SGS Performs Audits to Aid With Anti-Corruption Compliance

3/25/2013
In May 2007, Russia opened discussions to join the OECD Convention on combating bribery of foreign public officials in international business transactions. Since then, several legislative changes related to anti-corruption have occurred. The last modification is the adoption of the Federal Anti-Corruption Act on Dec. 25, 2012, entitled "the requirement of organizations to take measures to prevent corruption."

This act amended the 2008 law, notably through article 13.3, which entered into force on Jan. 1, 2013. This article states that companies need to:
  • Designate departments and structural units and officers who will be responsible for the prevention of bribery and related offenses;
  • Adopt protocols on cooperating with law enforcement authorities;
  • Develop and implement standards and procedures designed to ensure ethical business conduct;
  • Adopt a code of ethics and professional conduct for all employees;
  • Create a means for identifying, preventing and resolving conflict of interest; and
  • Prevent the creation and use of false or altered documents.
Following the example of the UK Bribery Act, this legislative reform brings far-reaching consequences. Like the hallmarks of effective compliance programs released through the FCPA guidance by the DOJ and the SEC in November 2011, organizations in Russia are now legally required to design anti-corruption compliance programs.

Implications for companies
This is a major change because failure to comply with the new legislative standard could lead to companies being held liable for "failing to take all measures within their powers."

Unlike the UK Bribery Act which contains adequate procedure defense, nothing comparable appears in the new Russian Law and no guidance has been provided.

Although the Russian federation does not provide for criminal sanctions against legal persons, administrative fines constitute effective penalties given the maximum level applicable is wide ranging, which can be as high as up to 100 times the value of the illegal advantages given, offered or promised. This is also applicable to actions conducted on the behalf or in the interest of the legal entity.

Therefore domestic corporations and foreign companies operating in Russia should first evaluate their existing local compliance program (if any). Then, depending on their findings, they may need to add any element missing according to the new amendment of article 13.3. Finally, organizations have to assess whether their programs are well-implemented to be sure that it satisfies article 13.3.

Considering the content of measures required, various issues are at stake such as conflict of interest management. Another source of difficulty is relationships with third parties: all business partners have to be aware of the new regulation which means that companies may encounter difficulties when they plan interactions with counterparties which lack compliance program within their organizations.

Level of corruption in Russia
Despite the challenges that Russia is facing to fight corruption - in the 2012 Transparency International Corruption Perception Index, Russia was ranked 133 out of 174 with a score of 28 out of 100 - this evolution demonstrates the efforts made to comply with OECD Convention requirements. At the Davos Summit at the end of January 2013, Prime Minister Vladimir Putin stated that 50,000 investigations have been opened. For the year of 2012 in the district of Moscow, 2,000 cases have been initiated.

To moderate these numbers, the Supreme Court stated in January 2013 that only 250 Russians have been charged with major bribery (exceeding 10,000 rubbles ($330) in 2012).

A Supreme Court representative said 1,300 cases have been dealt with in 2012 (in comparison with 1,500 cases in 2009). Sixty percent of the 1,300 offenders involved were sentenced for taking less than 5,000 rubbles. Teachers and doctors account for 22 percent of these small bribe cases.

Russia is considering ratifying the Council of Europe's 1999 anti-bribery convention in 2013. Will this new way of approaching the fight against corruption be fully enforced?

Recommended action
Corporations operating in Russia seeking safeguards may look at the process of certification according to the standard BS 10500:2011 Anti-Bribery Management System (ABMS), which has been designed to respond to and document the "Adequate Procedure" defense in the aftermath of the entry into force of the UK Bribery Act.

SGS Anti-Corruption Services is performing Corruption Prevention Audits to address these issues.

SGS is an industry-leading inspection, verification, testing and certification company.
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