Corruption

The United Nations Convention against Corruption (UNCAC) represents agreed minimum global standards to tackle both bribery and money laundering. Signed by 129 nations, it sets out what states should do to prevent and criminalise corruption, and recommendations on international cooperation and asset recovery. In addition, it includes broad anti-money laundering standards. Not all Parties have effectively implemented UNCAC's provisions, but some progress was made recently as States Parties to the Convention have agreed on the implementation of a Mechanism for the Review of Implementation of the UNCAC.

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The OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the OECD Anti-Bribery Convention) sets out legally-binding standards that criminalise the bribery of foreign officials by international companies. Thirty-eight countries have ratified the OECD Anti-Bribery Convention, but the extent to which its provisions have been effectively implemented under national law According to Transparency International few Parties are actively enforcing its requirements, while most have little or no enforcement at all.

The Financial Action Task Force (FATF) is an inter-governmental body that sets global standards for anti-money laundering legislation. It has promulgated 40 Recommendations and 9 Special Recommendations. The 34 FATF member countries perform peer reviews to ensure that each member state's regulations are in line with the recommendations. Currently no country is fully compliant with the FATF standards. The ministers of the member countries have given FATF a renewed mandate until 2012 and in September 2009 the G20 mandated FATF to "help detect and deter the proceeds of corruption by prioritizing work to strengthen standards on customer due diligence, beneficial ownership and transparency".

FATF's standards for Know Your Customer due diligence serve as a useful baseline for banks' policies. The requirement for a bank to know who its customer is and establish their source of funds is the cornerstone of anti-money laundering standards. The following Recommendations are especially important:

• Recommendation 5 provides that banks have an obligation to identify the beneficial owner of the funds offered as deposits. If a bank is unable to do so then it should refuse to accept the funds.

One of the most important aspects of identifying the beneficial owner is to penetrate the often highly complex ownership and control structures of shell companies, trusts, corporate vehicles and secrecy jurisdictions that are used to hide true ownership of funds.

• Recommendation 6 recognises the higher risk posed by Politically Exposed Persons (PEPs) and requires banks to identify them, and carry out enhanced due diligence on their transactions. A PEP is a senior public official, their family members and associates - i.e. everybody who is in a position to potentially divert public funds.

In some countries the risk that a PEP is engaged in corrupt activities and the risk of money laundering is unacceptably high. In deciding whether a country has such a reputation, banks can draw on Transparency International's Corruption Perceptions Index, Freedom House's ‘Worst of the Worst' and IMF reports on revenue transparency. To identify sectors which are corruption prone, Transparency International's Bribe Payers Index is very informative. In addition, the World Bank provides a World Bank Listing of Ineligible Firms and individuals that are ineligible to be awarded a World Bank-financed contract because they were found to have violated the fraud and corruption provisions of World Bank Guidelines.

In December 2003, Transparency International published the Business Principles for Countering Bribery, a framework that helps companies to develop comprehensive anti-bribery programmes. Whilst many large companies do have no-bribery policies, too few implement these policies effectively. The 2009 edition places greater emphasis on public reporting of anti-bribery systems and in recommending that enterprises commission external verification or assurance of their anti-bribery programme. Transparency International has various tools for companies to support them fighting corruption, including the Corruption Fighters' Tool Kit which offers companies innovative anti-corruption methods.

The Wolfsberg Group is an association of eleven global banks largely involved in the field of private banking (banking for wealthy persons). It aims to develop industry standards and tools for Know Your Customer, Anti-Money Laundering and Anti-corruption policies. In this respect the Wolfsberg Group, among others, developed the following standards:

• The Wolfsberg Anti-Money Laundering Principles on Private Banking, which was revised in May 2002;
• The Wolfsberg Statement against Corruption in February 2008.

The following elements should be incorporated in the bank's corruption policy:

The bank will, in its own operations:

• Fully implement FATF Recommendation 5 by identifying the ultimate beneficial owner or controller of funds offered. If banks cannot do so, the funds should not be accepted. This standard should be implemented across all of the bank's global holdings, even if the locally applicable regulations in particular jurisdictions are not at the same standard;
• Fully implement FATF Recommendation 6 by identifying Politically Exposed Persons (PEPs) and conducting adequate due diligence on them, the source of their funds and their transactions. In this respect, the banks should have a system to identify new customers who may be PEPs and existing customers that become PEPs. This standard should be implemented across all of their global holdings, even if the locally applicable regulations in particular jurisdictions are not at the same standard;
• Prevent its employees from paying or receiving bribes, especially if they operate in a jurisdiction that has not ratified or implemented the OECD Anti-Bribery Convention;
• Define sectors, countries and companies that require heightened due diligence, suing tools such as the Corruption Perceptions Index, Bribe Payers Index, Freedom House's ‘Worst of the Worst' and the IMF reports on revenue transparency.

Furthermore, the bank will not invest in companies:

• Involved in corruption practices by carrying out enhanced customer due diligence, using for example the World Bank Listing of Ineligible Firms.

The bank will not:

• Accept funds from PEPs unless they have strong evidence that the funds are legitimate;
• Open accounts for PEPs from countries whose own laws prohibit them from holding accounts outside that country.

Furthermore, the bank will not invest in companies that:

• Have no clear and well-implemented anti-bribery policy;
• Do not publicly disclose revenue payments they make to governments (see sector page on Mining, sector page on Oil and Gas and issue page on Taxation).