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Dealing with Corruption in an International Context

Bruno Cova Senior Vice-President and General Counsel. Dealing with Corruption in an International Context. Rome, 9th June 2003. “Corruption has become one of the most insidious and potentially damaging business risks” Financial Times. Summary.

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Dealing with Corruption in an International Context

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  1. Bruno Cova Senior Vice-President and General Counsel Dealing with Corruption in an International Context Rome, 9th June 2003

  2. “Corruption has become one of the most insidious and potentially damaging business risks” Financial Times

  3. Summary • The international legal focus and the OECD Convention • The post-OECD Convention environment • Assessing the industry’s and the company’s risk profile • Ways in which bribes are paid • The corruption risk • Possible strategies and risk-reduction measures

  4. 1. The international legal focus and the OECD Convention

  5. Legal Focus • Criminalization of Brides • Elimination of Tax Deductibility of Brides

  6. OECD Initiatives • “OECD Recommendations on Bribery in International Business Transactions” agreed upon in 1994 OECD Council approved recommendation to eliminate tax deductibility of bribes in April 1996 “Convention on Combatting Bribery of Officials in International Business Transactions” signed on 17th December 1997 OECD Convention came into force on 15th February 1999

  7. 2. The post-OECD Convention environment

  8. The Post-OECD Convention Environment • Corruption continues • Bribery has become more sophisticated • Enactment and enforcement of the new rules likely to be uneven • Compliance is not likely to be universal • The United States play a significant role • U.S. companies may have an advantage • There is enhanced attention of the public on bribery issues • Allegations of bribery may become weapons of competition

  9. 3. Assessing the industry’s and the company’s risk profile

  10. Aviation Energy Construction Government Procurement High Risk Industries Defence

  11. Assessing the Company’s Risk ProfileCase study: Fiat • Fiat’s activities are subject to scrutiny in several jurisdictions: • Italy • The Netherlands • United States • countries of operation • Italy has a reputation as a bribe-paying country (4th in Transparency International Bribe Payers’ Index 2002) • Fiat operates in several countries with a reputation for corruption • Fiat has experienced prosecution for corruption episodes

  12. 4. Ways in which bribes are paid

  13. WAYS IN WHICH BRIBES MAY BE PAID Direct Payment Company Government Official

  14. WAYS IN WHICH BRIBES MAY BE PAID Payment through “consultant” Government Official Company “Consultant”

  15. 100 70 30 WAYS IN WHICH BRIBES MAY BE PAID Payment through an intermediate shell company Purchaser Seller Intermediate Company 100 70 30 Government Official

  16. 5. The corruption risk

  17. THE CORRUPTION RISK Financial Risk • Bribes cost money and operating margins are eroded • Bribes do not guarantee success (in certain industries bribes are often a “tax” on the winner) • Paying bribes encourages further solicitation • Valuable assets can be forfeited • Legal expenses • Loss of competitive hedge • Company cannot control where the money goes

  18. THE CORRUPTION RISK Legal Exposure • Criminal prosecution for the company and/or its managers • Criminal/administrative fines for the company and its managers • Civil litigation by damaged competitors • Civil litigation by shareholders • Annulment of contracts • Paying bribes requires falsifying the financial records • Tax violations

  19. 6. Possible strategies and risk-reduction measures

  20. POSSIBLE STRATEGIES When in Rome, do as the Romans do Avoid Corrupt Countries Analyze Case by Case Risk Takers Risk Managers Risk Avoiders

  21. Loss of Business Risk How Often Does Refusal to Pay Bribes Lose Contracts?

  22. DEVISING A STRATEGY Objectives • No payment of bribes • No significant loss of business opportunities • No vulnerability to allegations of corrupt practices

  23. ELEMENTS OF A STRATEGY 1 - Measures to ensure compliance 2 - Measures to avoid potential difficulties with the authorities 3 - Measures to further universal compliance 4 - Measures to collect and analyse information 5 - Measures to advance commercial interests

  24. Admissible actions to influence foreign governments • Satellite images to assist military efforts • Diplomatic pressure on other governments to give assistance • Military training • Supply of weapons • Humanitarian aid

  25. Admissible actions to influence foreign governments • Pressure on financial institutions • Other diplomatic assistance • Erasure of debt • Lobbying on behalf of the country • Negotiations with Government-appointed intermediaries - payment of bonuses and fees on Government’s accounts

  26. 25th October 1999 600 Million FrF

  27. 25th January 2000 3.8 Billion Euro

  28. U.S. Corporations’ Advantages 1. Over 20 years’ experience. Had time to: • delelop clear understanding of the rules • learn how to do business without corruption • create and maintain risk-prevention and risk-mitigation tools, such as compliance systems • develop culture and strategy on how to deal with anti-corruption rules 2. Other U.S. advantages

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