Advice on preventing bribery for companies operating abroad

1. Direzione Generale per la Cooperazione Economica e Finanziaria Multilaterale Coordinamento OCSE-Corruzione Advice on preventing bribery for companies operating abroad R: The offence of bribery is committed in relation to conduct by a public official who requests or accepts money or other undue benefits in order to perform an action relating to or contrary to his official duties. The offence may also take the form of attempted bribery when the public official has indicated that he is willing, for a reward, to perform an action relating to his official duties (Art. 318 of the Criminal Code) or contrary to these duties (Art. 319 of the Criminal Code) and negotiations for this purpose have been initiated. Bribery takes many forms at many different levels, ranging from more or less valuable gifts to officials in order to obtain advantages of all kinds, to enormous sums paid to government ministers. D: What is meant by bribery?

2. Direzione Generale per la Cooperazione Economica e Finanziaria Multilaterale Coordinamento OCSE-Corruzione Advice on preventing bribery for companies operating abroad R: Until the 1990s, bribery of public officials was only prosecuted domestically, while bribery of foreign public officials was considered “necessary” to remain competitive, and money spent on bribes was even tax deductible in many countries’ legislation. In 1997, the OECD Member countries and other countries, aware of the enormous economic and social costs of bribery, adopted a convention to combat bribery abroad. D: What is the OECD Anti-bribery Convention?

3. Direzione Generale per la Cooperazione Economica e Finanziaria Multilaterale Coordinamento OCSE-Corruzione Advice on preventing bribery for companies operating abroad R: Bribery in international economic transactions, by distorting competition, is a factor that lowers civil and political standards within countries. Consequently, measures to combat bribery are being implemented at a number of levels – criminal, commercial and fiscal. The criminal aspects are undoubtedly predominant in all States that have adopted the Convention. D: What are the risks involved in failing to comply with the Convention?

4. Direzione Generale per la Cooperazione Economica e Finanziaria Multilaterale Coordinamento OCSE-Corruzione Advice on preventing bribery for companies operating abroad R: For a number of different reasons of an economic, social and business-related nature. Some of the economic reasons for combating bribery are: It wastes resources that should be used to ensure public welfare (for example, when unnecessary and/or unprofitable infrastructure is built); It distorts competition, resulting in an inefficient allocation of resources (for example, when decisions are not based on the value for money of bids submitted, but on “political favours”); Companies listed on a stock exchange see the value of their shares fall because of investors’ lack of confidence when this illegal activity becomes known and are sometimes excluded from the stock exchange. D: Why is bribery also being combated abroad? (1)

5. Direzione Generale per la Cooperazione Economica e Finanziaria Multilaterale Coordinamento OCSE-Corruzione Advice on preventing bribery for companies operating abroad R: Among the social reasons, the following can be mentioned: The damage caused by a conception of the “public sphere” as something “private” belonging to public officials and used by them illegally for their own personal enrichment; Citizens’ loss of trust in government based on rule of law, leading to attitudes of indifference and cynicism that undermine the democratic conception of government; Illegal activities fuelled by the proceeds of bribery and which are often managed by organised crime. D: Why is bribery also being combated abroad? (2)

6. Direzione Generale per la Cooperazione Economica e Finanziaria Multilaterale Coordinamento OCSE-Corruzione Advice on preventing bribery for companies operating abroad R: Some of the business-related reasons for combating bribery are: Italian companies’ must assume criminal and administrative liability not only in the country in which they are operating but also in Italy; Companies’ reputations are damaged in the eyes of their business partners and public opinion; Companies themselves also consider that employees who engage in bribery are untrustworthy (as they may be likely to embezzle money or accept bribes themselves). D: Why is bribery also being combated abroad? (3)

7. Direzione Generale per la Cooperazione Economica e Finanziaria Multilaterale Coordinamento OCSE-Corruzione Advice on preventing bribery for companies operating abroad R: In 1996, the OECD had already recommended that Member States not consider amounts paid to foreign public officials (of any country) as tax deductible. In fact, the possibility of considering bribes as deductible costs encourages bribery and is tantamount to recognising it as a legitimate practice. In Italy, bribes and costs related to illegal activities are not included among the elements qualifying for deduction from corporate income and do not meet the requirement of being essential to the activity performed. Law No. 289/2002 has formally specified that costs and expenditures related to actions that can be qualified as illegal are not deductible. D: Are bribes tax deductible if the payment is made in connection with a normal commercial transaction and is correctly shown in the accounts?

8. Direzione Generale per la Cooperazione Economica e Finanziaria Multilaterale Coordinamento OCSE-Corruzione Advice on preventing bribery for companies operating abroad The Italian company ABC is competing to build a hospital for the Health Ministry of country XXXX. Its export director has learned that the person in charge of the department that will assign the work is willing to award the contract to the best bidder willing to deposit on his behalf in a bank account in country YYYY (a tax haven) an amount ranging between 10 and 15% of the value of the bid submitted. The representative of the Italian firm knows that its competitors are willing to offer between 10 and 12%. A concrete case (1):

9. Direzione Generale per la Cooperazione Economica e Finanziaria Multilaterale Coordinamento OCSE-Corruzione Advice on preventing bribery for companies operating abroad The Italian company has set up a joint venture with a local firm in country XXXX that is commissioning the construction of the hospital in order to compete for the contract to provide supplies. In addition, if it decides to pay the amount demanded by the person in charge of the department that will assign the work, the Italian company believes that it can make the payment through a company that it will set up in country YYYY (the tax haven), which is not an OECD Member or even a signatory to the Convention, showing the foreign partner as payer. A concrete case (2):

10. Direzione Generale per la Cooperazione Economica e Finanziaria Multilaterale Coordinamento OCSE-Corruzione Advice on preventing bribery for companies operating abroad R: Under the Convention, the company’s legal representative can immediately contact our consular or diplomatic authorities (or those of another signatory country to the OECD Convention) or trade associations (Confindustria or others) to present the situation and ask that action be taken to re-establish the proper tendering procedure. D: What action can the Italian company and its representative take to prevent the offence?

11. Direzione Generale per la Cooperazione Economica e Finanziaria Multilaterale Coordinamento OCSE-Corruzione Advice on preventing bribery for companies operating abroad • R: If the legal representative, or anyone acting on his behalf, were to accept the proposal, he would be an accessory to the offence of bribery, which in addition to exposing him to serious criminal penalties (imprisonment for up to three years or longer in the event of aggravating circumstances), would engage the liability of the company that he represents. The company might then be liable not only for a fine proportional to the seriousness of the offence, but also for disqualifying penalties, such as a ban on doing business, suspension or withdrawal of permits, licences and concessions, a ban on competing for government contracts and ineligibility for tax relief and financing or loss of any such relief or financing already granted. • For the offence of ATTEMPTED bribery, the penalty is reduced by one-third to two-thirds. D: What are the risks for the Italian company and its representative if they accept the proposal?

12. Direzione Generale per la Cooperazione Economica e Finanziaria Multilaterale Coordinamento OCSE-Corruzione Advice on preventing bribery for companies operating abroad R: The person who has acted on behalf of the company, if he meets the conditions defined in Art. 9 of the Criminal Code – a criminal offence by a citizen abroad – would be liable for the offence of bribery, irrespective of the fact that the payment was made to a tax haven that is not an OECD Member and that the amount was paid by a foreign partner. The company would also be liable for the offence under Art. 4 of Legislative Decree 231/2001 if the relevant conditions are met. D: If an agreement is reached on the basis of the proposal made by the foreign official in the ministry awarding the contract, what are the risks for the Italian company and its representative?

13. Direzione Generale per la Cooperazione Economica e Finanziaria Multilaterale Coordinamento OCSE-Corruzione Advice on preventing bribery for companies operating abroad R: The strategy for combating possible practices of bribery includes organisational measures, measures concerning corporate management and staff and, very importantly, monitoring measures adapted to the size of the company and the markets and/or sectors in which it is operating. D: What measures can be taken by individual companies to ensure that they do not become involved in corrupt practices?

14. Direzione Generale per la Cooperazione Economica e Finanziaria Multilaterale Coordinamento OCSE-Corruzione Advice on preventing bribery for companies operating abroad R: An initial general measure is based on identifying at-risk activities and introducing a system of double monitoring of the commitments undertaken. A second measure consists of defining clearly the responsibilities of staff involved in negotiations. A last measure is to ensure transparency in business processes by requiring a detailed report on negotiations and the persons involved. D: What are some of the organisational measures?

15. Direzione Generale per la Cooperazione Economica e Finanziaria Multilaterale Coordinamento OCSE-Corruzione Advice on preventing bribery for companies operating abroad R: To ensure that staff, and especially the most exposed staff, is made aware of problems of bribery by providing specific information on the risks and consequences of corrupt practices. To identify the critical points in business processes where bribery is most likely to occur and to designate an internal structure within the company to which staff can report problems, potential dangers and persons suspected of bribery. To adopt a “code of conduct”. D: What are some of the management measures?

16. Direzione Generale per la Cooperazione Economica e Finanziaria Multilaterale Coordinamento OCSE-Corruzione Advice on preventing bribery for companies operating abroad R: An anti-bribery code of conduct should become part of the corporate “culture”. This has the advantage of making the company’s staff aware of the problems and consequences of bribery, enabling the staff itself to act appropriately if they encounter corrupt practices. The anti-bribery code can either be an independent document or be incorporated into the general rules of the company. D: What should an anti-bribery code of conduct entail?

17. Direzione Generale per la Cooperazione Economica e Finanziaria Multilaterale Coordinamento OCSE-Corruzione Advice on preventing bribery for companies operating abroad R: The OSCE-Organisation for Security and Co-operation in Europe has drafted a WEB page on “Best Practices” in combating bribery aimed primarily at governments. The U4:Anti-Corruption Resource Centremakes available on-line a great deal of information on tools for combating bribery in the economic field. D: Where can information be found on useful tools for drafting a code of conduct?

18. Direzione Generale per la Cooperazione Economica e Finanziaria Multilaterale Coordinamento OCSE-Corruzione Advice on preventing bribery for companies operating abroad R: “Transparency International”, a non-governmental organisation engaged in combating bribery, makes available on its site an “anti-corruption handbook” and “business principles for countering bribery” that are useful tools for preparing corporate rules of conduct for combating bribery. These publications can act as a guide for defining a corporate code of conduct for combating corruption. D: Where can information be found on useful tools for drafting a code of conduct?

19. Direzione Generale per la Cooperazione Economica e Finanziaria Multilaterale Coordinamento OCSE-Corruzione Advice on preventing bribery for companies operating abroad R: Some of the points to be treated may concern: (a) the company’s general attitude towards bribery; (b) ethical principles in negotiations with third parties; (c) the organisational structures responsible for preventing corrupt practices; (c) the penalties for bribery by company employees; (d) definition of what can be accepted as a gift from third parties (for example, ceilings on value); (e) rules of behaviour to prevent bribery; (f) instructions to be followed when faced with corrupt practices. D: Which aspects of work activities can be treated in the code?

20. Direzione Generale per la Cooperazione Economica e Finanziaria Multilaterale Coordinamento OCSE-Corruzione Advice on preventing bribery for companies operating abroad R: The company’s business activity should be subject to monitoring, at least on a sample basis. This means that steps must be taken to verify compliance with negotiation guidelines and the terms of contracts and to monitor the accounting aspects of these contracts. Another useful tool can be to study cases of corrupt practices encountered previously in order to assess the solutions adopted so that these can be used as a guide for similar cases. D: What about monitoring measures?