Anti-Corruption Tools
Due diligence
- As explained in What is corruption, GIACC uses the term "corruption" in the wider sense to include bribery, extortion, fraud, deception, collusion, cartels, abuse of power, embezzlement, trading in influence and money laundering. Consequently, the discussion in this section applies to all such criminal activity.
- Adequate due diligence is an important mechanism for preventing corruption. It can identify a potentially corrupt situation, and will enable the organisation either to take appropriate preventive measures, or to avoid involvement with the potentially corrupt party or project altogether.
- Due diligence should not be a one-off exercise prior to deciding whether or not to enter into a business relationship or contract. It should be an ongoing exercise, with the relevant parties being constantly alert to changing circumstances.
- Due diligence should be tailored to the size of the contract and the extent of the risk. Application of effective due diligence is largely a matter of good training and common sense. Due diligence cannot be so thorough that it results in a business relationship or project not being cost effective. All risk cannot be avoided. The aim of due diligence is a proportionate assessment of the risk to enable a reasoned decision to be made as to whether to proceed or continue with a project, or whether to enter into or continue a business relationship with another organisation. It should also provide some indication of the corruption law in a country.
- The following paragraphs suggest types of due diligence which can be undertaken in relation to different circumstances. They are suggestions only, and will not be appropriate in all circumstances.
- Due diligence on the country in which the project is located: Corruption is more wide-spread in some countries than in others. Operating in high risk countries will inevitably require greater precautions. Enquiries should be made so as to ascertain the level of corruption in that country, the types of corruption most commonly encountered, and the preventive actions which are most effective to avoid such corruption.
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Due diligence on the law: An organisation may incur criminal liability for corruption under the law of its home country and under the law of the country in which the corruption takes place. The organisation should, therefore, obtain legal advice in relation to the law in both jurisdictions. This will assist an organisation to avoid corruption and to deal more effectively with corruption should the organisation or any of its officers or employees encounter corruption (see Dealing with corruption: Organisations). Advice should be obtained on the following, in relation to both jurisdictions:
- The law and penalties in relation to corruption offences;
- Whether it is a defence to bribery if it can be proved that a person paid a bribe only because there were threats of imminent harm to him or another;
- Whether it is an offence to fail to report corruption;
- Whether there is protection from self-incrimination;
- Whether there is protection for whistle-blowers;
- Whether reporting of corruption may provide immunity from prosecution or mitigate any potential liability for corruption;
- How reports of corruption may be made to the criminal authorities;
- How records and witness statements of corrupt incidents should be made so that they are valid under the relevant law;
- How a report of corruption should be made so as to avoid any risk of liability for defamation for the person making the report.
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Due diligence on the project: The organisation should undertake adequate due diligence on the project with a view to assessing the corruption risk. In particular:
- The organisation should establish whether the project is a genuine project, to be built at market prices, or whether it has been wholly or partly contrived for the purposes of creating or concealing a bribe.
- The organisation should establish whether effective project
anti-corruption measures are being implemented. These could
include implementation of the measures recommended in the Project
Anti-Corruption System (PACS).
- Due diligence on the project owner: The organisation
should undertake adequate due diligence on the project owner with
a view to assessing the corruption risk. In particular, the organisation
should establish whether:
- the project owner is taking adequate steps within its own organisation to prevent corruption. It should therefore ask the project owner to supply details of its internal anti-corruption programme;
- the project owner has a reputation for corruption (even though it may have no convictions for corruption);
- the project owner is being investigated or prosecuted, or has been convicted or debarred, for corruption. If so, the organisation should ascertain as far as possible the facts of the case.
- Due diligence on business partners: The organisation
should undertake adequate due diligence on its business partners
(e.g. consortium or joint venture partners, contractors, and major
sub-contractors and suppliers) with a view to assessing the corruption
risk. In particular, the organisation should establish whether:
- its business partners are taking adequate steps within their own organisations to prevent corruption. It should therefore ask business partners to supply details of their internal anti-corruption programmes;
- any of its business partners have a reputation for corruption (even though they may have no convictions for corruption);
- any of its business partners are being investigated or prosecuted, or have been convicted or debarred, for corruption. If so, the organisation should ascertain as far as possible the facts of the case.
- Due diligence on agents: The possible payment
of bribes by the organisation’s agents to representatives of the
project owner or to government officials is a high risk area. Adequate
due diligence needs to be undertaken in relation to the appointment
of agents by the organisation and by its subsidiary or associated
organisations so as to be reasonably sure that the agents will
not pay bribes. In particular:
- The organisation should ensure that all payments to agents are reasonable payments in return for legitimate services;
- The organisation should avoid paying agents in tax havens unless there are genuine and legitimate reasons for doing so;
- The organisation should establish whether agents are being appointed in relation to the project by its joint venture or consortium partners, or by its major sub-contractors or suppliers, or by those parties’ parent, subsidiary or associated organisations. The organisation should then try to establish as far as possible whether or not these agents could be used as conduits for the payment of a bribe.
- Due diligence on key employees: The organisation’s
staff and representatives that have responsibility for contract,
sub-contract and supply tenders; project management; approval of works, materials and services; and the certification
and payment of contractors, consultants, sub-contractors and suppliers,
are all vulnerable to bribery. The organisation needs to take adequate
steps to ensure the integrity of these personnel. The following
are preventive measures which could be considered in appropriate
circumstances:
- If possible, appoint employees to a key position whose integrity has already been established (for example, where the employee has been working for the organisation for some time).
- Where a new employee is to be appointed, obtain a reference from the employee's previous employer. Check with the employer that the reference is genuine. Follow up any unusual or incomplete items in the reference. Ensure that there are no indications in the reference of any previous corrupt conduct.
- Employees of an organisation who are in a position in which
they may receive major bribes could be requested to declare annually to the
organisation:
- their assets, and the assets of their close family
- their directorships and consultancies, and those of their close family.
- Employees of an organisation who are involved in the project should be prohibited from directly or indirectly purchasing shares in any project participant.
- Additional attention should be paid to employees who are operating in corrupt environments, and who may therefore be exposed to corrupt pressures.
- Red flags: The organisation should develop a set of "red flags" which are appropriate to its business. These are warning signs which alert the organisation's employees to potentially corrupt activities.
- Due
diligence tools: The Project
Anti-Corruption System (PACS) includes the following resources which can be used or adapted for
the purpose of due diligence.
- Disclosure Form (pdf) (word): This is a disclosure template. It is completed by the disclosing party, and provides relevant information relating to the disclosing party, its joint venture partners, its major sub-contractors, and the agents of those parties. The information which needs to be disclosed is designed to identify possible corruption risks (e.g. where there could be a connection between a shareholder of a bidding contractor and a government minister, or where the agent’s commission is disproportionate to the legitimate services which it is providing).
- Disclosure Assessment Guide (pdf) (word): This is an assessment template. The recipient of a completed Disclosure Form can use the Disclosure Assessment Guide to help it assess the information provided in the Disclosure Form. The Disclosure Assessment Guide provides advice as to “red flags” and “further enquiries” in relation to each answer that may be given in the Disclosure Form.
Other Resources
Several organisations have developed tools which can
be used to assist an organisation undertake due diligence. These
tools are listed below in alphabetical order according to the
name of the organisation which has published them. Click on the
title of the document to access it. If the following details
are inaccurate or incomplete, or if you are willing to provide a link to tools
to be listed below, please send details to GIACC. Only tools
which are available free of charge will be listed.
Business Anti-Corruption Portal has produced the following anti-corruption resources and tools which can assist with due diligence:
- Integrity System: Model code of conduct; Model risk assessment tool.
- Due Diligence Tools: Tools related to:
- seeking and vetting an agent or consultant
- setting up a joint venture
- implementing a project
- public procurement
- Country Profiles: Information on various countries.
- Information Networks: Contact information to turn to for local help.
Transparency International
TI has published the following indices which attempt to measure the prevalence of corruption internationally.
- Bribe Payers’ Index: (2006)
This index ranks 30 major exporting countries according to the perceived willingness of their exporters to pay bribes overseas. - Corruption Perceptions
Index (2007)
This index ranks 180 countries according to their perceived level of corruption. Numerous organisations worldwide use this index as an aid in their risk assessment systems. - Global Corruption Barometer (2007)
This survey assesses general public attitudes toward and experience of corruption in 60 countries. It assesses which sector is regarded as the most corrupt.
Page updated on 1st May 2008
© 2008 GIACC