Global Anti-Bribery Guidance

Legal requirements and stakeholder expectations are putting pressure on companies to be more open about their structures and operations. Shareholders, investors and third parties will feel confident in being associated with a company that can demonstrate that it operates to fair trading standards, has quality systems and has an effective anti-bribery programme.  Communications about the anti-bribery programme may also deter those who might otherwise attempt to engage the company in bribery or other corruption. 

To ensure transparency, laws and regulations have been introduced to require companies to report on risks and corporate responsibility commitments. With pressure from civil society, governments have also legislated for companies to provide details of their ownership and, in some industries, have mandated country-by-country reporting on income, profits, taxes and other payments to governments. While not part of the anti-bribery programme, these measures strengthen corporate commitments to integrity and reduce opportunities for bribery and corruption to flourish in countries prone to corruption.

Greater levels of corporate transparency around governance and anti-corruption can aid businesses in the following key ways:

Increased Trust - Consumers, investors, employees and other businesses all favour companies with greater levels of transparency. It allows each agent additional clarity when interacting with the firm, often, increasing employee engagement, growing consumer loyalty, bettering investor confidence and improving inter-business relationships. 

Reputation Control - Reputation is built on what consumers think of a company, and without demonstrating what might already be happening internally, people will make their own assumptions surrounding business activities. Companies which are transparent are able to better own their information and retain control of their image and reputation. 

Legislative Incentives - There is also a significant legal incentive for businesses to maintain a certain level of transparency in their affairs. For example, the EU Non-Financial Reporting Directive requires applicable entities to disclose material information on anti-bribery and anti-corruption matters.

Comparative Advantage - Companies which build a strong reputation of integrity and sustainability are able to use transparency as a competitive advantage. Consumers are increasingly interested in business transparency and the anti-corruption measures they take.  Leveraging this increased interest for business transparency for larger profits provides another clear incentive for businesses to raise levels of corporate transparency. 
 

The publication of the elements of an anti-corruption programme demonstrates a company’s commitment to fighting corruption and increases its responsibility and accountability to stakeholders.  Public reporting on anti-corruption programmes can also contribute to positive change as the process of reporting focuses the attention of the company on its own practices and drives improvements in policies and programmes.

Companies should endeavour to report on issues such as anti-corruption and bribery policies, charitable donations and sponsorships, staff anti-corruption training and whistleblowing policies. By companies highlighting their commitment to anti-corruption through these measures, reviewing and identifying if a companies procedures are effective becomes a far easier task, and isolating areas in which there is room for improvement can facilitate greater transparency in the future.

Although public reporting by companies on their anticorruption programmes cannot be equated with actual performance, there is empirical evidence that reporting by companies does tend to reflect the measures they actually have in place within their companies. Indeed, a Harvard Business School study concluded that “on average, firms’ ­self-reported anticorruption efforts reflect real efforts to combat corruption and are not merely cheap talk.”[1]

Large multinational companies operate as complex networks of interconnected entities involving subsidiaries, affiliates or joint ventures controlled to varying degrees by the parent company. These can be registered and operate in several countries, including secrecy jurisdictions or tax havens. If companies choose not to disclose these structures and holdings it can be very difficult to identify them and understand how they relate to each other.

Organisational transparency is full disclosure by a company of its ownership structure and beneficial ownership holdings. This includes reporting details of its shareholders, subsidiaries, significant investments, associates and joint ventures. For subsidiaries, associates and joint ventures, this will cover the percentage interest held by the company, countries of incorporation and countries of operation. This level of transparency should also be upheld to all other third parties with which there is some business relationship. Transparency can also be extended to include reporting on agents and suppliers.

Organisational transparency is important for many reasons, not least because company structures can be made deliberately opaque for the purpose of hiding the proceeds of corruption. To combat this, The Corporate Transparency Act (CTA), passed into law by Congress on January 1 2021, as a component of the National Defense Authorization Act (NDDA), makes it compulsory for US businesses to declare their beneficial owners, creating a registry of millions of owners in the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN), aiding in the crackdown on shadow companies and operational transparency. But more fundamentally, it is important because it allows local stakeholders to know which companies are operating in their territories, are bidding for government licences or contracts, or have applied for or obtained favourable tax treatment. It also informs local stakeholders about which international networks these companies may belong to and how they are related to other companies operating in the same country. In addition, through full disclosure of corporate holdings, stakeholders, including investors, can gain more complete knowledge of financial flows such as intra-company transfers and payments to governments. Ensuring all business associates are held to the same rigorous standard reassures stakeholders that business supply chains are also a place in which corruption and bribery are unable to thrive. Organisational transparency allows citizens to hold companies accountable for the impact they have on their communities.

Organisational transparency supports the anti-bribery programme by helping to build integrity in the markets in which the company operates, aiding due diligence on business associates and ensuring that the company’s structures do not facilitate corruption.

Transparency International assesses organisational transparency in its periodic reports entitled ‘Transparency in Corporate Reporting’ (TRAC) and only gives full points where there is disclosure of all holdings regardless of their materiality. 

For transparency standards to rise consistently, companies must do more to ensure that all corporations involved in their supply chain or business relation are held to the same rigorous standards of transparency that have already been identified. Corporations should explain, not only how they are committed to anti-corruption and transparency, but how it addresses the corruption risk of third parties acting for or on behalf of the company. They should also explain how it conducts risk-based anti-bribery and corruption due diligence when entering into business relationships with third parties. And finally, the company should include reference to its audit rights in its contracts with third parties. 

In taking these steps to prevent the potential for corruption, not only internally, but externally with third parties, companies will gain increased trust from investors, consumers and employees. Ultimately, creating an environment where all stakeholders are confident of low corruption risk throughout a companies’ operations.
 

Beneficial ownership transparency is the disclosure of the natural person who directly or indirectly ultimately owns or controls a corporate entity. This person is referred to as a beneficial owner or a Person of/with Significant Control (PSC). A PSC is defined as the person who ultimately owns, controls or benefits from a company or trust fund and the income that it generates. EU and UK legislation defines a PSC as a person with more than 25 per cent of the shares or voting rights in a legal entity. 

Beneficial ownership transparency helps to trace criminals, reduce the risk of money laundering and reduce the risk of tax abuse, but ultimately, also has large positive impacts on businesses too. These include attracting responsible investment, improved risk management, increased competitiveness and a reception in the complexities of the due diligence process.

Transparency International UK recommends that companies should publicly disclose their ultimate beneficial owners accurately and in a freely accessible format and recommend its third parties to do the same, demonstrating clear transparency throughout businesses’ supply chains and management. But also that companies should publicly advocate that governments adopt data standards for ownership disclosure; in countries where public beneficial ownership registers do not already exist, the company should advocate that governments set up public beneficial ownership registers. 
 

The importance of country-by-country reporting was first recognised in the extractive sector as a way to ensure that revenues from natural resources are used to foster economic and social development rather than line the pockets of kleptocratic elites.

Country-by-country reporting provides a basic level of transparency needed for companies to be held accountable for their activities in a particular country. Disclosing key financial data enables citizens to evaluate whether the company is contributing in a manner appropriate to its level of activity and, in some instances, to provide entry points to identify potential cases of corruption.   When stakeholders have information, they are able to research, question and challenge companies and governments on corporate operations, financial results and the extent to which companies contribute to the economies and societies where they make their wealth.

Furthermore, in light of the current debate on the practices of multinationals that shift profits to low-tax jurisdictions, it is increasingly recognised that country-by-country reporting of payments to governments would not only make global companies more transparent but could also provide a path to tackle aggressive tax avoidance.

In addition, country-by-country reporting provides investors with more comprehensive financial information about companies and helps them address investment risk more effectively. The publication of key financial data provides citizens with the opportunity to understand the activities of a particular company in their country and to monitor the appropriateness of their payments to governments.

We recommend that companies discloses its payments to governments on a country-by-country basis across all of its operations and all relevant payment types, such as revenues, capital expenditure, pre-tax income, income tax and community contributions.

18.2.5.1 Sector CbC initiatives

Country-by-country reporting (CbC reporting) is public reporting by global companies of financial data for the countries in which they operate. Reporting obligations have come into force for the financial and extractives sectors but can be expected to be extended to other sectors. Basic reporting lines are revenues, sales, pre-tax income, tax paid and capital expenditure.

There are continuing legislative developments, notably for the extractives and financial sectors. In 2013, the European Parliament passed a directive requiring large listed companies operating in the extractive and logging industries to report the payments they make to governments.[1] The UK, in accordance with the EU Directive, introduced into law in December 2016 the Reports on Payments to Governments Regulations 2014. In the opinion of Publish What You Pay, an international civil society collation, the first year of reporting succeeded in making host governments more accountable to their citizens, with no evidence of competitive disadvantage to companies.[2] In the USA, however, in February 2017 Congress voted to ‘disapprove’ the rule implementing Section 1504 of the Dodd-Frank Act requiring CbC reporting by extractives companies.[3]

In the financial sector, there have been developments related to transfer pricing. The OECD 2015 Action 13 report provides a template in which Transnational Companies are able to report detailed income tax information on an annual basis for each tax jurisdiction in which they operate. In July 2021, the second set of anonymised data from this initiative was released, detailing the economic activity and tax payments of close to 6000 multinational corporations, operating in over 100 jurisdictions worldwide.

Regardless of the legal obligations, Transparency International and other civil society organisations advocate that companies should be transparent about their operations at country level.  The lack of disclosure on transactions between governments and companies and the use of offshore centres pose integrity risks for global companies and their stakeholders, as well as potentially robbing the local communities in which the wealth is generated. When communities and other stakeholders have information, they are able to research, question and challenge companies and governments on corporate operations, financial results and the extent to which companies contribute to their societies.

The process of CbC reporting is more than information disclosure. It succeeds when there is stakeholder engagement, as explored in the Collective Action and other Enabling Factors section. This is exemplified by the Extractive Industries Transparency Initiative (EITI) which has led the way in preventing wealth from extraction being stolen by bribery and other corruption. For instance, the Democratic Republic of the Congo had a five-fold increase in extractives industries revenues between 2005 and 2015 as a result of the application of EITI methodologies.[5] Over 800 civil society organisations and 200 oil, gas and mining companies participated in this initiative. By taking part in collective action initiatives such as EITI and working with civil society, companies can contribute to eliminating opportunities for governments and corrupt individuals to carry out bribery and benefit from opaque transactions.

Operational transparency is one of the best defences against corruption. It is where the company opens up key processes vulnerable to corruption, within the limits of commercial confidentiality, privacy, data protection and security. Processes include tendering, lobbying activities, community investment and recruitment processes.

Examples of transparency initiatives in community investment and sustainability include BP’s Tangguh Independent Advisory Panel and Baku-Tbilisi-Ceyhan Advisory Group.  Common aspects included transparency around the governance as well as operations and all included regular stakeholder consultations and external reporting.[1] 

Network Rail in the UK has also responded to stakeholders in relation to increasing transparency in its operations.[2]  Another example from the public sector is the Open Government movement, which aims to open up government processes, documents and data for public scrutiny and involvement.[3]

Public reporting is a form of managed communication in which a company provides non-financial information on topics of material interest to its stakeholders. It can be on a voluntary basis but may be required under law. Material topics can be identified by stakeholder surveys and consultation, discussions with frontline employees, third party relationship managers, business units and support functions.

Most global companies’ reporting is driven by legislation, peer behaviour, its inherent value and in response to advocacy by civil society. Public reporting on anti-bribery programmes is developing in a context of increasing legislation for non-financial corporate reporting on culture and corporate governance.

Recognising that individual reporting approaches by companies can confuse and overwhelm stakeholders and encourage cherry-picking and spin, global frameworks have been introduced to standardise reporting and ensure a high and consistent quality. The main initiatives for shaping anti-corruption reporting include:

• Global Reporting Initiative (GRI): The GRI was formed in 2000 to encourage sustainability reporting. GRI upped its approach in 2016 by moving from a reporting framework to a range of Global Sustainability Reporting Standards. An overarching standard covers mandatory reporting on ethics and integrity and basic elements of an anti-corruption programme. This is supported by a specific standard for anti-corruption reporting.[1]
• UN Global Compact (UNGC): The UNGC requires signatory companies to commit to its ten principles, including the 10th Principle against Corruption. Signatories are required to make an annual Communication on Progress, which includes reporting on anti-corruption. The UNGC, in partnership with Transparency International, has published a guide to reporting on the 10^th Principle.

As voluntary disclosures have increased, indices have been developed to measure performance and allow for intercompany comparisons. 

• Transparency International (TI): TI has been at the forefront of assessing companies’ reporting on anti-bribery programmes. TI publishes periodic Transparency in Corporate Reporting (TRAC) indices which assess different groups of companies (e.g. by size, industry and jurisdiction) against a set of indicators. These reports use proxy measures to determine whether companies have designed and implemented certain anti-bribery policies and procedures. They do not attempt to evaluate the effectiveness of companies’ programmes.
• Transparency International UK (TI-UK): TI-UK measures public reporting through the Defence Companies Index 2020 on Anti-Corruption and Corporate Transparency and the Corporate Anti-Corruption Benchmark. It also measures public reporting on political activities in the Corporate Political Engagement Index.
• FTSE4Good: This series of indices assesses environmental, social and governance practices, and includes anti-corruption indicators.
• The CPA-Zicklin Index: This index is published annually and benchmarks the political disclosure and accountability policies and practices of leading U.S. public companies.

Pointer: These frameworks are evolving and companies should consider engaging with the reporting organisations and NGOs to contribute to the development of reporting standards and indicators.

External communication should inform stakeholders of the company’s integrity and fair trading commitments and of the design and implementation of the anti-bribery programme.

Communication can be through a range of channels including the website, social media, annual reports and promotional literature. Tailored communications can inform third parties about the company’s expectations, requirements and operating procedures. These can be set out in specific publications, such as supplier codes of conduct, or dedicated channels, such as a supplier intranet. 

Companies participate in political activities in many ways, such as political contributions, lobbying, and the revolving door between the public and private sectors. When done properly, under the right regulation and scrutiny, corporate political engagement can serve to ensure that laws and regulations set by government are in the best interests of the public. It enables interest groups the ability to understand, track and influence legislation such that policy is informed by those with knowledge and experience in the relevant areas. However, when this influence becomes opaque and skewed towards a small number of powerful companies, corporate political engagement can result in legislation being influenced away from that which is in the public’s best interest.

In 2018, Transparency International UK published the Corporate Political Engagement Index, a comprehensive tool that provides businesses with the best guidance on how to improve their political engagement. A small, anonymous, assessment is provided for businesses to evaluate their current standards of corporate political engagement against the index, which ranks corporations from A to F.

As informed by the 2018 Corporate Political Engagement Index, it is recommended that to best regulate their political engagements, firms should endeavour to create a control environment in which board oversight, guiding principles and the monitoring of corporate political engagement activities are all standard processes. This helps ensure that corporate influence in politics remains ethical and transparent, minimising the risk of reputational damage.