The Importance of Effective Policy Writing for Compliance




Last week I was reviewing a company’s supply chain code of conduct which was sent to thousands of distributors around the globe. It was not impressive. Cluttered with unnecessary and complex language, it featured lengthy paragraphs and heavy use of the passive voice. It was written in English but distributed in China and Russia — ignorance of international audience was also a big problem. Further, one paragraph described “the organization’s only mission” and then another paragraph began “One of the organization’s missions,” showing that the organization itself is in need of a consistent policy.

Why it is imperative to have a clearly-written policy? Policy engagement starts with (effective) policy writing, which is the foundation for an effective code of conduct. A policy basically defines the general business guidelines by which the organization operates. Policy, as laid out in a clearly written code of conduct, establishes the compliance and ethics practices on an enterprise-wide level, which can be further distilled into procedures that define ongoing process of work.

Emphasizing effective policy, Carole Switzer, president of the Open Compliance and Ethics Group, raises the question, “When we are trying to engage employees without overloading them with policies, how can we make sure that each employee gets what they need and no more?” She further adds, “In the past, a big challenge has been keeping policies fresh and making sure people aren’t accessing and using old data. How does automation in a policy system address these issues?” Read more…

Compliance Q&A with Nancy Boswell


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Boswell photoNancy Boswell is Director of the American University Washington College of Law’s US and International Anti-Corruption Law Program, a certificate program for practitioners worldwide. CIPE’s Frank Brown discusses Boswell’s academic work, along with general global anti-corruption trends in light of her past leadership of Transparency International USA and her current advisory role at various U.S. and international ethics-centered organizations.

  • The Washington College of Law at American University’s summer program focused on anti-corruption law issues seems to be the only one of its kind in the United States. Can you describe how you conceived of it, how it has developed, and how, if at all, the way it has evolved over these years has surprised you?

The WCL Anti-Corruption Law Program was designed to meet today’s demand for trained public, private, and non-profit sector professionals to carry out integrity and compliance functions.

Public officials are struggling to fulfill the demands of their citizens for more accountable government.  The private sector is confronting a highly competitive global market and, at the same time, a heightened risk of prosecution for illicit dealings.  Development agencies are under pressure to make sure their assistance reaches those in need and is not diverted for corrupt purposes.  Non-profits are pressed to protect humanitarian assistance from corrupt demands under crisis conditions.

The challenge for all these stakeholders is to put into practice what we have learned about fighting corruption.  We have secured global consensus on laws, standards, and practices to address corruption, notably the UNCAC and regional anti-corruption agreements and a host of voluntary private sector integrity and compliance standards.

Today’s challenge is to secure comprehensive, effective implementation and enforcement of these new laws, standards, and practices.  To secure progress on a global scale will take technical capacity and political will. Read more…

Assets or Liabilities: Assessing and Managing Third Party Risk


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According to an Ernst and Young Report, the U.S. Department of Justice said in 2012 that more than 90% of its anti-corruption actions involved the actions of third parties. The heads of compliance programs worry that they don’t know where to begin when designing a process for reviewing all third-party business partners.

Why we are so fretful dealing with third parties? These business partner can be vendors, service providers, distributors – they providing value to a company’s clients, and they are often brand ambassadors. But they also make the job of compliance officers broader and more difficult. Read more…

Debunking Compliance Myths


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Screen+Shot+2015-04-09+at+10.57.20+AMI’ve recently read with great interest a blog series by Michael Scher, senior editor of the FCPA Blog, on the common myths that persist about compliance. In three parts (one, two, and three), Scher takes on views on compliance that once might have been accurate but no longer fit the new notion of what compliance should be. He calls this more evolved version Compliance 2.0 where “compliance officers [are] untethered from the general counsel, working directly with C-Suiters, and participating in many of the company’s most important business decisions.”

In other words, greater levels of independence and influence within the company are now increasingly expected of compliance officers in order for them to be able to do their jobs effectively. The process of moving from Compliance 1.0 to Compliance 2.0 is by no means universally complete but more and more businesses realize that this is where compliance is headed.  Read More...

Should Governments Subsidize Corporate Compliance?

By Matthew Stephenson, Professor, Harvard Law School

This post originally appeared at the Global Anticorruption Blog.

Several months ago I did a couple of posts (here and here) on the Transparency International USA report from a couple months back on verification of corporate anti-corruption compliance programs. That report also got me thinking about a more general question: Should governments provide a subsidy (perhaps in the form of a tax credit) for businesses — particularly small and medium-sized enterprises — to support spending on the design, evaluation, and testing of their anti-bribery compliance programs?

I haven’t yet come across anything that advocates for something like this, so let me make a tentative case for why it might be a good idea:

The basic justification is straight out of Econ 101: Investments in compliance have “positive externalities” — that is, they have socially desirable effects that the companies that invest in compliance can’t capture as profits. So, all else equal, the companies will tend to invest too little (from a social point of view) in compliance — which is, after all, expensive.

One way to deal with this — what we do now — is to impose penalties on companies for the harms that result from compliance failures. (After all, in this case the principal “positive externality” associated with an effective compliance system is a reduction in the probability of the large “negative externality” that results from corporate bribery.) In a perfect world, that should do the trick: If we set the expected penalty (discounted by the probability of detection) at the right level, then firms should have an incentive to invest optimally in compliance and other forms of prevention.  But there are a couple reasons that in the real world, this isn’t working (and isn’t likely to work). Read more…

Compliance Q&A with Nikos Passas


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passas029Nikos Passas is a professor of criminal justice at Northeastern University. He is the author of “Legislative  Guide  for  the  Implementation  of  the  United  Nations  Convention against Corruption,” available for download here. Passas is an expert on the United  Nations  Convention against Corruption (UNCAC), about which he spoke at a conference earlier this month at the George Washington University of Law. His remarks focused on the opportunities and challenges posed by UNCAC, adopted in 2003 as the first global legally binding international anti-corruption instrument. This Q&A conducted by CIPE’s Frank Brown engages Passas further on UNCAC’s impact and potential.

Q: You describe UNCAC as an unprecedented achievement and yet we hear little about it in business-focused, anti-corruption circles in the developed world. Why is that and how might it be remedied?

This is a pity because the UNCAC provisions provide a blueprint for good governance in both the public and private sector. The discussions revolve a lot around instruments that are more directly applied to companies, and this is where the national laws and enforcement practices matter a great deal. The OECD Working Group on Bribery has been very active with the private sector and has been publishing relevant papers and guidelines that align with the FCPA, U.K. Bribery Act and similar laws.

Many UNCAC discussions are limited by the absence of authoritative interpretation of the text and the inter-governmental nature of a lot of UNCAC activities. The Legislative Guide and other UN publications are meant to be consensus documents and thus can only go so far. A way to engage business-focused, anti-corruption circles in the developed world is to start producing high-quality issue papers that discuss and review critically the application of different UNCAC provisions, seek out and develop good practices, engage the creative imagination of researchers, scholars, NGOs and the media. This can be done by organizing symposia and workshops advancing our thinking about practical applications and implementation ideas for diverse contexts, and by publishing guidelines and principles that may inspire collective actions with or without government participation. Guidelines and suggestions can also be forwarded and presented to the Conference of States Parties to the UNCAC and its working groups for their consideration, so that broader consensus and evidence-based knowledge can be promoted by governments too. Read more…

Businesses Exit Pakistan over Corruption Risk


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pakistan business

In a worrying sign for Pakistan’s ability to attract and maintain foreign investment, two prominent manufacturers have announced recently that they are pulling out of the market, citing supply chain concerns including corruption.

“Investors are the backbone of any country. Protection of their interests is an important duty of the market regulators,” noted Shariq Zaidi, Partner Assurance, Ernst & Young Pakistan, in commenting on the need for both government and business to improve the business environment.

Citing corruption issues in its supply chain, the Walt Disney Company pulled approximately $ 200 million worth of yearly textile production from Pakistan and banned it from the list of approved supplier countries, along with other “high-risk” countries such as Bangladesh, Ecuador, Venezuela, and Belarus. Speaking to CNN, Bob Chapek, President of Disney Consumer Products commented, “After much thought and discussion, we felt this was the most responsible way to manage the challenges associated with our supply chain.” The second firm, the Canadian menswear label and retailer Kanati Co., came to a similar decision citing many of the same factors as Disney, although the firm’s co-founder downplayed corruption as a factor in a subsequent interview.

The two firms’ action are a wake-up call, both for those representing multi-nationals’ interests in Pakistan and those Pakistani firms in the multi-nationals’ value chains, according to the Contracting & Procurement Manager at Shell Pakistan, Mehnaz J. Mohajir. “As people who work in companies that are either operating units of multinational companies or suppliers of foreign companies, we should now accept and take immediate actions that improve our working conditions. Among many remedial steps that come to one’s mind, improving our adherence to international standards of ethics and compliance ought to be definitely be on high priority,” said Mohajir. He is also a member of CIPE Pakistan’s Compliance Advisory Committee, which helps guide CIPE’s efforts to improve the country’s culture of anti-corruption compliance. Read more…

Perceptions of Chinese Firms in Africa Tainted by Corruption and Other Abuses


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Nova Cidade de Kilamba, a housing development outside Luanda, Uganda, built by China International Trust and Investment Corporation.

Nova Cidade de Kilamba, a housing development outside Luanda, Uganda, built by China International Trust and Investment Corporation.

The Chinese government’s crackdown on corruption is more than a passing trend, as evidenced by over $700 million in fines levied on foreign firms in 2014 alone. But enforcement has been largely contained to domestic affairs, despite a law on the books forbidding Chinese companies from engaging in bribery abroad.

If Chinese prosecutors were interested in these abuses, one obvious place to start work would be in Africa. A survey released by the Ethics Institute of South Africa, “Africans’ perception of Chinese Business in Africa,” found that 61 percent of respondents report that Chinese companies engage in bribery and other illegal activities in their countries. Read more…

Making Corruption Right: What Do FCPA Violators Owe Their Victims?


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The FCPA Map shows where bribes were paid. Should the citizens of those countries be treated as victims?

The FCPA Map shows where bribes were paid. Should citizens and business in those countries be treated as victims?

Should the U.S. Foreign Corrupt Practices Act (FCPA) be used as a vehicle for restorative justice?

The FCPA is currently enforced with the aim of deterring the bribery of foreign officials. The 1977 law prescribes civil and criminal liability for individuals and entities, with the potential for criminal fines of up to $25 million and imprisonment of individuals for up to 20 years. Those fines go into U.S. government coffers, even when — as is often the case — taxpayers and citizens of an emerging market country are the ones harmed by the bribe.

The theory of restorative justice, on the other hand, seeks to repair the harm caused by criminal acts and heal the community by bringing together victims and perpetrators to diagnose the causes of criminal behavior and determine the appropriate punishment. It aims to offer justice to victims while reintegrating the perpetrator into the community. If this concept were to be applied in an FCPA context, how should we define victims and perpetrators? Andy Brady Spalding of the University of Richmond Law School has an answer. He labels citizens of the host community where bribery occurred as victims and companies that engage in bribery as perpetrators.

Spalding is proposing an alternative approach to FCPA enforcement based on restorative justice principles. In his proposal, the accused multinational corporation (MNC) and Department of Justice (DOJ) would enter into a deferred prosecution agreement (DPA) in which the DOJ would grant a downward departure in fines in return for funding a series of community service projects designed to help the particular local communities where the bribes were made. Read more…

Can Ukraine Stamp Out its Corruption Culture?


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Ukraine’s “Euromaidan” protests were driven by activists fed up with corruption. Can the new government turn things around?

When it comes to opportunity for anti-corruption reform on a massive scale, few countries have ever been as ripe for change as Ukraine today. Western countries and the International Monetary Fund are pushing hard for transparency and clean government. They enjoy unprecedented leverage over Ukraine’s political and economic elites, who need billions in loans to stave off economic ruin. Ukraine’s populace, which took to the streets a year ago to oust a president reviled for his flamboyant corruption, is maddened at the lack of a single, high-profile corruption prosecution since then. Investors, once attracted to Ukraine by a highly educated workforce, cheap industrial assets, and some of the world’s most fertile farmland, have made it clear that corruption is a deal breaker.

Freshly elected Ukrainian leaders committed to reform and European integration are taking seemingly drastic steps on the anti-corruption front. In October, they passed an impressive package of laws that provide the framework to investigate, prosecute and imprison wrongdoers. Just as important, the new laws require the training and monitoring of the tens of thousands of public servants – from traffic cops to school principals to MPs – who collectively represent the “demand side” of Ukraine’s corruption equation.

To implement these new laws and flesh out the details, Ukraine’s elected leaders are turning to technocrats from countries counted as anti-corruption success stories – mostly Georgia and Lithuania. They are laboring away this winter in various ministries and in the Presidential Administration, trying to figure out how to train and empower the men and women who, in the face of a decades-old corruption culture and vastly outnumbered by colleagues benefiting from the status quo, will be the shock troops of anti-corruption reform. Taken together, these are impressive, ambitious moves in a country of 45 million, by far the largest state in the post-Soviet space to attempt such a housecleaning.

All this was on display last week during a fact-finding mission by CIPE’s lead anti-corruption expert in Ukraine, Drago Kos, who also serves as the chairman of the Working Group on Bribery of the Organisation of Economic Cooperation and Development. Kos, a plainspoken man who began his career in the Slovenian police force, spent a week in Kyiv, building rapport and sharing opinions with the Ukrainians at the forefront of the anti-corruption effort. Read more…