness to, any person.”• Since 1998, also applies to“foreign firms and personswho take any act infurtherance of such a corruptpayment while in the UnitedStates.”
  • 7. Intent is what matters with FCPA…• No materiality. Illegal tooffer anything of value asa bribe, including cash ornon-cash items• The US governmentfocuses on the intent ofthe bribery rather than onthe amount• Companies lookingdeeper at deals now: E.G.Govt official ownedfirms, who owns what?
  • 8. Facilitation Payments Allowed, Sometimes• Distinction between briberyand facilitation or "greasepayments"• Payments to foreign officialsmay be legal if paymentspermitted under writtenlaws of host country• Certainpayments/reimbursementsrelating to productpromotion may bepermitted
  • 9. The Most Enforced Global Corruption LawWal-Mart, BAE Systems,Baker Hughes, DaimlerAG, Halliburton, KBR,Lucent Technologies,Monsanto, Siemens, TitanCorporation, Triton EnergyLimited, Avon Products,and Invision Technologiesall prosecuted recently.Big fines paid.Wal-Mart in Mexico: Major investigation
  • 10. The Most Enforced Global Corruption Law• In 2008, Siemens paid a$450 million fine forviolating the FCPA• Hewlett-Packard currentlybeing investigated over amajor case in Russia• Stronger US DOJ and SECenforcement increasedprominence of the FCPAfrom 2010 onwards
  • 11. New cases coming all the timeApril 17 2013: “Onecurrent and one formerexecutive of Alstom, theFrench engineering group,were charged by USauthorities with allegedlybribing Indonesianofficials to win powercontracts.”(Financial Times)
  • 12. More co-ordination between agencies• Alstom has facedinvestigation by the US,UK’s Serious Fraud Officeand French authorities.• 2011, paid €31m toSwitzerland’s attorney-general for negligentlyfailing to stop bribery bysome employeesinvolving contracts inLatvia, Malaysia andTunisia (FT)PT PLN (Persero)Alstom accused ofBribery for contracts
  • 13. Convention on Combating Bribery of Foreign PublicOfficials in International Business Transactions• Passed in 1997 by OECDNations• Nations supposed toimplement in national law• Seeks to make bribery an"extraditable" offenceamong OECD nations• Many countries, particularlyin Europe, have been slowto implement / enforce
  • 14. United Nations Convention against Corruption(UNCAC)• Landmark, international anti-corruption treaty adopted by UNGeneral Assembly October 2003• 145 Countries signed up as of2011• States obliged to adoptcoordinated policies that preventcorruption and designate a ‘bodyor bodies’ to coordinate andoversee their implementation• Weak take up, as with OECDConvention
  • 15. Dodd Frank Act 2010: Section 1502• The Dodd Frank Wall StreetReform and Consumer ProtectionAct 2010, includes section 1502.• Aimed at stopping national armyand rebel groups in the DRC fromillegally using profits fromminerals trade to fund conflict.• Section 1502: Disclosurerequirement for companies todetermine whether productscontain conflict minerals• Must carrying out supply chaindue diligence• Must report this to the Securitiesand Exchange Commission (SEC).Source: Global Witness
  • 16. Dodd Frank Act 2010: Key Aspects for BusinessSection 1502:“No penalty if companiescannot determine whetherthe minerals they use comefrom DRC or neighbouringcountries. The consequencefor businesses that findthemselves in this situationis that they have to submitto the SEC a ‘conflictminerals report’”.Source: Global WitnessSource: Global Witness
  • 17. Dodd Frank Act 2010: Section 1504Disclosure of certain payments madeto the federal government or foreigngovernments by resource extractionissuers – companies engaged in thedevelopment of oil, natural gas, orminerals.Resource extraction issuer mustdisclose payments made togovernments if:• The issuer is required to file anannual report with the SEC.• The issuer engages in thecommercial development of oil,natural gas, or minerals. Key message: Transparency
  • 18. Dodd Frank Act 2010: Section 1504• The new disclosurerequirements apply todomestic and foreign issuersand to smaller reportingcompanies that meet thedefinition of resourceextraction issuer.• In addition, the issuer isrequired to disclose paymentsmade by a subsidiary oranother entity controlled bythe issuer.Key message: Transparency
  • 19. Dodd Frank Act 2010: Section 1504“The rules define commercial development ofoil, natural gas, or minerals to includeexploration, extraction, processing, andexport, or the acquisition of a license for anysuch activity.”Types of payments that need to be disclosedinclude:• Taxes• Royalties• Fees (including license fees)• Production Entitlements• Bonuses• Dividends• Infrastructure Improvements issuer. Source: US Government
  • 20. US/EU Timber Regulations• 2008 U.S. Congress passedLacey Act• Banning trade in illegallysourced plants and theirproducts — includingtimber and wood products• Prohibits all trade in plantand plant products (e.g.,furniture, paper, or lumber)that are illegally sourcedfrom any U.S. state or anyforeign country
  • 21. 2008 Lacey Act• Importers to declare thecountry of origin of harvestand species name of all plantscontained in their products• Establishes penalties forviolation of the Act, includingforfeiture of goods andvessels, fines and jail time• “Illegally sourced” is definedby the content of sovereignnations’ own laws
  • 22. Examples of Lacey Act Violations• A company in California imports ashipment of wood flooring fromcountry X, made from timber thathad been harvested without validpermits in country Y where it was cut• An exporter purposefully mislabels ashipment to the U.S. as less valuablespecies to avoid higher tariffs• A paper company uses pulp sourcedfrom illegal logging practices andexports finished paper product to theUnited States• A veneer importer does not identifythe correct country (or potentialcountries) of harvest origin for thespecies used in his importation.Source: Environmental Investigations Agency - THE U.S. LACEY ACT:Frequently Asked Questions About the World’s First Ban on Trade inIllegal Wood
  • 23. Sanctions…• Criminal felony fine (upto $500,000 forcorporation, $250,000 forindividual, or twicemaximum gain/loss fromtransaction)• Possible prison for up tofive years• Forfeiture of goods
  • 24. EU Timber regulations 2010• Prohibits the placing on the EUmarket illegally harvestedtimber and products derivedfrom such timber• Requires EU traders who placetimber products on the EUmarket for the first time toexercise due diligence• Traders obligation to keeprecords of their suppliers andcustomers.
  • 25. EU Timber regulations 2010• The Regulation covers a widerange of timber products• Application of the Regulationstarted 3rd March 2013• Regulation legally binding onall 27 EU Member States,which are responsible forlaying down effective,proportionate and dissuasivepenalties and for enforcing theRegulation.• Degree of enforcement? Hmm
  • 26. CSR Regulation: Denmark 2008• Mandatory for theapprox. 1,100 largestbusinesses, listedbusinesses and stateowned public limitedbusinesses to report onCSR in their annualreports on a comply orexplain basis.• Businesses have to informabout their CSR practicesor state that they do notengage in CSR.Denmark: Least corrupt countryAs ranked by perception (TI)
  • 27. Denmark 2008• Research shows that thelegal requirement has had apositive effect on CSR• Majority of the businessesexamined are “working withCSR”• Legal requirement has ledto administrative burdens,research says businessesregard it as positive, as it isflexible and theyunderstand its purpose
  • 28. India’s CSR Law 2012/13• Mandatory for allcompanies with turnoverof Rs 1,000 crore or netprofit of Rs 5 crore toearmark 2 percent oftheir net profit in thepreceding three years forCSR• Independent director onboard charged with thetask of CSR• Separating communityand social developmentand sustainability/greenissuesBhaskar Chatterjee
  • 29. EU CSR?• Further mandatory EUcompany disclosure on CSRissues coming soon?• Likely to go beyond current EUBusiness Review requirements• Key question for theCommission is MATERIALITY• May be similar to French orDanish legislation on reporting• Clearer picture during 2013
  • 30. So what does all this mean?• Many regulations arenew: The impactremains to be seen• FCPA enforcementappears on the rise• UK Bribery Actunproven• Transparency disclosureregulations increasing“The Perp Walk”: More likely
  • 31. So what does all this mean?• Companies ARE beingprosecuted under LaceyAct (Gibson)• Enforcement trends areonly going one way• Publicity and “shining alight” are currentmethods for change• BUT enforcement canchange quicklyCorruption riots change politics
  • 32. What can companies do about it?• Make the business casefor ethics management• Understand it’s not justabout code compliance• Develop world-classethical managementsystems (Shell, Siemens)• Expand them to allareas of the business
  • 33. Source: PwC
  • 34. What can companies do about it?• Do a “culture audit”• Research suppliersmore deeply• Find out who ownswhat (Governments)• Report publicly, andadmit mistakes. Behumble• Partner and collaborate
  • 35. Thank you!