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

1. Global Anti-Corruption and Sustainability
Regulation/Disclosure Trends
Toby Webb, Founder, Ethical Corporation and
Stakeholder Intelligence. Lecturer, Corporate
Responsibility, Birkbeck, University of London
Jakarta Training Workshops April 2012 Session Three
Toby.Webb@stakeholderintel.com

3. Which are the significant shifts?
• UK Bribery Act 2010
• US FCPA 1977
• OECD/UNCAC
• Dodd Frank Act 2010
• Lacey Act / EU Timber
Regulation 2010
• CSR “Laws” / Reporting

4. UK Bribery Act (2010/11)
• Created Crimes of
bribery
• Being bribed
• The bribery of foreign
public officials
• The failure of a
commercial
organisation to prevent
bribery on its behalf

5. UK Bribery Act: "the toughest anti-corruption
legislation in the world"
• Maximum of 10 years
imprisonment
• Unlimited fines
• Confiscation of property
• Disqualification of directors
• Near-universal jurisdiction,
prosecution of individual or
company with links to the
United Kingdom, regardless
of where the crime
occurred.
• Weak enforcement so far…
Mabey and Johnson: Fined under UK Bribery Act

6. US Foreign Corrupt Practices Act 1977
• The “big beast” of anti-
corruption enforcement
• Applies to any person
who has a certain
degree of connection to
the United States and
engages in foreign
corrupt practices
KBR: $579 million FCPA fine in 2009.
Chairman and CEO: 30 months in jail.
Paid back $11 million to company

7. FCPA: Not just for US Citizens or Companies
• FCPA makes it “unlawful for a
U.S. person, and certain
foreign issuers of securities, to
make a payment to a foreign
official for the purpose of
obtaining or retaining business
for or with, or directing
business to, any person.”
• Since 1998, also applies to
“foreign firms and persons
who take any act in
furtherance of such a corrupt
payment while in the United
States.”

8. Intent is what matters with FCPA…
• No materiality. Illegal to
offer anything of value as
a bribe, including cash or
non-cash items
• The US government
focuses on the intent of
the bribery rather than on
the amount
• Companies looking
deeper at deals now: E.G.
Govt official owned
firms, who owns what?

9. Facilitation Payments Allowed, Sometimes
• Distinction between bribery
and facilitation or "grease
payments"
• Payments to foreign officials
may be legal if payments
permitted under written
laws of host country
• Certain
payments/reimbursements
relating to product
promotion may be
permitted

10. The Most Enforced Global Corruption Law
Wal-Mart, BAE Systems,
Baker Hughes, Daimler
AG, Halliburton, KBR,
Lucent Technologies,
Monsanto, Siemens, Titan
Corporation, Triton Energy
Limited, Avon Products,
and Invision Technologies
all prosecuted recently.
Big fines paid.
Wal-Mart in Mexico: Major investigation

11. The Most Enforced Global Corruption Law
• In 2008, Siemens paid a
$450 million fine for
violating the FCPA
• Hewlett-Packard currently
being investigated over a
major case in Russia
• Stronger US DOJ and SEC
enforcement increased
prominence of the FCPA
from 2010 onwards

12. New cases coming all the time
April 17 2013: “One
current and one former
executive of Alstom, the
French engineering group,
were charged by US
authorities with allegedly
bribing Indonesian
officials to win power
contracts.”
(Financial Times)

13. More co-ordination between agencies
• Alstom has faced
investigation by the US,
UK’s Serious Fraud Office
and French authorities.
• 2011, paid €31m to
Switzerland’s attorney-
general for negligently
failing to stop bribery by
some employees
involving contracts in
Latvia, Malaysia and
Tunisia (FT)
PT PLN (Persero)
Alstom accused of
Bribery for contracts

14. Convention on Combating Bribery of Foreign Public
Officials in International Business Transactions
• Passed in 1997 by OECD
Nations
• Nations supposed to
implement in national law
• Seeks to make bribery an
"extraditable" offence
among OECD nations
• Many countries, particularly
in Europe, have been slow
to implement / enforce

15. United Nations Convention against Corruption
(UNCAC)
• Landmark, international anti-
corruption treaty adopted by UN
General Assembly October 2003
• 145 Countries signed up as of
2011
• States obliged to adopt
coordinated policies that prevent
corruption and designate a ‘body
or bodies’ to coordinate and
oversee their implementation
• Weak take up, as with OECD
Convention

16. Dodd Frank Act 2010: Section 1502
• The Dodd Frank Wall Street
Reform and Consumer Protection
Act 2010, includes section 1502.
• Aimed at stopping national army
and rebel groups in the DRC from
illegally using profits from
minerals trade to fund conflict.
• Section 1502: Disclosure
requirement for companies to
determine whether products
contain conflict minerals
• Must carrying out supply chain
due diligence
• Must report this to the Securities
and Exchange Commission (SEC).
Source: Global Witness

17. Dodd Frank Act 2010: Key Aspects for Business
Section 1502:
“No penalty if companies
cannot determine whether
the minerals they use come
from DRC or neighbouring
countries. The consequence
for businesses that find
themselves in this situation
is that they have to submit
to the SEC a ‘conflict
minerals report’”.
Source: Global Witness
Source: Global Witness

18. Dodd Frank Act 2010: Section 1504
Disclosure of certain payments made
to the federal government or foreign
governments by resource extraction
issuers – companies engaged in the
development of oil, natural gas, or
minerals.
Resource extraction issuer must
disclose payments made to
governments if:
• The issuer is required to file an
annual report with the SEC.
• The issuer engages in the
commercial development of oil,
natural gas, or minerals. Key message: Transparency

19. Dodd Frank Act 2010: Section 1504
• The new disclosure
requirements apply to
domestic and foreign issuers
and to smaller reporting
companies that meet the
definition of resource
extraction issuer.
• In addition, the issuer is
required to disclose payments
made by a subsidiary or
another entity controlled by
the issuer.
Key message: Transparency

20. Dodd Frank Act 2010: Section 1504
“The rules define commercial development of
oil, natural gas, or minerals to include
exploration, extraction, processing, and
export, or the acquisition of a license for any
such activity.”
Types of payments that need to be disclosed
include:
• Taxes
• Royalties
• Fees (including license fees)
• Production Entitlements
• Bonuses
• Dividends
• Infrastructure Improvements issuer. Source: US Government

21. US/EU Timber Regulations
• 2008 U.S. Congress passed
Lacey Act
• Banning trade in illegally
sourced plants and their
products — including
timber and wood products
• Prohibits all trade in plant
and plant products (e.g.,
furniture, paper, or lumber)
that are illegally sourced
from any U.S. state or any
foreign country

22. 2008 Lacey Act
• Importers to declare the
country of origin of harvest
and species name of all plants
contained in their products
• Establishes penalties for
violation of the Act, including
forfeiture of goods and
vessels, fines and jail time
• “Illegally sourced” is defined
by the content of sovereign
nations’ own laws

23. Examples of Lacey Act Violations
• A company in California imports a
shipment of wood flooring from
country X, made from timber that
had been harvested without valid
permits in country Y where it was cut
• An exporter purposefully mislabels a
shipment to the U.S. as less valuable
species to avoid higher tariffs
• A paper company uses pulp sourced
from illegal logging practices and
exports finished paper product to the
United States
• A veneer importer does not identify
the correct country (or potential
countries) of harvest origin for the
species used in his importation.
Source: Environmental Investigations Agency - THE U.S. LACEY ACT:
Frequently Asked Questions About the World’s First Ban on Trade in
Illegal Wood

24. Sanctions…
• Criminal felony fine (up
to $500,000 for
corporation, $250,000 for
individual, or twice
maximum gain/loss from
transaction)
• Possible prison for up to
five years
• Forfeiture of goods

25. EU Timber regulations 2010
• Prohibits the placing on the EU
market illegally harvested
timber and products derived
from such timber
• Requires EU traders who place
timber products on the EU
market for the first time to
exercise 'due diligence'
• Traders obligation to keep
records of their suppliers and
customers.

26. EU Timber regulations 2010
• The Regulation covers a wide
range of timber products
• Application of the Regulation
started 3rd March 2013
• Regulation legally binding on
all 27 EU Member States,
which are responsible for
laying down effective,
proportionate and dissuasive
penalties and for enforcing the
Regulation.
• Degree of enforcement? Hmm

27. CSR Regulation: Denmark 2008
• Mandatory for the
approx. 1,100 largest
businesses, listed
businesses and state
owned public limited
businesses to report on
CSR in their annual
reports on a comply or
explain basis.
• Businesses have to inform
about their CSR practices
or state that they do not
engage in CSR.
Denmark: Least corrupt country
As ranked by perception (TI)

28. Denmark 2008
• Research shows that the
legal requirement has had a
positive effect on CSR
• Majority of the businesses
examined are “working with
CSR”
• Legal requirement has led
to administrative burdens,
research says businesses
regard it as positive, as it is
flexible and they
understand its purpose

29. India’s CSR Law 2012/13
• Mandatory for all
companies with turnover
of Rs 1,000 crore or net
profit of Rs 5 crore to
earmark 2 percent of
their net profit in the
preceding three years for
CSR
• Independent director on
board charged with the
task of CSR
• Separating community
and social development
and sustainability/green
issues
Bhaskar Chatterjee

30. EU CSR?
• Further mandatory EU
company disclosure on CSR
issues coming soon?
• Likely to go beyond current EU
Business Review requirements
• Key question for the
Commission is MATERIALITY
• May be similar to French or
Danish legislation on reporting
• Clearer picture during 2013

31. So what does all this mean?
• Many regulations are
new: The impact
remains to be seen
• FCPA enforcement
appears on the rise
• UK Bribery Act
unproven
• Transparency disclosure
regulations increasing
“The Perp Walk”: More likely

32. So what does all this mean?
• Companies ARE being
prosecuted under Lacey
Act (Gibson)
• Enforcement trends are
only going one way
• Publicity and “shining a
light” are current
methods for change
• BUT enforcement can
change quickly
Corruption riots change politics

33. What can companies do about it?
• Make the business case
for ethics management
• Understand it’s not just
about code compliance
• Develop world-class
ethical management
systems (Shell, Siemens)
• Expand them to all
areas of the business

34. Source: PwC

35. What can companies do about it?
• Do a “culture audit”
• Research suppliers
more deeply
• Find out who owns
what (Governments)
• Report publicly, and
admit mistakes. Be
humble
• Partner and collaborate

36. Thank you!