Corruption is a species of unfair competition

A VIEW FROM A CORPORATION: A.Westerlaken, ex-CLO Kon.Philips

Electronics N.V.

Enlightened self-interest

• Leaving aside moral objections , fighting corruption is for multinational corporations also a matter of enlightened self-interest , because:

• 1.Tolerating corruption corrupts also own organisation

• 2.International risks for reputation/ criminal prosecution are much bigger than often realized in Europe : e.g. FCPA

Foreign Corrupt Practices Act ( FCPA)

• Recent examples:• Daimler AG agrees with DOJ USA to pay 185 mio dollar to settle US Bribery

Investigation ( WSJ Europe, 24 maart 2010 )• BAE Systems Plc acknowledges guilt and is fined 400 mio dollar (March 2010)

N.B. considerations DOJ• ENI Spa makes a provision for 250 mio dollar for FCPA settlement• AAB announces that it has made a provision of 850 mio dollar “for potential

costs related to US and European bribery investigations• Halliburton must pay 579 mio dollar “to settle FCPA enforcement action (2009)• Siemens settles largest ever FCPA enforcement action and will pay a fine of

800 mio dollar to US authorities ; worldwide settlement of corruption scandal costs Siemens more than 1.6 billion dollar in fines ( NB chairman Supervisory Board and member BoM lose their job and will be prosecuted in Germany)

Enlightened self-interest ( ctd )• Corruption makes corporations vulnerable vis a vis authorities in

countries where corruption takes place ( e.g. regime change)• Corruption is “a race to the bottom”; “who pays most “• Risk that own staff becomes corrupt• Effects on staff morale• Competitive disadvantage for companies that actively fight

corruption ( N.B. Siemens now employs 600 FTE s in compliance )

• Corruption is more expensive for the customer ,for the country , but ultimately also for the own organisation( e.g. involvement of , often questionable, intermediaries; additional costs connected with monitoring , audits etc., risk of blackmail )

The Netherlands

• Until very recently corruption at a national level was severely underestimated

• Internationally : the Netherlands were the penultimate country that ratified the OECD Guidelines (a.o.against bribery ) in 2001; Switzerland was the last ( 21 st) country

• In the Netherlands until appr. 1999 bribes were fiscally deductible as “cost of doing business “

The Netherlands ( ctd)

• Since a few years the perception in the Netherlands of corruption as a “non-issue” has changed considerably

• Some highly publicized cases of corruption e.g. : • “Real Estate Fraud”; • Guarantee of 190 mio euro by CEO Rotterdam

Harbor to entrepreneur van de Nieuwenhuizen• The “Construction scandal “

PHILIPS• Since 1998 thoroughly revised General Business Principles with increased focus on

bribery/discrimination and anti-trust• Wrt bribery e.g. :• Much stronger M&A due diligence• Letters of representation by senior and middle management that no bribery took place

in their units• Supervision by and reporting to Audit Committee Supervisory Board by CLO• Ww network of compliance officers ( 150 people);joint audits by Legal and Internal

Audit• FCPA –e training for selected groups ( incl at least : country management , sales &

service staff , finance , legal and governmental affairs offices)• Risk-assesment policy for appointment,monitoring and extension of

agencies/distributors ( with aid of i.a. TI Corrution Perception Index)• FCPA –e training follow-up with FCPA classroom training • In some cases witdrawal from countries• Discussion on facilitating payments still going on