International conventions against corruption and measures against

corruption in business sector

Vanja Mihajlova, Anti- Corruption Consultant

Skopje, November 16, 2010

Costs of corruption

Corruption hurts everyone; Corruption damages the reputation of the

country and the people who works for it; Corruption is not a trivial offence-it leads directly

to criminal liability; Corruption starts with small favors; Corruption leaves open door to blackmail;

Bribery and Corruption has long been perceived as a major obstacle for socio-economic development and as distorting national and international economic relations;

Corruption damages

More than US$1trillion is paid worldwide in bribes each year, 70% of SMEs face corruption risk in all their business dealings, 40% of companies in emerging markets have no formal or documented ant-fraud policy;

Corruption decreases profit, limits progress and growth of the company and economy in general;

States and international bodies have recognized this and drawn up regulatory frameworks to fight corrupt practices;

Some types of payments for bribe

Cash, Electronic transfers to offshore bank accounts, Financial instruments ( such as bearer bonds

and/or shares) gifts including cars, holidays, property, school fees,” business and personal truism”;

Employing and paying close relative or friend of a governmental official;

Making “donations” to nominated” charities” which are actually private accounts;

Some types of payments for bribe

Offering excessive and inappropriate hospitality and entertainment ;

Sharing the proceeds of fixed price under the budget contracts;

Over invoicing of services and labor; Overcharging raw materials and commodity

prices; Rental of property from governmental officials

or his/her closely related parties at above market rates;

International Conventions

Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, (OECD Convention);

Criminal Law Convention Against Corruption of the Council of Europe (CoE Convention);

Inter-American Convention Against Corruption, adopted by the Organization of American States (OAS Convention);

African Union’s Anti-Corruption Convention, United Nations Convention Against Corruption

(Merida Convention);

OECD Convention

The OECD Convention is covering: the offense of transnational bribery, ancillary or related

offenses, jurisdiction and penalties, international cooperation in the investigation and prosecution of transnational bribery;

The main purpose of the OECD Convention is to require countries to prohibit the bribery of foreign public officials in the same way that countries prohibit the bribery of their domestic officials;

the OECD Convention requires from the counties to enact national laws criminalizing the bribery of foreign public officials with the focus on the supplier of funds;

the person who promises or gives the bribe, in contrast to the offense committed by the official who receives the bribe;

Un Convention Against Corruption

Article 21. Bribery in the private sector Each State Party shall consider adopting such legislative

and other measures as may be necessary to establish as criminal offences, when committed intentionally in the course of economic, financial or commercial activities:

The promise, offering or giving, solicitation or acceptance, directly or indirectly, of an undue advantage by any person who directs or works, in any capacity, for a private sector entity, for the person himself or herself or for another person, in order that he or she, in breach of his or her duties, act or refrain from acting;

Taking measures, to prevent corruption involving the private sector, enhance accounting and auditing

standards in the private sector;

Un Convention Against Corruption

and, where appropriate, provide effective, proportionate and dissuasive civil, administrative or criminal penalties for failure to comply with such measures;

Promoting the development of standards and procedures designed to safeguard the integrity of relevant private entities, including codes of conduct for the correct, honorable and proper performance of the activities of business and the prevention of conflicts of interest, and for the promotion of the use of good commercial practices among businesses;

Promoting transparency among private entities; Entities who have suffered damage as a result of

corruption have the right to initiate legal procedure in order to obtain compensation;

Frequently asked questions by businessmen

Isn't bribery" the way business is done” in certain countries?

Don't companies lose out on business when they say" no” to bribery?

It's possible to do business in regular manner in high level corrupted countries like Balkan's ?

Is corruption prevention very costly? The law prohibits corruption –isn't enough? Is any regulation against corruption? My company has never bribed any public official-is this

insulting, or normal? What actions should be taken if concerned that other

companies may not be meeting these high standards?

What are the obstacles for doing business?

Inefficient and non transparent public administration, generally is addressed as one of key obstacles for efficient functioning of business sector;

The public administration's officials deciding on specific businessmen's requirement (various approvals, permissions, licenses), are using the discretionary rights only in favor of some prefered companies, not acting in public interest;

Additionally- lack of liability of public servants for performing of their duty results with delaying in making decisions on requested service- using different excuses, which goal actually is to receive a bribe or any other service;

Consequences from the corruption

Lack of transparency and accountability-contracts are awarded by direct negotiations “under table”-it's impossible to have access to criteria for reaching decisions;

Limitation of competion,( especially in public procurement process) efficiency and innovations;

Dislocation of resources-instead to invest in increasing of productivity and in new employments funds are using to bribe governmental officials, which increasing the company's costs;

Lack of good governance, uncertainty, weak protection of ownership's rights –impacts on making decision for investment in some country and for distortion of economic growth;

Unfavorable business climate- dissuasive new investment;

Consequences from the corruption

Corruption is large burden especially for small and new companies to enter into market and compete-the big companies enjoy a monopolistic position on the market due to established “business relations with governmental officials” ;

This is notable especially in defining of technical specifications of contract documentation in public procurement process-creating unjustified obstacles to the opening up of public procurement to competition and do not afford equal access for all interested companies;

Instead to invest in innovations and develop their business, SMS,s are preoccupied to survive on the market and try to avoid a bankruptcy;

Low rate of employment;

What business sector can do?

Can this magic circle be overcame? Can the business sector, especially the SME,s

and the new established companies fight against criminal activities and create possibility to conduct their business in legal way?

Institutionally, the regulations promote fair competion, equal treatment and non discrimination of companies on the market;

How this functioning in the practice? Can companies freely participate and compete without any obstacle and not favorising certain companies?

Actions of business sector to combat corruption

The participation of the private sector against corruption is crucial;

The most efficient anti-corruption programmes adopted in some countries, include the private sector in institutional reforms promoting fair competion and good governance;

The business community must undertake positive actions at the public arena-trough supporting the legal and regulatory reforms and improving the corporative governance, better reporting and voluntary standards;.

Some of successful measures are: Open discussion on corruption issue and damages of

corruption on business activities-this topic can not be further tolerate and treated as a taboo;

Actions of business sector to combat corruption

Identifying the roots of corruption, the weakness that create a possibility for corruption and mechanisms trough which it's appears;

Promoting dialog among business sector and governmental officials for insuring that designed policy against corruption will address the needs of business community;

Adoption of action plan, including specific anti-corruption politics, focusing on specific most vulnerable areas-in which the business sector will have a leading role in promoting transparent relations with public sector and adoption of internal auditing over the transactions;

How to prevent corruption in the private sector?

Some actions should be taken in legislative field-to eliminate or change some unclear and confused legal solutions;

The initiatives should be taken by young businessmen;

Adoption of Code of Conduct for enhancing the integrity of public contracts and fair competion, while transparency is consider to take a key role in public procurement;

Informal economy is result of inappropriate implementation of legislation, or due to obstacles or complicated criteria for doing business, especially for small business. Integration of informal (or grey) economy trough certain deductions for SMS,s sector;

How to prevent corruption in the private sector?

Initiatives to limits discretionary power of public servants and tax relief for small business;

Clear and appropriate procedures regarding licenses granted by public authorities for commercial activities;

Preventing conflicts of interest by imposing restrictions, as appropriate and for a reasonable period of time, on the professional activities of former public officials or on the employment of public officials by the private sector after their resignation or retirement, where such activities or employment relate directly to the functions held or supervised by those public officials during their tenure;

Business principles for countering bribery and corruption

Adoption of legislation against corruption-law, anti-corruption programmes and strategies on national level;

However, regulatory approaches alone are unlikely to be sufficient to fight bribery and corruption-in order to be effective on a sector or individual company level, they need to be complemented by private sector commitments;

Businesses should increasingly recognize the benefits of having a no-tolerance position on bribery and corruption. Among other things, it reduces uncertainty and helps to create a more stable business environment; it reduces the likelihood of split loyalties among staff and has positive reputation effects.

Business principles for countering bribery and corruption

Enterprises have to develop effective approaches to countering bribery in all of their activities.

The Principles outline the areas in which corrupt practices can occur: • Bribes • Political Contributions • Charitable Contributions and Sponsorships • Facilitation Payments • Gifts, Hospitality and Expenses • Training

Business principles for countering bribery and corruption

The aim of Principles is to provide: framework for good business practices and risk management strategies for countering bribery. They are intended to assist enterprises to: • eliminate bribery • demonstrate their commitment to countering bribery • make a positive contribution to improving business standards of integrity, transparency and accountability wherever they operate. Companies should commit themselves to a zero tolerance policy towards bribery and the development of a practical

and effective implementation programme.

Business principles for countering bribery and corruption-best

practices

Most large business organizations address the issue of bribery and corruption in their codes of ethics or codes of business conduct and set out expectations of employee behaviour in this area, an organization's commitment to a not tolerance bribery;

position can be made stronger by reference to wider private sector initiatives and frameworks;

These frameworks can also serve as checklist for businesses to ensure that their anti-bribery policy is comprehensive and good practice is followed in policy implementation and monitoring;

Business principles for countering bribery and corruption-best

practices

Ensuring sufficient internal auditing controls to assist in preventing and detecting acts of corruption and that the accounts and required financial statements of such private enterprises are subject to appropriate auditing and certification procedures;

Monitoring and review; Prohibit bribe in any form-directly or indirectly; Commit to implement anti-corruption programs

and strategies; Adoption of programs for good business practices

and strategies for risk management for combating corruption;

.

Best practices

Business community agreed to eliminate bribe of foreign public officials as a manner for doing business, especially in the new market economy (mutual commitment of German businessmen);

Guidelines for awarding contracts:

The principle of public invitations to tender and of open procedures is especially important for prevention corruption. Fair competition in the public procurement and for awarding public contracts;

When public contracts are awarded, anti-corruption clauses shall be included as appropriate;

Best practices

The most developed countries have adopted: Recommendations and Directives for

prevention of bribe and corruption in the business sector;

Regulations for not sponsoring the public administration official or their close relatives or friends;

The awarding of public contracts shall be regularly monitoring as part of administrative and task-related supervision to identify any prohibited influencing factors;

Best practices

When public contracts are awarded, the planning and description of requirements shall in principle be kept separate in organizational terms both the implementation of the award process;

If private businesses are involved in carrying out publicly funded projects, the individual employees of these business shall agree to fulfill their obligations arising from contract;

Imposing of conditions, granting of concessions, approvals, permits and the like setting and levying of fees;

Processing of transactions and operations using internal information not intended for third parties;