Written by Murray Grainger on Thursday May 18, 2017
Panama, Brazil, Afghanistan, China, Malaysia, Pakistan, Ukraine, Angola, South Africa. Examples of corruption cases abound beyond the limits of European geography. A cursory look at the Transparency International Corruption Perception Index shows plenty of low-ranking jurisdictions, many situated at a substantial distance from continental Europe. Does this mean that European companies, executives, regulators and prosecutors can sit back, head early for the beaches of the Mediterranean this summer and leave their international counterparts to manage these anti-corruption risks far from Madrid, Paris, Rome and other EU capitals?
Clearly, the answer is ‘no’.
We would offer three clear reasons.
First, anti-corruption regimes from Washington DC to London to Berlin and beyond are increasingly extra-territorial. Applicable laws go way beyond the jurisdiction where any corruption offence may be committed. The long arm of the FCPA, the UK Bribery Act and Germany’s anti-corruption legislations reaches out internationally, ready to identify and prosecute corrupt executives and organisations.
Second, many European companies are inherently multinational – in their sales, their physical presence and/or their supply chain. An Italian defence company will have a rather blinkered view of its compliance risks if its analysis starts and ends with Italian compliance and anti-corruption rules. Its risk map needs to address all jurisdictions where its business activities are undertaken – including marketing, operations, procurement and also the activities of its selected suppliers, including sub-tiers, and of its third party agents.
Third – and the focus of Impact on Integrity – if European companies want to go beyond ‘de minimis’ criminal compliance and build a genuine culture of ethics, then sustainable implementation of a ‘best practice’ anti-corruption compliance culture has to be the way forward.
Building on this third point above, we would argue that the focus has now to be on Integrity Management. ‘Compliance Management’ is overly focused on compliance with existing rules and regulations. Integrity Management includes effective compliance, but also addresses ethics, transparency, internal alignment and leadership at all levels of an organisation.
Before we recommend possible solutions, let us look briefly at recent examples of corruption cases in Europe. Corporate names including Alstom, Palmalat, Pescanova, Banca Privada d’Andorra (BPA), Finmeccanica, Louis Berger, Vimpelcom, as well of course as Siemens, are clearly associated with failures to comply in their anti-corruption practices. Indeed, much of European anti-corruption effort is measured in terms of ‘pre-‘ and ‘post-‘ Siemens. Rather than revisit historical cases however, let’s look at just some of the cases which have arisen thus far in 2017.
2017 saw the first ever Spanish conviction for corruption of foreign public officials. The Spanish High Court division for corruption, terrorism and organised crime convicted two executives for paying a €70,000 bribe in Equatorial Guinea going back to 2009. The penalties imposed may appear rather light: one year’s imprisonment, a fine of just over €1,000, debarment from participating in commercial contracts with public entities for three and a half years and prohibition from receiving state aid, social security or tax benefits. In 2016, the OECD working group expressed its ‘concerns about the low level of foreign bribery enforcement in Spain and the lack of implementation of the enforcement-related recommendations’. The 2017 case looks more like a footnote on the ‘risk of enforcement’ dossier for Spanish companies, rather than something to make non-compliant executives tremble in their boardrooms.
Even if the European enforcement authorities may be less fearsome than their United States counterparts, European organisations are at clear risk of being caught within the latter’s enforcement grip. Looking to FIFA in Switzerland, examples abound. In April 2017, Richard Lai became the latest FIFA executive to be indicted on corruption charges in the United States since 2015. Mr Lai was a member of FIFA’s audit and compliance committee. Pleading guilty to taking bribes amounting to almost $1m, he agreed to pay a penalty of $1.1m.
Impact on Integrity has argued that cross-border collaboration on enforcement offers encouraging signs that the United States and other national authorities are working together on specific cases to allocate jurisdictional responsibilities. Nevertheless the perception clearly remains that the US agencies are the ones with real ‘teeth’ and the entities which wrongdoers need really fear.
The continuing global nature of anti-corruption efforts was highlighted by two key recent meetings:
Also last month back in Europe, Hungary’s Magyar Telekom saw two executives settle with the US SEC for $250,000 and $150,000 respectively, together with five year ‘officer and director bars’, in respect of US FCPA violations. Former CEO Elek Straub and Chief Strategy Officer Andras Balogh were charged ‘with using sham contracts to funnel millions of dollars in bribes to foreign officials’. Specifically, the charge alleged that $5.3m was funnelled via an intermediary in Greece. This followed the 2011 settlement by Magyar Telekom and their majority owner, Germany’s Deutsche Telekom for $95m in respect of bribery of public officials in Macedonia and Montenegro. Stephanie Avakian of the US SEC explained that:
the executives in this case were charged with spearheading secret agreements with a prime minister and others to block out telecom competitors. We persevered in order to hold these overseas executives culpable for corrupting a company that traded in the U.S. market.
This case provides a good example of a European defendant reluctant – for family health reasons – to travel to the United States to defend himself and thus preferring to settle. It is again noteworthy that this settlement does not include any admission of liability and the SEC’s allegations ‘will now never be heard, evaluated, or decided by a jury in a court of law’.
European sport also provides a rich source for compliance ‘improvement opportunities’. As just one example, soccer in Croatia represents a hotspot for current corruption allegations, in addition to their operational challenges involving hooliganism and infrastructure. Former Dinamo Zagreb boss Zdravko Mamic is charged with abuse of power and bribery going back to 2008 in a corruption case involving millions of euros. Over €12 million was allegedly embezzled through fictitious deals related to player transfers. Former international player and Croatia’s current football union chief Dario Simic told AFP that ‘the worst is that the trust of the whole society in football is lost’. According to the press, ‘critics say that non-transparent management […] has led to huge animosity among many football fans and the public towards both the federation and football in general’. In sport, just as in business, transparency is a fundamental building block of effective compliance and anti-corruption.
Staying in Eastern Europe, in Serbia, police recently detained 16 customs officers on suspicion of tax evasion and dereliction of duty. The accusations centred on aiding private companies to avoid paying taxes and excise duties, according to Serbian interior minister Nebojsa Stefanovic, with the resulting damages to the state budget exceeding €11.5m.
Whilst the above examples are certainly not exhaustive, they do serve to highlight that corruption cases are ongoing, pervasive and occurring in all countries, continental Europe included.
So how can ethics – let’s call it ‘effective’ ethics – make a difference?
A solid foundation of ethics within an organisation sets the tone for an effective compliance programme. This is easily said, but takes time and consistent effort at all levels to achieve. As we pointed out in our ICA incompliance article ‘A Process of Transformation’, this is more akin to gently nudging the direction of an oil tanker, rather than driving a nimble speedboat.
The person, or team, behind this initiative – let’s call them the ‘Compliance Officers’ need to consistently build trust and transparency right across all levels of their organisation. They need to work collaboratively and their influence must be felt by everyone from the CEO right down through to the lower levels of the corporate hierarchy.
We advocate that around 75% of the resources of an effective compliance and ethics programme should be dedicated to communication and training. Prevention is much cheaper than cure!
The team needs to communicate why anti-corruption matters, not just explain what the applicable law states. Indeed, inspiration for this can be found in TED Talks, a channel now endorsed by none other than Pope Francis himself.
Once again, the recent document issued by the US Department of Justice Criminal Division Fraud Section offers highly valuable guidance, highly relevant for European entities just as much as American ones. This explicitly states that the topics it addresses already appear in inter alia the Good Practice Guidance on Internal Controls, Ethics, and Compliance of the OECD Council and the Anti-Corruption Ethics and Compliance Handbook for Business published by the OECD, the United Nations Office on Drugs and Crime and the World Bank. The guidance includes:
- Shared Commitment – What specific actions have senior leaders and other stakeholders taken to demonstrate their commitment to compliance, including their remediation efforts? How is information shared among different components of the company?
- Empowerment – Have there been specific instances where compliance raised concerns or objections in the area in which the wrongdoing occurred? How has the company responded to such compliance concerns? Have there been specific transactions or deals that were stopped, modified, or more closely examined as a result of compliance concerns?
- Accessibility – How has the company communicated the policies and procedures relevant to the misconduct to relevant employees and third parties?
- Risk-Based Training – What training have employees in relevant control functions received? Has the company provided tailored training for high-risk and control employees that addressed the risks in the area where the misconduct occurred?
- Form/Content/Effectiveness of Training – Has the training been offered in the form and language appropriate for the intended audience?
- Communications about Misconduct – What has senior management done to let employees know the company’s position on the misconduct that occurred?
- Real Actions and Consequences – Were red flags identified from the due diligence of the third parties involved in the misconduct and how were they resolved?
Finally, these key considerations need to be combined with a workable and credible reporting mechanism. An effective whistleblowing channel substantially adds to the effectiveness of any corporate ethics and compliance programme - and an effective ethical approach can be a tremendous driver in supporting anti-corruption efforts.
Murray Grainger, Managing Director, Impact on Integrity. Impact on Integrity provides training, consulting and translation services to companies in Spain, France, Switzerland and other European and Latin American countries.
+34 630 957 200
+33 6 17 72 00 70
 See for example http://impactonintegrity.com/gorilas-que-vigilan-en-la-niebla.
 Evaluation of Corporate Compliance Programs - https://www.justice.gov/criminal-fraud/page/file/937501/download.
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