Financial crime prevention – How well are you equipped?

olofAML & CTF

Bribery and corruption in Sweden and on a global level

In a world fighting a global pandemic, unfaithful actors take advantage of this fragile situation for personal gain. Drago Kos, Chair of the OECD Working Group on Bribery, said: “The high risk of corruption poses a major challenge to tackling this global health crisis” and that “it is vital countries remain actively engaged in anti-corruption efforts and work together to ensure their efforts to overcome this crisis are not weakened by corruption”.

In the Code to Prevent Corruption in Business (“the Code”) valid from August 2020 and is published by The Swedish Anti-Corruption Institute (“IMM”), several cases of corruption were found in Sweden:

  • Approximately half of the bribery cases in Sweden were bribe attempts to individuals employed within the public sector.
  • Most convictions were reported in the health care and transport sector summarized to a value of 16,6 MSEK, an increase of 246% from 2019.

Is Sweden perceived as a corrupt country?

The Transparency International’s Corruption Perceptions Index (“CPI”), measures perceived corruption in the public sector in 180 countries. Sweden received a score of 85 points for the third year in a row and ranks as the third least perceived corrupt country. The CPI rates countries with a score up to 100 where a higher score indicates a lower level of corruption. In the CPI 2020 index, more than two thirds of the world’s countries were rated below 50 points.

According to Hayaat Ibrahim, Acting Secretary General at IMM, Sweden has a low degree of corruption from an international perspective, but this does not result in Sweden being immune to corruption locally or abroad. Swedish companies conduct business around the global markets must therefore be aware of corruption risks and undertake appropriate preventive measures to prevent them.

The corruption risks related to conducting business in a global market

Corruption results in several negative factors as it deepens poverty, undermines democracy and protection of human rights, harm international trade and prevents investments. Corruption also contributes to reduced trust of societal institutions and the global economy according to Transparency International Sweden. From a global perspective, Hayaat Ibrahim said corruption is a worldwide problem which hinders human rights and sustainable development. It hits hardest on those who are most vulnerable, women and children. Overcoming corruption is a basic precondition for achieving the global sustainability goals in Global Agenda 2030. The CPI index’s results state major corruption challenges worldwide and the importance of prioritizing proactive anti-corruption work and mitigation actions.

If companies establish a clear and robust anti-corruption framework it will increase the trust from their customers and stakeholders’ and contribute to reduced reputational and financial risks. This will help companies in their journey to be sustainable and healthy workplaces and be proactive to avoid fines and criminal penalties.

To summarize, there is a significant need for companies to take preventive measures against corruption tailored in relation to i.e., the risk of corruption which the company is exposed to.

Preventive measures by companies against corruption

The Code published by IMM explains different types of preventive measures against corruption. However, IMM emphasizes the importance for each company to tailor preventive measures by focusing on the corruption risk the company is exposed to.

The Code have outlined following aspects for companies to consider:

Finally, companies must have appropriate systems for due diligence of intermediaries and other third parties and set up procedures to manage corruption risks in relation to other third parties than intermediaries.

Corruption risks and intermediaries

As for intermediaries, IMM explains the need of adequate due diligence processes of intermediaries to acquire relevant information about the intermediary and its representatives and whether the company can trust the intermediary not to act in a corruptive manner. Additionally, IMM stresses the need for intermediaries to perform checks on subcontractors to ensure the company examine internal routines and procedures regarding corruption.

To evaluate intermediaries, companies need to implement systems tailored to ownership structure, business operation, size, and the risk of corruption. A person with sufficient knowledge for the system needs to be appointed for the task, having ownership and hold responsibility. The company must also perform checks, risk assessments, and evaluations in accordance with the Code.

The system must ensure the company perform (i) risk assessments, (ii) checks, and (iii) evaluate intermediaries. Appropriate checks need to be performed prior to engagement with a new intermediary and on a reoccurring basis. Escalation procedure for checks and evaluation of intermediaries depending on the risk of corruption which the intermediary is associated with need to be in place. Additionally, companies must ensure actions and checks are documented and performed independently. In the Code, IMM sections different appropriate actions based on the risk of corruption in which the intermediary is associated with; low, medium, or high risk.

For the performance and extent of (i) risk assessments, IMM states exposure to corruption risks determines the check of an intermediary. The risk classification is determined by:

  • The company’s knowledge and experience of an intermediary, geographic location of the intermediary’s operation, and
  • whether the intermediary operates in, or is exposed to, industries classified as high risk and the way of selecting the intermediary.

Additional factors need to be included in the risk assessment as contract amount, type of contract with the intermediary, the compensation structure and whether the intermediary is linked to public officials or is state owned.

As for (ii) checks and its purpose, checks need to provide answers of the need of using an intermediary, clarifications for the choice of a particular intermediate and if an intended intermediate could be justified. According to the Code, execution of the check must be appropriate in relation to the risk classification the intermediate was given when performing the risk assessment and the primary focus should be the intermediary. However, there might be given reasons to include natural persons associated with the intermediary if the intermediary is a legal entity. On a general level, the check should cover an identity check, control of beneficial owner (if applicable), financial background and the form of renumeration, the intermediary’s attitude towards corruption, to gain knowledge of integrity and reputation and whether the intermediary holds relevant industry experience.

If deficiencies or red flags for an intermediary have not been discovered during a check, the company may continue the process of entering an agreement with the intermediary. However, in the opposite situation where deficiencies are identified, the company must conduct an (iii) evaluation to decide how to handle the deficiencies and whether the process of entering an agreement with the intermediary must be paused, or if actions must be taken to reduce risks connected with the intermediary. According to IMM, a company must “use an intermediary only if the company is reasonably certain that the intermediary will neither give nor receive bribes”.

Example of red flags could be that the intermediary does not want to provide the requested information and shows an involuntary attitude. Other red flags could be that the intermediary does not agree to comply with your code of conduct or that the intermediary holds a low level of knowledge about corruption risks and lacks an implemented anti-corruption framework. Additionally, red flags can involve prior negative actions in relation to integrity and reputation such as negative publicity and legal proceedings concerning bribery.

 

Evaluation of companies’ methods and procedures

Companies need robust systems and procedures to prevent occurrence of corruption. Therefore, it could be appropriate to evaluate the methods and procedures in your company and decide whether there is a need for change and strengthen the anti-bribery and corruption routines.

How can FCG help your company?

FCG can support with several areas, as:

  • GAP analysis on policy documents and processes to identify what measures your company needs to act on.
  • Update and/or establish your Code of Conduct
  • Support with implementation of the anti-corruption framework, e.g., writing a process description adapted to your company, risk assessment, processes, risk model, systems for reporting and/or monitoring.
  • Evaluate and validate your company’s risk model.