International Corruption and Fraud: Managing Risks in Brazil and Latin America

International corruption and fraud: managing risks in Brazil and Latin America

28 September 2015

Kpmg.co.uk

2© 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Introduction

Bribery and corruption in the media

KPMG survey results

New ABC law and impact on compliance programme

Anti-bribery and corruption risk areas

Agenda

Managing third party risks

3

Bribery and Corruption in the Media

Vigorous anti-bribery and corruption (ABC) enforcement continues to be a focus of regulators across the globe.

The UK Bribery Act and the U.S. Foreign Corrupt Practices Act (FCPA) are extra-territorial and target companies across many countries and industries.

Bribery and corruption exposures are real and it is important for companies to proactively understand where they may be exposed to bribery and corruption and adopt risk mitigation strategies.

By proactively addressing bribery and corruption risks, companies can help mitigate exposure to enormous fines, penalties, legal, investigative, monitorship costs, and shareholder lawsuits.

Discovering from the New York Times that your company is engaged in bribery and corrupt activity is NOT an example of being proactive!

Alstom Avon GSK Rolls-Royce Walmart

Bribery and Corruption in the Media

© 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

4

2014 Corruption Perceptions Index – Americas

There continues to be tremendous growth opportunities in LATAM

68% of countries score below 50 on the Transparency International Corruption Perception Index

Country Rankings

■ Chile 73

■ Costa Rica 54

■ Brazil 43

■ Colombia 37

■ Mexico 35

■ Bolivia 35

■ Argentina 34

■ Honduras 29

■ Venezuela 19

Source: Transparency International Corruption Perception Index 2014© 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

5

Fight Against Corruption

Anti-bribery and corruption laws and regulations continue to evolve Increased awareness of ABC in the media Enforcement actions are on the rise

1977USA: FCPA

(Foreign Corrupt

Practices Act)

1990OAS (1948):

Fighting Corruption

priority

2000OECD:

Convention on Combating Bribery of

Foreign Public Officials in

International Business

Transactions

2004UN: United

Nations Global Pact

2010Brazil: Draft bill 6826 is available

UK Bribery Act

2013Brazil: Anti

Corruption Act (BAA) was

enacted


6

Survey Results – New Anticorruption Law 12846

Do you believe that your organization could have an active participation in a corrupt act?

Do you believe that the your competitors ignore ethical approaches to accomplish their commercial goals? In other words, do you believe they would bribe in order to accomplish those goals?

Ser ies1

62%

21%

16%

Yes, I do No, I don'tI'm not sure

Ser ies160

%

25%

5%

10%

Yes, I do. They would often do it.Yes, I do. They would rarely do it.No, I don't. They would never do it.I don't know.

Source: Anonymous survey conducted by KPMG during a seminar held with Hogan Lovells in Sao Paulo on 5 February 2014 amongst approx 600 C-level executives.


7

Survey Results – New Anticorruption Law 12846 (continued)

In the last 15 months, has your company actively participated in corruption?

What percentage of the contract amount do you think that your competitor would have to secretively pay (bribe) to secure it?

Ser ies1

33%

67%

Yes, it has No, it hasn't

Ser ies1

39%

31%

23%

8%

0% - 10% 10% - 15%15% - 30% More than 30%

Source: Anonymous survey conducted by KPMG during a seminar held with Hogan Lovells in Sao Paulo on 5 February 2014 amongst approx 600 C-level executives.


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If you are aware of corrupt acts, please mention the reason(s) why such acts were committed.

Do you believe that your organization could be the object of a corrupt act?

Ser ies1

30%

37%

6%

26%

OpportunityPressure to accomplish goalsEconomic problemsAmbition / greed

Ser ies1

85%

7% 8%

Yes, I do No, I don't I'm not sure

Source: Anonymous survey conducted by KPMG during a seminar held with Hogan Lovells in Sao Paulo on 5 February 2014 amongst approx 600 C-level executives. © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with

KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

9


In the last 15 months, has your company suffered any corruption?

Does your company have an anticorruption plan, including proactive, detective and investigative procedures to mitigate corruption risks within the organization?

Ser ies1

58%

42%

Yes, it has No, it hasn't

Ser ies131

%

69%

Yes, it does No, it doesn'tSource: Anonymous survey conducted by KPMG during a seminar held with Hogan Lovells in Sao Paulo on 5 February 2014 amongst approx 600 C-level executives. © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG

International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

10


Does your company have a compliance programme and appropriate processes which comply with the new anti-corruption law?

Ser ies1

30%

70%

Yes, it does No, it doesn't

Source: Anonymous survey conducted by KPMG during a seminar held with Hogan Lovells in Sao Paulo on 5 February 2014 amongst approx 600 C-level executives. © 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International

Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

11

New Anti-Corruption Law in Brazil

Effective as of January 2014

Severe sanctions for a broad range of corrupt practices– Promising, offering, or giving an undue advantage, directly or indirectly, to a public official, or a third

person related to the official;– Financing, sponsoring, or in any way subsidising, the performance of a wrongful act under the law;– Using another person or entity as an intermediary in order to conceal the company’s real interests or

the identity of the beneficiaries of the illegal act; and– Obstructing or interfering with the investigations, audits, and the general work of public agencies,

entities, or officials.

20% of Company’s gross revenue the year before the investigation

Severe sanctions for individuals


12© 2015 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

New Anti-Corruption Law in Brazil – 16 Parameters for Effective Integrity Programme

1. Board and management demonstrates clear and unequivocal support to the programme

2. Standards of conduct policies and procedures all to all employees

3. Standards of conduct policies and procedures are extended, when necessary, to third parties, such as suppliers, service providers, intermediaries, and other associates

4. Periodic training on the integrity programme5. Periodic analysis of risks to keep integrity programme

current6. Accounting records that precisely and completely

reflect the transactions7. Internal controls that assure that reports and financial

statements are readily prepared and trustworthy8. Specific procedures to prevent frauds and illicit acts

within tender processes, administrative contracts or any interaction with the public sector, even if intermediaries are used

9. Independence, in structure and authority, of the internal department that is responsible for enforcing the integrity programme and monitoring its compliance

10. Channels to report irregularities openly and broadly disseminated among employees and third parties, and mechanisms to protect good-faith whistleblowers

11. Disciplinary measures enforced against those found to have violated the integrity programme

12. Procedures that assure the immediate suspension of irregularities or detected infractions and the timely remediation of the damages caused

13. Proper due diligence conducted prior to engagement, and depending on the circumstances, to monitor third parties, such as suppliers, service providers, intermediaries, and other associates

14. Verification, during a merger, acquisition, or other corporate restructuring, of the occurrence of irregularities or illicit acts, or the existence of vulnerabilities in the legal entities involved

15. Continuous monitoring of the integrity programme to ensure it remains effective at preventing, detecting and otherwise addressing the wrongful acts set forth in article 5 of the Anti-Corruption Law

16. Transparency surrounding donations to candidates and political parties made by the legal entity

13

Compliance Programme ElementsDefensible Position

Governance Policies, Procedures and Internal Control

Systems

Communication and Training

Reporting Channels

Auditing and Monitoring

Investigation

Enforcement, Remediation and

Disclosure

Risk Assessment and Due Diligence

Prevention

Detection

Response

Policies developed under the direction of the compliance officer and compliance committee.

Policies and procedures are communicated to all affected employees and business partners.

Mechanisms allow for anonymous reporting of issues or concerns.

Periodic activities to assess employee and third-party compliance.

Development and enforcement of policies and procedures including consistent application of sanctions.

Incident response plan and policies to investigate allegations and concerns.

Effective compliance infrastructure with autonomy from management and

resources to affect sound controls.

Ongoing assessment of internal and external risks.


14

Managing third party risksWhy this matters

0% 100%

60% OF FCPA CASES SINCE 2012 HAVE INVOLVED THIRD PARTY INTERMEDIARIES

Source: Shearman & Sterling, 2014

USE OF THIRD PARTIES (AGENTS/DISTRIBUTORS/CONSULTANTS) HISTORICALLY HIGH IN BRAZIL


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Business culture and confidentiality

Less communication between top management and middle management/employees

Small pool of key decision-makers who are “in the know”

Reactive vs proactive

Most integrity due diligence work tends to be reactive; little appetite for proactive due diligence work

Changes observed in light of Clean Companies Act and recent enforcement

Demand increasing amongst foreign companies in Brazil; change slower with Brazilian firms

Public records Lei de Accesso à Informação n 12.527/2011: In force since May

2012, has made a variety of records publicly available Difficulties in obtaining public records manually However, many databases are available online and provide

comprehensive information (e.g. litigation records for most states, political donations, sanctions by securities commission)

Managing third party risks in BrazilKey challenges


16

Books & RecordsCom

plia

nce

Policies not implemented

Procedures violations

Internal reporting deviations

Cash Gifts Entertainment Commissions

Free goods Customs Licenses and permits Public tenders activity

Unsupported transactions

Intermediaries without contracts

Misclassification of expenses

Inadequately described services

Focus Accounts

Third-party bribery and corruptionWhere to look


17

Questions for you to consider…

How do you rate Senior Management commitment in your business; could you demonstrate this to a

Regulator?

How confident are you that your Risk Assessment correctly identifies the risks you face?

How well can you demonstrate you know who you are doing business with?

Can you be sure you know everyone who is doing business on your behalf?

Rate the Management Information your firm generates; does it answer the questions you need to

address?


Thank you!

Gerónimo TimermanPartner+ 55 (11) [email protected]

Annabel ReochDirector+ 44 (0)20 7311 [email protected]

Alexandra MaddyDirector+ 44 (0)20 7694 [email protected]


The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.


The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

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International Corruption and Fraud: Managing Risks in Brazil and Latin America

Business

Transcript of International Corruption and Fraud: Managing Risks in Brazil and Latin America