Good Practice Guidelines on Conducting Third …

1 good Practice Guidelines on Conducting Third - party Due DiligencePartnering Against Corruption Initiative (PACI) 09:13 World Economic ForumGenevaCopyright 2013 by the World Economic Forum Published by World Economic Forum, Geneva, Switzerland, All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, or otherwise without the prior permission of the World Economic Economic Forum91-93 route de la CapiteCH-1223 Cologny/GenevaSwitzerlandTel.: +41 (0) 22 869 1212 Fax: +41 (0) 22 786 09:133 good Practice Guidelines on Conducting Third - party Due DiligenceContents4 I. Letter From World Economic Forum Leadership5 II. Introduction and purpose of the guidelines7 III. Guidelines For Conducting Third - party Due Diligence16 IV.

2 Conclusion17 Appendices 18 Appendix A: Internal Due Diligence Questionnaire 32 Appendix B: External Due Diligence Questionnaire 44 Appendix C: Red Flag Checklist 09:13 good Practice Guidelines on Conducting Third - party Due Diligence4 Dear Reader,Companies Conducting business overseas face growing legal and reputational risks. These risks have become even more important because of increasingly complex business regulations worldwide, mounting pressure from regulators, enforcement agencies and civil society, and a dramatic increase in levels of business carried out in higher risk the field of anti-corruption in particular, due diligence obligations on Third parties have recently expanded in the wake of various laws such as the US Foreign Corrupt practices Act (FCPA) and the UK Bribery Act. Under most of these laws, corporate criminal liability can be triggered when the bribe is paid by or through a Third party .

3 Companies are therefore incentivized to look into the details of transactions and their related Third parties to identify and avoid the risk that Third parties could bribe on their behalf. In 2011, the World Economic Forum s Partnering Against Corruption Initiative (PACI) launched a working group charged with developing good Practice Guidelines on Conducting Third party Due Diligence. The Guidelines are aimed at helping organizations mitigate the risk of becoming involved in corruption through Third parties ( agents, suppliers, joint venture partners).Lead by the working group, this document was developed with the input of many members of the PACI community. In addition, a formal round of consultation involved key subject matter experts and partners, including the OECD, the United Nations Office on Drugs and Crime (UNODC), the UN Global Compact, Transparency International and the International Chamber of Commerce (ICC).

4 The PACI team would like to recognize the efforts of the working group: -Jennifer Quartana Guethoff, Deputy Chief Ethics Officer, Deloitte Touche Tohmatsu Limited -Marie-Jos e B rub , Vice-President Administration, SNC-Lavalin Group -Hylton Macdonald, Group Risk Manager, Aveng -Jens Ole Legart, Senior Specialist Business Ethics, Vestas Wind Systems -Randall Corley, Global Compliance Officer, Edelman The good Practice Guidelines on Conducting Third party Due Diligence is meant as a practitioner s guide and is intended for all types of businesses. The Guidelines will not prescribe which Third parties should be subject to due diligence or rate Third - party corruption risk, as these will measures will necessarily differ from company to company. We hope that the Guidelines can make a practical contribution to this concerted effort to create more transparency and mitigate associated sincerely,Elaine Dezenski Senior Director & Head of PACI World Economic ForumI.

5 Letter From World Economic Forum 09:135 good Practice Guidelines on Conducting Third - party Due DiligenceThe fight against corruption has intensified significantly over recent years. Governments from all regions are introducing stricter laws to combat bribery in business transactions. Enforcement is on the rise, with criminal penalties for wrongdoing reaching record levels. The extraterritorial reach of anti-corruption laws also means that organizations doing business and raising capital in multiple jurisdictions can be prosecuted for acts of bribery committed anywhere in the light of this uptick in regulatory and enforcement activity, organizations are devoting more and more resources to establishing policies, infrastructure and processes aimed at fighting corruption within their own businesses and throughout their supply chains. An area of special attention has been the prevention of indirect corruption ( through Third parties), which is explicitly prohibited by the United Nations Convention against Corruption, the OECD Anti-Bribery Convention and the national legislations of their signatory countries.

6 Under many legal frameworks, organizations may indeed be held liable for acts of corruption by their Third parties, their agents, consultants, suppliers, distributors, joint-venture partners, or any individual or entity that has some form of business relationship with the organization. Therefore, before entering into relationships with Third parties, organizations are taking active steps to ensure that potential corruption risks flowing from these relationships are responsibly evaluated and managed. In fact, Conducting risk-based due diligence on Third parties has become a legal expectation in many countries that have ratified the OECD Anti-Bribery Convention and/or the United Nations Convention against Corruption, and Conducting adequate due diligence may help organizations decrease, and under some laws even avoid, the risk of criminal culpability for corrupt Third - party conduct.

7 These good Practice Guidelines are designed to help organizations conduct Third - party due diligence with a view to mitigating the risk of becoming involved in corruption through their Third parties. The Guidelines are relevant to all types of organizations engaged in business activities. They cover both bribery towards public officials and commercial bribery (between private persons).These Guidelines also reflect and build upon the core provisions of the Partnering Against Corruption Principles for Countering Bribery (the PACI Principles) and while they are not meant as a new set of obligations for PACI signatories, they do constitute what is considered good business Practice based on the collective experience of PACI companies and other businesses. What the law saysUS Foreign Corrupt practices Act (FCPA)Under the FCPA, an organization or individual may be held liable for making a payment to a Third party while knowing that all or a portion of the payment will go directly or indirectly to a foreign official.

8 According to US Department of Justice guidance issued on the FCPA, the term knowing includes conscious disregard, deliberate ignorance and wilful blindness. To avoid being held liable for corrupt Third - party payments, the US Department of Justice encourages companies to exercise due diligence and to take all necessary precautions to ensure that they have formed a business relationship with reputable and qualified partners and representatives .UK Bribery ActIn its Adequate Procedures Guidance to the UK Bribery Act, the UK Ministry of Justice states that a commercial organisation will be liable to prosecution if a person associated with it bribes another person intending to obtain or retain business or an advantage in the conduct of business for that organisation . An associated person is defined as an individual or entity that perform services for or on behalf of an organization.

9 In the event of failure to prevent bribery by an associated person, the UK Bribery Act provides that it is a defence for an organization to prove that [it] had in place adequate procedures designed to prevent persons associated with [it] from undertaking such conduct .To access the national anti-corruption laws of other countries that have signed and ratified the OECD Anti-Bribery Convention, visit: Introduction and purpose of the 09:13 good Practice Guidelines on Conducting Third - party Due Diligence6 What the United Nations Convention against Corruption saysArticle 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:a. The promise, offering or giving, directly or indirectly, of an undue advantage to 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 The 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.

10 What the PACI principles saySection ( Business relationships ) of the PACI Principles states that due diligence is relevant for all business relationships with agents, advisers and other similar intermediaries as well as in relation to joint ventures , which also applies to non-controlled subsidiaries, consortium partners, teaming agreements and nominated subcontractors . The PACI Principles also recommend due diligence to ensure that contractors, subcontractors and suppliers have effective anti-bribery policies. The PACI Principles support the inclusion of a wide range of Third parties in a due diligence programme but it is clear from their provisions that the level of due diligence is not the same for all Third PACI Principles establish two basic requirements for business relationships with joint ventures, agents, advisers and other intermediaries.