HOW TO BRIBE

A TYPOLOGY OF BRIBE-PAYING

AND HOW TO STOP IT

Supported by:

Direct cash

payments

Gift-giving

Favours

Facilitation

payments

Joint

ventures

Inated

invoices

Off-shore

agreements

thebriberyact.com

Discounts

Employment

contracts

Charitable

donations

Training

courses

Excessive

hospitality

Expenses

In-kind

benets

Political

donations

Off-balance

sheet

payments

Transparency International (TI) is the world’s leading non-governmental

anti-corruption organisation. With more than 100 Chapters worldwide,

TI has extensive global expertise and understanding of corruption.

Transparency International UK (TI-UK) is the UK chapter of TI. We

raise awareness about corruption; advocate legal and regulatory reform

at national and international levels; design practical tools for institutions,

individuals and companies wishing to combat corruption; and act as a

leading centre of anti-corruption expertise in the UK.

Acknowledgements

We are grateful to the following for supporting this project throughout as members of the project’s Advisory Committee:

Peter Burrell, Laurence Cockcroft, Chandrashekhar Krishnan, Tony Parton and Bertrand de Speville. We would also like to

thank Barry Vitou and Anne-Marie Ottaway for contributing their specialist expertise and knowledge to this project.

This publication has been kindly supported by Pinsent Masons, a global law rm specialising in white collar crime: www.

pinsentmasons.com

Lead author: Julia Muravska

Editors: Robert Barrington and Barry Vitou

Publisher: Transparency International UK

Published: January 2014

ISBN 978-0-9573410-5-0

credit is given to Transparency International UK and provided that any such reproduction, whether in whole or in parts, is not

sold or incorporated in works that are sold. Written permission must be sought from Transparency International UK if any

such reproduction adapts or modies the original content.

Disclaimer

Every effort has been made to verify the accuracy of the information contained in this report. All information was believed

to be correct as of November 2013. Nevertheless, Transparency International UK cannot accept responsibility for the

consequences of its use for other purposes or in other contexts. Policy recommendations and best practice guidance reect

Transparency International UK’s opinion. They should not be taken to represent the views of those quoted or interviewed

or of members of the Advisory Committee or of Pinsent Masons. Transparency International UK assumes no liability to any

third party for the information contained herein, its interpretation or for any reliance of any third party. The document should

not be construed as a recommendation, endorsement, opinion or approval of any kind. This Guidance has been produced

for information only and should not be relied on for legal purposes. Legal advice should always be sought before taking

action based on the information provided.

FOREWORD 3

INTRODUCTION 4

SECTION 1: WHAT IS A BRIBE? 5

1.1 Cash is (still) King - Direct cash payments 6

1.2 Junkets and jollies - Excessive hospitality 8

1.3 It’s like Christmas. All over again. 10

1.4 In-kind Benets as Bribes: You scratch my back. I’ll scratch yours. 12

1.5 Grease is the word - Facilitation Payments 14

1.6 Charity. What’s not to like? 16

1.7 You say lobby. I say bribery. 18

1.8 Mr Five percent 20

SECTION 2: HOW BRIBES ARE PAID 22

2.1 Bribery through Associates: Middlemen 23

2.2 Bribery through the supply chain: Sub-contractors and Distributors 26

2.3 False or inated invoicing and product pricing. AKA: Fraud. Plain and simple. 29

2.4 Sunny places for shady people. Off-shore arrangements and off 31

balance-sheet payments

2.5 Joint Ventures. For better for worse. 33

2.6 They taught me everything I know! Training Courses 34

2.7 Pocket money. Per diems and expenses. 36

2.8 Rebates and discounts or kickbacks 37

2.9 Employment contracts and consulting agreements 38

SECTION 3 - BRIBERY ON YOUR DOORSTEP 40

Not just a problem over there: examples in the United Kingdom 40

SUGGESTED READING 43

CONTENTS

This handbook should be a must-read for businesses serious about their anti-bribery programme. It is

often said that you learn from your mistakes. But there really is no need. Plenty of other people have

made them for you. Read this handbook and you can learn from them, there really are no excuses.

This handbook is perfect for General Counsel, Chief Compliance Ofcers and anyone in any company

responsible for anti-bribery compliance from the Board of Directors, down.

The purpose is to show how people pay bribes in practice. The examples are based on realistic

experiences or real cases.

Many bribery cases receive little attention. Often the focus is on the international examples in far away

places where, it is sometimes said, you have to ‘pay the man’ to get business done. The impression given

is that it would never happen at home. Yet it does. While the rst two sections focus on the how, why and

when bribes are sometimes paid in a short nal section the handbook covers some examples of more

prosaic bribery, at home. Who said it could never happen here?

Transparency International deserve credit, once again, for putting together a document designed to be

practical and helpful for those keen to avoid falling into the trap of bribery.

Barry Vitou

Partner

Pinsent Masons

FOREWORD

The purpose of this document is to illustrate how bribes are paid in practice, based on legal cases and

realistic experiences. We hope that it will provide information that is useful to organisations and individuals

in raising awareness and training, and to those designing an anti-corruption system that is exible enough

to take into account the many forms of bribery.

The target audience of this publication is anyone who is affected by the UK Bribery Act and similar

legislation. Transparency International’s overall objective in producing this guidance is to help reduce

supply-side bribery. This document is one of a suite of tools to help individuals and companies anticipate,

recognise, avoid and resist bribery.

It is important to note that all the examples in this document are examples of bribery – they are not

intended as ‘dilemma’ scenarios, but as illustrations of how bribes are actually paid in practice.

In this document we have tried both to identify and categorise some of the different types of bribe, and

the ways in which bribes are commonly demanded or paid. Bribes are often indirect - channelled through

agents or intermediaries, off-shore arrangements, joint-ventures, and sub-contractors. Frequently, the

payment of bribes involves more than one of these methods, and could even encompass all of them.

Often, the mechanisms involved in routing bribes to their recipients are complex. While acknowledging the

complexity of many bribery schemes, we have also tried to present them as simply as possible.

Bribe-paying remains widespread. In a recent global survey by Transparency International, more than a

quarter of citizens told us that they had paid a bribe at least once in the past year. In some countries, the

gure was as high as three people in every four. This clearly presents a major challenge for companies

that operate in, or wish to operate in, those markets. However, before becoming complacent, have a look

at section three of this publication. Bribe-paying also happens here today in the UK.

Although we give some simple guidance in each section, and outline certain red ags, the ultimate purpose

of this document is to describe how bribes are paid and not to provide detailed anti-bribery guidance.

There are several other good guides to designing anti-corruption procedures, produced by Transparency

International and others. A key element is a robust bribery risk assessment for each entity and business

unit that is regularly updated, as bribery is not static.

At the heart of any such anti-corruption system lies a requirement to be able to recognise what a bribe is,

and it is that niche which this document is seeking to help ll.

The examples we have used are based on real cases – either known legal cases, or cases that have come

to light in the course of our research. All cases have been anonymised, for two reasons. The rst is that

it is not our intention to name and shame. The second is we have at times simplied and claried certain

complex cases, so that they remain realistic but do not exactly replicate the legal cases from which they

were derived.

Finally, we should point out that this typology of bribery is not intended to be comprehensive. It is a source

book for training, avoidance and for designing adequate procedures to prevent bribery. As the global legal

framework has tightened, ways of paying bribes have become more inventive – although a surprisingly

large number still involve straightforward cash payments. This short booklet is intended to add to the body

of existing knowledge.

INTRODUCTION

Bribery

The offering, promising, giving, accepting or soliciting of an advantage as an inducement

for an action which is illegal or a breach of trust.

Business Principles for Countering Bribery

SECTION ONE – What is a bribe?

1. Cash is (still) King – Direct cash payments

2. Junkets and Jollies – Excessive hospitality

3. Bribery in the form of gift-giving

4. Favours to friends or relations

5. Facilitation payments

6. Bribes disguised as charitable donations

7. Bribes disguised as political donations

8. Bribes masked as commissions

Direct Cash Payments as Bribes

1.1 CASH IS (STILL) KING

EXAMPLE 1: Grease payment

One-off payment to secure an import permit

• A company providing oil services needs to import

a spare part into a Caribbean country. Without it, a

drilling rig faces shutdown at a cost of hundreds of

thousands of dollars per day. The part is held up in

customs.

• A local customs ofcial handling the transaction

refuses to release the component, saying that the

company’s license only permits temporary imports,

and that this spare part is a permanent import.

• This is the rst time that the company had heard of

this, and it had no previous issues with importing

similar parts.

• Still, the customs ofcial assures he can provide a

permanent import licence, but to process it would

take three weeks unless he worked late each night

and all weekend on the paperwork. He does not get

paid overtime, he adds pointedly.

• A delay could mean the oil services company losing

an important client as well as facing additional

storage charges, so the company offers to make a

cash payment to the ofcial as ‘overtime’.

• To avoid awkward questions over the payment,

the company records the payment in the books as

‘consulting fees’.

EXAMPLE 2: The out and out bribe

Single payment to obtain a contract

• A bank in a Western European country is competing

for a mandate to privatise a state-owned utility

company.

• It is a competitive tender and to win the mandate it

has to put together a consortium of partners with the

right capacity.

• The government ofcials running the tender hint

that the bank’s bid would get much more favourable

consideration if it appointed a particular broker.

• The bank appoints the broker named by the ofcials.

The public ofcials also note that it is normal business

practice for cash payments to be transferred to the

personal Swiss bank accounts of the CEO and senior

management of the broker. They say it is an unofcial

but expected ‘token of appreciation’ of the broker’s

great work.

• A senior manager with the bank nds out that the

broker is in fact partly owned by the ofcials, and

realises that transferring the cash would amount to a

bribe. But he is under pressure to win the mandate

and feels that since they have come this far already,

and there is no turning back. He agrees to make the

payments.

EXAMPLE 3: Bribery on the never never

Regular payments to retain a contract

• A management consulting rm has won business

from a state-owned energy company in Eastern

Europe.

• Six months into the project, at the contract review

date, the energy company threatens to terminate the

contracts blaming the unsatisfactory progress made

by the management consultants.

• At the same time, some energy company ofcials

let it be known that the contracts could be extended

for three years if certain key executives start to feel

a greater personal attachment to the management

consultancy.

• To keep the business, the lead consultant on the

project starts to transfer monthly cash payments of

USD 5000 each to 4 senior employees of the energy

company. He has dummy contracts drawn up saying

that the executives are providing private advice on

local “laws and customs” involved in doing business.

• After all, USD 20,000 monthly expenditure seems

small when compared to the monthly revenues. It is

booked as ‘advisory service fees’.

DESCRIPTION

Although an apparently blatant form of bribe-paying, many bribes globally still come in the form of cash

payments, alongside “in kind benets”, such as luxury goods.

This is especially true in countries with cash economies. Even though cash is the most straightforward means of

bribery, the way that the bribe money is routed can be quite complex and involve several stages.

GUIDANCE – LOOK OUT FOR RED FLAGS AND FACT PATTERNS

Avoid getting into a situation when a bribe may be solicited or demanded

• For example, be aware of red ags such as whether demands for cash bribes are prevalent in this country

or industry.

• Build in longer lead times to avoid being exposed to ‘offers’ to speed up a lengthier process with the use of

unofcial ‘rush’ or ‘express’ services.

• Avoid using procedures that require cash as much as possible, especially when paying suppliers. Refer all

emergencies requiring cash payments to compliance.

Know how to deal with it if asked for a bribe

• Make sure key staff are trained in techniques to avoid paying bribes.

• Ensure that any staff who withdraw from a business opportunity because they refuse to pay a bribe know

they will have the support of their line managers and senior managers

Be alert to others who may be paying bribes

• Are there signicant cash transfers that are booked under generalised cost headings?

• Does the company appear to be retaining a particular contract even when under-performing or in a market

where competitors might be pricing more keenly?

SOURCES OF FURTHER GUIDANCE

• Adequate Procedures and the UK Bribery Act – p. 27 Section 5: Detailed Policies and Procedures

• http://www.transparency.org.uk/working-with-companies/adequate-procedures

• Doing Business Without Bribery – Section 2: Common bribery challenges www.

doingbusinesswithoutbribery.com

• Resisting Extortion and Solicitation in International Transactions – scenario 12 & 13, pp. 26 – 28 http://www.

transparency.org/whatwedo/pub/resist_resisting_extortion_and_solicitation_in_international_transactions

EXAMPLE 4: Never too late...?

Taking a short-cut to achieve a target

• An importer receives a late consignment of seasonal

products for export. They will help him retain the

business of a major supermarket client.

• The products have a short shelf life and require

various permits from three Ministries in the relevant

country – food, exports and customs.

• The process to obtain the permits normally takes

8-12 weeks. But this is too long for the shelf life of the

goods.

• A local intermediary hears of the predicament

and offers to speed up the process but the cost is

USD6,000.

• A payment this size would eat into the prot margin

for the consignment but help to retain the longer-

term relationship. The importer agrees to pay the

intermediary, who uses the cash to bribe the mid-level

ofcials who can issue the permits.

Excessive Hospitality as Bribery

1.2 JUNKETS AND JOLLIES

EXAMPLE 1: Hospitality offered in breach of

company policy

• A cosmetics company relies on door-to-door sales.

It is trying to expand into a large developing country,

but direct sales are strictly regulated through licenses

there.

• Licenses usually take up to a year to get, and

meanwhile the country manager has obtained a

quasi-legitimate ’interim’ licence from a senior ofcial,

• To avoid the rigorous inspections needed for

ofcial license, the company’s country manager

tells salespeople to “treat” junior inspectors to free

company merchandise in return for their “leniency”.

He gives them each $1,000 worth of merchandise to

dispense.

• At the same time, the country manager decides

to take care of the senior inspectors and licensing

ofcials through a hospitality ”programme” including

dinner invitations to exclusive restaurants.

• Although company policy prohibits gift-giving and

hospitality to government ofcials, the salespeople

agree to since a senior manager suggested it.

EXAMPLE 2: Hospitality offered to an individual with

decision-making power and inuence over

new business

• A company specialising in surveillance technology

would like to make sure that its contract with the city

police force is extended.

• The company buys high-value Formula One tickets

for two senior police ofcers who join company staff

at the event.

• In casual conversation at the event, the company’s

employees hint to the police ofcers that there would

be more such invitations for them in the future if the

city police force were to remain a client.

• The ofcers convince their colleagues in the

procurement department to extend the company’s

contract, even though another company submitted a

bid that represented better value for money.

EXAMPLE 3: Hospitality used as a facilitation

payment to secure a permit

• A company selling specialist road equipment in

an Asian country needs safety certication for its

products from a government agency.

• The government agency is under-resourced and has

a backlog of applications, but the company needs to

move quickly to consolidate the market.

• The country manager offers ofcials from the agency

a series of overseas training trips, in return for a “rush

job” in processing the license application.

• Although described as training trips, the trips are in

reality an excuse to offer the ofcials hospitality in the

form of hotels, per diems and tourist activities.

• The ofcials make sure the company jumps the

application queue.

• The company’s country manager arranges the

overseas trip through a local travel agent, concealing

the expenses as corporate travel costs.

EXAMPLE 4: Excessive hospitality for a senior

government ofcial

• A telecommunications company is competing for a

lucrative tender announced by a state-owned Railway

Authority of an African country.

• The Railway Authority is part of the Ministry of

Transportation, and the Minister of Transportation has

a decisive say over who wins the contract.

• The telecommunications company hires local

consultants, who organise a week’s luxury trip in

Europe for the Minister as part of a’ relationship-

building’ exercise. One day of the trip involves seeing

the company’s communications equipment in action

in another railway company.

• To keep the expenses of the luxury trip out of the

books, the consultants submit inated bills to the

telecommunications company for their services.

• The telecommunications company approves and

pays the invoices. It then wins the contract.

DESCRIPTION

Offering and receiving corporate hospitality is a widespread business practice. It can be an effective way to

create, build and strengthen relationships that are an important part of many business operations. The danger

is when it becomes excessive or lavish, or is offered in situations such as a restricted period during a tender,

hospitality can easily cross the line from an acceptable business practice into an illegal bribe. Regulators are

likely to ask whether hospitality is ‘reasonable, proportionate and bona de’. Any hospitality, offered or received,

that might not pass this test should be treated as a red ag.

GUIDANCE – LOOK OUT FOR RED FLAGS AND FACT PATTERNS

Someredags:

• Is it in line with company policy?

• Who is being given hospitality?

• Could the hospitality inuence the award or extension of business or a contract?

• The recipient says they’ll have to take the day off. They’d never be allowed to go ‘ofcially’.

• Might competitors or a regulator think it is a bribe?

• How would this be perceived by others (e.g. the media)?

Set reasonable, clear limits

• These should set out precisely how much is acceptable to spend on corporate entertainments and

hospitality in a given situation and/or country

• These should be recommended by country managers and reviewed regularly

Implement a review and approval process

• All entertainment should be authorised by management

• Ensure that requests outside of set parameters in the policy require a detailed application and rigorous

approval process.

SOURCES OF FURTHER GUIDANCE

• Adequate Procedures and the UK Bribery Act – pp. 11 & 33 - 40 http://www.transparency.org.uk/working-

with-companies/adequate-procedures

• Doing Business Without Bribery – Section 3: Bribery challenges in business - scenario: ‘Doing business

without inducements’ www.doingbusinesswithoutbribery.com

• David Lawler, Frequently Asked Questions in Anti-Bribery and Corruption, pp. 374-375

• US Department of Justice (DOJ) Opinion Procedure Release 07-01 and 07-02 http://www.justice.gov/

criminal/fraud/fcpa/opinion/2007/0701.pdf ; http://www.justice.gov/criminal/fraud/fcpa/opinion/2007/0702.pdf

• FCPA Guide – pp. 15-16 & 17-18

• http://www.justice.gov/criminal/fraud/fcpa/guide.pdf

Bribery in the form of Gift-Giving

1.3 IT’S LIKE CHRISTMAS.

ALL OVER AGAIN.

EXAMPLE 1: Excessively lavish gifts offered to

government ofcials

• A subsidiary of a major global defence company wins

a contract to supply the security services of a country

in the Middle East.

• The security services are in charge of protecting the

Royal family, and all of its suppliers need to be vetted

and approved by the Ministry of Interior.

• The defence company’s regional sales agent uses

the corporate ‘business development fund’ to buy

luxury cars for Interior Ministry ofcials in charge

of approving suppliers, and designer jewellery for

their wives.

• The agent then tells the defence company that such

gifts are a “normal” part of doing business in the

region, and they are proportionate to the size and

value of the contract. The regional director feels the

gifts are probably too excessive to be “routine” but

decides not to enquire too deeply as the revenue

from the contracts is too large to lose. Instead, he

signs off on the gifts.

EXAMPLE 2: Gifts offered to an individual

with decision-making power and inuence over

new business

• A multi-national company selling power and

automation technologies is bidding for contracts from

the energy ministry of a Central American country,

through its local subsidiary.

• The competition is tough, and the subsidiary’s

management follows the advice of its local ‘xer’

to make ‘suitable’ gifts to the procurement ofcials

from the Ministry. This will enable them to obtain

condential information on rival bids.

• The xer explains that is how business is normally

done in this market, and the rival companies will be

doing the same thing.

• Through the xer, the local subsidiary’s management

arrange a gift, the latest iPad, to each of the Energy

Ministry’s key ofcials.

• The company receives information on the bids

of its competitors and submits a bid with “better”

specications.

DESCRIPTION

As with hospitality, gifts can be an important way to build and strengthen relationships that are essential to

smooth business operations. In some countries, low-level gift-giving is a normal part of doing business.

The problem is that when gift-giving starts to become excessive or lavish, it can easily cross the line and turn

an acceptable business practice into an illegal bribe. Regulators are likely to ask whether a gift is ‘reasonable,

proportionate and bona de’. Any gift, offered or received, that might not pass this test should be treated as a

red ag – particularly if it is offered in secret or is hidden in some way. Some companies have banned the giving

and receiving of gifts altogether. However, such a strategy is likely simply to force the practice ‘underground’.

After all, bribes do not necessarily have to involve cash to be considered a criminal act or to breach a company’s

policy. For example, gift-giving to potential clients, business contacts, or government ofcials may also be

bribery. Sometimes, those wishing to disguise bribery may give an extravagant gift because they feel it is easier.

.to hide than a straightforward cash bribe. Such gifts may be of relatively large value – for example, a luxury car,

or an expensive watch.

GUIDANCE – LOOK OUT FOR RED FLAGS AND FACT PATTERNS

• Could the gift(s) be considered excessive in value?

• Is the giving of gifts in line with company policy? e.g. does the gift exceed the company’s upper value limit

for the giving of gifts?

• Who is being given a gift? e.g. is the recipient a foreign public ofcial?

• Can the giving of a gift be seen as seeking to gain inuence/favourable treatment, or perceived by others as

a bribe? e.g. competitors, regulators or the media

• Could the nature of the gift or the timing of the gift-giving inuence the award of business or a contract?

• Are agents or other intermediaries involved in the gift-giving?

• Is giving a gift the cultural norm in a specic country – and if so is it possible to give the minimum

acceptable gift without breaching company guidelines?

Set reasonable, clear limits

• Ask the country manager to recommend limits on how much a gift may be worth

• Ensure managers approve all gifts

• Report all gifts to foreign ofcials to the compliance department or equivalent

SOURCES OF FURTHER GUIDANCE

• Adequate Procedures and the UK Bribery Act – pp. 11 & 33 - 40 http://www.transparency.org.uk/working-

with-companies/adequate-procedures

• David Lawler, Frequently Asked Questions in Anti-Bribery and Corruption, p. 379

• FCPA Guide – pp. 14-15 & 17-18

• http://www.justice.gov/criminal/fraud/fcpa/guide.pdf

Favours

1.4 IN-KIND BENEFITS AS BRIBES:

YOU SCRATCH MY BACK.

I’LL SCRATCH YOURS.

EXAMPLE 1: Individual using connections or

position as a bribe

• A provincial bank in southern Europe would like to ll

in a vacant position on its board. One of the current

board members is very well connected and wields a

great deal of inuence over the decisions of the board

appointments.

• He proposes for the vacant position a soon-to -be

retired CEO of a mortgage brokering rm of his

acquaintance, who is a reasonably suitable but not

exceptional candidate.

• As a mark of gratitude, the mortgage broker’s CEO

arranges an unusually low-cost mortgage for the

bank’s board member who is buying an investment

property.

EXAMPLE 2: Favour to a personal contact in

exchange for a business investment

• A UK private equity rm urgently needs to raise a

capital pool through attracting investment.

• The business development director believes that a

North African sovereign wealth fund would be the

ideal source for this.

• However, competition is high and the private equity

rm is relatively small.

• The business development director realises that the

father of one of his childhood friends has just been

appointed the deputy CEO of the sovereign wealth

fund.

• The business development director asks his friend to

convince his father to approve the investment.

• In return, the business development director offers

his friend’s sister a job in his expanding company,

ensuring that she will be granted a residence permit

in the UK.

EXAMPLE 3: It’s not what you know –

it’s who you know. Giving favours in a

rigged procurement process.

A company manufacturing urban waste management

equipment is expanding into a former Soviet Union

country.

• The company aims to supply infrastructure projects

there, which are managed by state-owned entities.

These outts have to date relied on state-owned civil

engineering institutes to construct and develop their

projects.

• Breaking into this market is tough, as the civil

engineering institutes have a virtual monopoly, but

projected prots are a big incentive to try and there

are opportunities to become major sub-contractors to

the civil engineering institutes.

• The wife of the manufacturing company’s country

manager is a local and a former civil engineer. She

is still well-connected to the directors of several state

engineering institutes.

DESCRIPTION

Bribery takes many forms and one of the most difcult to pin down is the exchange of favours. There will always

be some individuals or organisations that can promote the interests of a public ofcial or a business person

through privileged connections or status. This person is then expected to “return the favour” – for example,

providing potential contractors with condential bidding information on rival bids, choosing a particular contractor

rather than other more suitable ones, or granting an export license. The common theme is that favours are

often secured with reciprocal favours and money does not necessarily change hands. Cronyism and nepotism

are also examples of these types of bribery, where favours are given to decision-makers’ friends or relations

to extract unfair advantage. Such favours may come in many forms, including jobs, residence permits, or the

provision of education and healthcare.

Variations: Clientelism and patronage are situations similar to cronyism and nepotism, in which there is a

systematised exchange of favours between a “patron” and his/her “clients,” dependents or protégés.

GUIDANCE – LOOK OUT FOR RED FLAGS AND FACT PATTERNS

Someredags:

• Is there an improper advantage being offered in return for a service? e.g. privileged access to a service

otherwise difcult to obtain.

• Are family, friends, or the company gaining an exclusive advantage through the exchange of favours?

• Are normal, fair or regulated selection processes being circumvented by the exchange of favours?

• Are certain business decisions, such as employment decisions, being made without apparent regard to

merit?

• Is privileged access being offered to a particular service through a person’s connections or status, where it

is clear this person is exploiting his or her power and authority?

SOURCES OF FURTHER GUIDANCE

• FCPA Guide – pp. 14-15 http://www.justice.gov/criminal/fraud/fcpa/guide.pdf

• Alexandra Addison Wragge,HowtoPayaBribe:ThinkingLikeaCriminaltoThwartBriberySchemes,

Chapter 1 by Ken Silverstein, pp. 9-11.

• She asks the directors of the two main engineering

institutes to design and construct projects that

would explicitly favour her husband’s company by

incorporating elements of the specication which

only her husband’s company can meet and rigs the

procurement process as a result.

• In return, she promises to use her husband’s

connections to secure enrolment of the directors’

children in exclusive European schools.

EXAMPLE 4: Jobs for the boys. And girls.

• A bank expanding into a new country has identied

very high potential prots from corporate services, but

market entry is more difcult than expected.

• To attract corporate clients, the country business

director decides to draw on his extensive social

network in the local business sector. He has

decision-making power over hiring staff and interns

in his own operating unit, and can make strong

recommendations for hiring of his own staff and

interns elsewhere in the bank’s global operations.

• He asks his contacts (who are at senior-executive

and senior-management level) to persuade their

operating units to switch their corporate accounts to

his bank.

• In return, he promises to hire their children and

relatives for internships and entry-level positions

through the bank’s work experience and graduate

recruitment scheme. For particularly good corporate

clients, he assures them that friends or relatives

would be hired for more senior roles in the business

development department of his own operating unit.

Direct Cash Payments as Bribes

1.5 GREASE IS THE WORD –

FACILITATION PAYMENTS

EXAMPLE 1: Payment to complete a

“blocked” transaction

• A biochemical pesticide company operating a factory

in a North American town has its stores of corrosive

chemicals guarded at all times.

• The local police provide this service but the ofcer

in charge requests ‘special allowances’ from the

operator.

• Without payments from the operator, the police refuse

to allow the chemicals to be moved from the storage

bunkers to the production line citing safety concerns.

• Concerned with resolving the delays in production

quickly rather than increasing them even further by

reporting this incident, the site manager authorises

cash payments of travel and meal allowances in cash

to the senior police ofcer.

EXAMPLE 2: Queue jumping – regular payment to

ensure a company’s operations are handled more

quickly/efciently than competitors’

• A railway parts manufacturer has a contract for sales

of brake blocks to the Ministry of Transportation of a

Central European country.

• Before the blocks can be delivered, a government

agency must inspect and certify them for standards

and safety. The inspections are conducted at the

company’s warehouses.

• In order to make sure that the government inspectors,

who are known for delays and missing appointments,

would conduct the inspections regularly and on time,

the warehouse manager pays them USD 2,000 each

month.

• This helps the manufacturer to gain a reputation for

reliability and become the preferred supplier to the

Ministry of Transportation.

• As it is illegal for public ofcials to receive additional

payment for performance of their routine duties, the

manufacturing company recorded payments in its

books as consulting expenses and supplies.

EXAMPLE 3: Queue jumping – utilities connection

• A drinks distribution company has just opened a new

sales and distribution ofce in the provincial capital of

a South Asian country.

• The General Manager is told by his local staff that it

will take 12 months to obtain a phone and broadband

connection, which is necessary to communicate

both to his eld agents and head ofce. Mobile

and satellite alternatives either do not work or are

signicantly beyond the budget.

• After complaining to the landlord of his ofce suite,

the General Manager is told that a connection can

be made within the next week for a one-off payment

of $500. The General Manager asks whether it is

an ofcial fast-track service, and is told that it is an

unofcial service but quite usual.

• He agrees to pay the $500 and the line is connected.

EXAMPLE 4: Getting what you are entitled to

• A middle manager of a North American spare parts

manufacturing company arrives off a ight at an

airport in a South American country where the

company would like to set up a manufacturing plant.

• He is entitled to obtain a visa on arrival, which the

country’s embassy has told him will cost US$75.

• However, the immigration ofcial at the airport

demands US$250 insisting it is the usual fee for a

visa obtained on entry.

• The manager pays the fee as he is tired, does not

want to ask annoying questions, and he can re-claim

it on expenses.

DESCRIPTION

Facilitation payments are small bribes, also called a ‘facilitating’, ‘speed’ or ‘grease’ payment, made to secure

or speed up a routine or necessary process to which the payer is entitled anyway. In this way, a transaction

is “facilitated.” For instance, paying off a customs ofcial to release held goods (which he/she is obligated to

do anyway) would be considered a facilitation payment, as would a bribe paid to obtain a routine government

stamp. They are usually bribes to get things done quickly. These are also covered earlier in the section dealing

with payments in cash.

Variations: queue jumping; speeding things up; releasing a “blocked” transaction

GUIDANCE – LOOK OUT FOR RED FLAGS AND FACT PATTERNS

SomeRedFlags:

• Is a payment being requested or solicited for the purpose of expediting or facilitating a service to which

there is a legal entitlement, e.g. by a public ofcial for a routine governmental action?

• Is the company gaining business preferential treatment through making the payment?

• Does the payment appear to be unofcial or covert in any way?

• Is the payment higher than or over and above the standard fee?

Know the local rules – when requested to make a payment for a routine action such as the issuance of licenses

or permits, check whether such a payment is ofcial.

SOURCES OF FURTHER GUIDANCE

• Adequate Procedures and the UK Bribery Act – pp. 11 & 33 - 40 http://www.transparency.org.uk/working-

with-companies/adequate-procedures

• Doing Business Without Bribery – Section 3: Bribery challenges in business - scenario: ‘Doing business

without grease’ www.doingbusinesswithoutbribery.com

• Resisting Extortion and Solicitation in International Transactions – scenarios 8-13, pp. 19 – 28 http://www.

transparency.org/whatwedo/pub/resist_resisting_extortion_and_solicitation_in_international_transactions

• David Lawler, Frequently Asked Questions in Anti-Bribery and Corruption, p. 284

Bribes Disguised as Charitable Donations

1.6 CHARITY. WHAT’S NOT TO LIKE?

EXAMPLE 1: Donations as political favours

• A Central European subsidiary of an American

pharmaceutical company supplies drugs to state

hospitals.

• In recent months its sales have been threatened by

competitors selling generic drugs at lower prices.

The company’s contracts are due to expire soon, and

management fears they will not be renewed.

• The company’s local director has his staff organise

a large donation to a series of healthcare charities

being set up by an ofcial running for local ofce.

• The ofcial’s community involvement and

commitment to healthcare is a major part of his

campaign. In return for the donation, the ofcial

promises to make sure that when he is elected the

pharmaceutical company’s contracts with state

hospitals will be renewed.

EXAMPLE 2: Donations that result in budget diversion

• An oil company is after an exploration license in the

former Soviet Union.

• It agrees with the local authority that a permit will be

granted and as part of an ‘offset’ arrangement, money

will be donated to a local charity to build two new

schools.

• The oil company’s negotiators are pleasantly

surprised about the ease with which the permit was

promised, but are happy to have it, and knowing the

difcult politics of the region certainly do not want to

make any further enquiries.

• The schools are built and get great publicity; there is

full transparency over the oil company’s contribution;

the company receives the exploration permit.

• Unfortunately, the local authority had already

budgeted for the building of the two schools. The

funds for these are then siphoned off from the

education budget by the local ofcials who agreed the

permit.

EXAMPLE 3: Queue jumping – utilities connection

• A company operates a series of casinos under a

government-granted gaming license, which is set to

expire soon.

• The company is also in the middle of an investigative

audit regarding potential accounting irregularities.

• A senior operations manager at the gaming company

has been notied by the nance department that

the auditors are likely to turn up indications of book

keeping “oversights”.

• The senior manager approaches a partner at the

auditing rm at a business breakfast and “casually”

mentions that his company could be glad to make a

USD 250,000 donation to the education charity that

the auditing rm has recently helped to set up.

• This is well received, but the operations manager

says that it will be paid in instalments - the largest

of which, USD 150,000, will be transferred after the

audit of her company is completed.

• The operations manager makes it clear that the audit

is unwelcome, and that the nal instalment of the

donation depends on a favourable audit report.

• As the charity is an important part of the audit rm’s

own CSR programmes and positioning as an auditor

of educational establishments, the partner agrees

to accept the donation in return for a favourable

audit report.

DESCRIPTION

Corporate involvement in charities is widespread; it can benet communities and good causes, and provides

good PR. However, charitable donations can also be used as vehicles for bribes. For example, the charity may

be connected to an individual (such as a government ofcial) who then uses his or her inuence to give special

preference to the donor.

Trustees and board members of charities may be politicians, ofcials, and other highly placed and inuential

people. The donations they ask for may directly or indirectly benet them personally, such as suggesting a

hospital should be built using a relative’s construction company. Sometimes, a charity may be simply a front for

hiding or receiving bribes.

Variations: donations as political favours; donations that result in budget diversion; donations with

strings attached.

GUIDANCE – LOOK OUT FOR RED FLAGS AND FACT PATTERNS

• Disclose all charitable contributions

• Exercise caution when making charitable donations where public ofcials are involved.

- Can a donation be seen as inuencing a public ofcial in some way?

- Consider avoiding donations to organisations where foreign ofcials are patrons.

• Ensure that effective controls are implemented, including enforcement of adequate approval processes and

monitoring of use of funds.

• Ensure donations are made according to company policy.

- If donations are made through intermediaries, ensure company policy is understood and adhered to.

SOURCES OF FURTHER GUIDANCE

• Adequate Procedures and the UK Bribery Act – pp. 44 - 47 http://www.transparency.org.uk/working-with-

companies/adequate-procedures

• Resisting Extortion and Solicitation in International Transactions – scenario 15, p. 30 http://www.

transparency.org/whatwedo/pub/resist_resisting_extortion_and_solicitation_in_international_transactions

• FCPA Guide, pp. 16-19

• http://www.justice.gov/criminal/fraud/fcpa/guide.pd

Bribes Disguised as Political Donations

1.7 YOU SAY LOBBY. I SAY BRIBERY.

EXAMPLE 1: Political donation used as a bribe in

a specic procurement bid/contract

• A consortium of telecommunications companies

is in the process of applying for a mobile phone

license from the Ministry of Information of a Western

European country. Winning such licenses is usually

very competitive.

• The Minister of Information has decisive inuence of

which company is granted the license.

• One of the companies in the consortium proposes

that they make a donation to the re-election campaign

of the ruling party, of which the Information Minister is

a member.

• The consortium contacts the Minister’s Special

Advisor and offers the donation. The conversation

clearly implies that the Minister is expected in return

to favour the consortium’s bid.

• The Special Advisor accepts the donation and

assures the consortium that the Minister will support

its bid, as long as it is not unreasonable in value for

money or technical specications.

EXAMPLE 2: Political donation made to the party

of politicians with decision-making power over an

ongoing contract

• A metal trading company holds a contract to rene

and trade iron ore that a Caribbean country receives

under concessions from another country.

• The two government ministers overseeing the

contract falls both belong to the ruling party of the

country.

• Before the contract is due to expire, the CEO of the

metal trading company meets with the two ministers.

• He offers to make a USD 550,000 donation to

sponsor their party’s annual conference, in exchange

for renewal of the contract.

• The conversation also implies that a blind eye will

be turned to a prot-share arrangement from selling

concessionary iron ore that disproportionately

favours the company over the Treasury.

• The ministers accept the donation.

DESCRIPTION

Although corporate political contributions are permitted and regulated in many countries, as with donations to

charities, donations to a political party or a political campaign can also be used as bribes. The simplest and

most common scenario is when individuals, businesses, or other special interest groups nd a way to “donate”

large amounts of money to a political party or an election campaign. In return, the politician(s) are expected to

promote the interests of whoever made the contribution, potentially in violation of their ofcial duties.

GUIDANCE – LOOK OUT FOR RED FLAGS AND FACT PATTERNS

• Have a clear policy and criteria for political contributions, including a denition of what is meant by a political

contribution.

• Where policy is not to make contributions, ensure there are procedures in place to prevent contributions

being made.

• Where policy is to make political contributions, the company should be able to answer the following:

- Has the board and compliance function approved your contribution?

- Can the donation to a political party, politician, or candidate running for ofce, be seen as an attempt to

gain a business or other advantage?

- Is the donation in line with company policy?

- Has the donation been reviewed and approved by senior management?

- If there are agents or intermediaries that act on the company’s behalf, do they know and observe the

organisations guidelines on political contributions?

- Are all political contributions publicly disclosed and transparent? This includes donations to trade

associations and payments associated with lobbying, as well as fees paid to consultants.

- Have donations been made via trade associations or similar bodies, and if so were they in line with

company policy?

SOURCES OF FURTHER GUIDANCE

• Adequate Procedures and the UK Bribery Act – pp. 41 - 43 http://www.transparency.org.uk/working-with-

companies/adequate-procedures

Bribes Masked as Commissions

1.8 MR FIVE PER CENT

EXAMPLE 1: Sum paid for non-existing services to

agents/consultants, intended to be passed on to the

recipient as a bribe

• An oil services company puts in a bid to the

government of a Central Asian country for a gas and

oil eld development project.

• The project is managed by a state-owned company.

After the bids are submitted, it ofcials let the oil

services company know that to win the lucrative deal,

it has to ”show generosity.”

• The state-owned company ofcials then “strongly

encourage” the oil services company’s country sales

manager to hire a consulting company registered

in the British Virgin Islands as an “agent” and pay

annual commissions of USD 1.3 million into its

account for providing consultancy services.

• Nothing is actually known about the BVI outt’s

business, and it is likely that the only work it will be

doing, consultancy or otherwise, is channelling the

money to the state-owned company’s ofcials.

• Yet, because BVI is out of the reach of regulators

and the business opportunity is just too good to

pass up, the agent is hired and arrangements for the

“consultancy” payments are made.

EXAMPLE 2: Sum described as commissions paid

directly to ofcials to obtain contracts

• A global nancial services rm is setting up its real

estate investment business in a South Asian market.

• The managing director has good long-standing

personal relations with one particular government

ofcial, who is the director of the state-owned real

estate development body.

• The managing director and government ofcial agree

to seek real estate development opportunities in

which the rm can invest with joint venture partners.

The state body will be seen to be attracting foreign

investment, while the rm will access local knowledge

of deal-making opportunities.

• The managing director and government ofcial agree

that in return for a small share in real estate ventures,

the state entity would help the rm to obtain the

necessary licenses from the local government.

• Under the scheme, the managing director offers the

government ofcial an opportunity to make personal

investments in ve real estate deals at a reduced

rate.

• Specically, the rm would sell the ofcial a 5%

interest in each deal, but only charge the cost of

4%; the remaining 1% would go to the ofcial as a

“nder’s commission”.

• The government ofcial accepts this scheme, even

though he is legally prohibited from making personal

investments with rms because of his position.

EXAMPLE 3: Payment for legitimate services (to

agents/consultants) is disproportionate to those

services so as to conceal a bribe

• A large electronics company would like to acquire

a state-controlled rm put up for privatisation in

the former Soviet Union. It hires a local consultant

to assess the nancial health and prospects of its

potential purchase.

• Senior ofcials in the Ministry of Infrastructure, which

used to control the rm, have a decisive say over who

is allowed into the privatisation process. The ofcials

are known to be eager to supplement their salaries.

• The electronics company’s regional business

development team pays the local consultant

unusually high fees for his services, knowing that he

will pass on a proportion of the fees to the Ministry of

Infrastructure ofcials.

DESCRIPTION

Paying commissions to an agent or intermediary as reward for bringing in new business is widespread in

commercial transactions, and is usually perfectly legitimate. However, there are situations in which commissions

are used as bribes, and these are usually secret or not properly disclosed. For example, an intermediary can

pay a bribe to win business for its corporate client out of the commission, and recover the money through an

inated invoice.

GUIDANCE – LOOK OUT FOR RED FLAGS AND FACT PATTERNS

• Refuse any request for excessive commission payments to intermediaries or ‘advisors’ who claim they are

able to secure business advantages.

• When entering business dealings that contain commission related fees, ensure these agreements set a

maximum commission, and include a description of services as well as prohibition against payments to

public ofcials.

• When faced with demands for large commission payments, determine whether meeting such a demand

would constitute behaviour that would violate relevant legislation, regulation, industry codes or standards.

SOURCES OF FURTHER GUIDANCE

• FSA, Anti-BriberyandCorruptioninCommercialInsuranceBroking:ReducingtheRiskofIllicitPaymentsor

Inducements to Third Parties, http://www.fsa.gov.uk/pubs/anti_bribery.pdf

1. Associates – Agents, Intermediaries, Introducers

2. Associates - Sub-contractors and Distributors

3. False or inated invoicing or product pricing

4. Off-shore arrangements and off-balance sheet

payments

5. Joint ventures

6. Training

7. Per diems and expenses

8. Rebates and discounts or kickbacks

9. Employment contracts and association

agreements

SECTION TWO – How bribes are paid

Agents, Intermediaries and Introducers

2.1 BRIBERY THROUGH ASSOCIATES:

MIDDLEMEN

DESCRIPTION

The use of intermediaries, sometimes also called introducers or agents, is widespread and legitimate in global

business. They provide local knowledge, legal advice, market research, sales, and logistics, and are particularly

useful in new or unfamiliar markets. However, the channelling of bribes through intermediaries is a common

feature of bribery schemes. To hide bribes, a chain of intermediaries is often used to disguise the link between

the recipient of the bribe and the bribe-paying company. It is not unusual for intermediaries, or some links in a

chain of intermediaries, to be professionals such as lawyers, accountants or bankers. They can be used to add

a veneer of respectability to a corrupt transaction.

Variations: Five types of common bribery scenario via intermediaries are:

• Intermediaries acting on their own initiative: intermediaries may decide to pay bribes of their own accord

and without the knowledge of the company that contracted them. The amount of the bribe would be

“included” in the commissions they receive for bringing in business.

• Intermediaries providing both legitimate business services and a bribery service: routing bribes may be one

of the services the intermediary is hired to provide. For instance, an existing consultant may be tasked with

bribing a public ofcial to rig the bid specications of a procurement contract so that it favours the company.

• Fake intermediaries: rather than providing a legitimate or commercially-justiable service to the company,

the intermediary, often hired for “consulting,” can be controlled by whoever will receive the bribe. The

consultant is often paid through fraudulent invoices and/or for non-existent services. This may also happen

in situations where local government insists that companies have to work with one of a list of ‘approved’

domestic agents – who may be linked to public ofcials – and these approved agents are then used to

intermediate the bribery transactions.

• Appointment of an intermediary specically to facilitate a bribe payment: the payer of the bribe (such as

a sales manager) and the recipient of the bribe (such as a government procurement ofcer) agree that

the payment will be made through a designated third party, who will be appointed as an intermediary in a

transaction. The third party may be a relative, spouse, or associate of the recipient.

• Fake invoices. There are several variants of schemes in which fake invoices are used to generate slush

funds that can be used for bribe-paying. For example, a so-called supplier can be set up which in fact only

exists to provide fake invoices generating cash which can be repaid to employees in order to provide them

with a slush fund for paying bribes; or a legitimate third party on the approved supplier list agrees to render

a false invoice which is paid but later refunded. The refund is paid in cash enables the third party to pay

the bribe.

EXAMPLE 1: Inated invoices: bribes paid by

intermediaries masked as payments for unspecied

services

• An oil services company is working on behalf of a

major state-owned oil corporation.

• The services company hires a local consultant to

help with routine business tasks in the country. The

consultant then bills the services company for ‘in-

country consultancy services’.

• The consultant submits inated invoices to the oil

services company, and channels the difference to

the private accounts of the ofcials working at the

state-owned company. This helps to guarantee that

the services company will be retained as a prime

contractor despite international competition for the

contracts.

• The London HQ of the services company discovers

the bribery scheme when prot-margins decline in

the country. An internal investigation reveals that the

state company has been demanding ever-increasing

pay-offs, while the service company’s Head of

Operations in the country has been signing off ever-

increasing fees for the consultant.

EXAMPLE 2: Intermediary provides no services to the

company, but is controlled by the recipient of bribes

• A wholesale telecom services company needs access

to local telecommunication lines for its business in a

South-East Asian market.

• The lines are notoriously difcult to access due to

local bureaucracy and red tape, and the government

is known to be hostile to foreign companies.

• To get around this, the telecom services company

decides to pay over USD 1 million in kick-backs to a

handful of senior ofcials at the state-owned telecoms

company that assigns the lines.

• To channel the payments, the wholesale telecom

company hires a “local consultant” at the suggestion

of the state-owned company. The consultant is

actually owned by the brother of the Chief Financial

Ofcer at the state-owned company.

• The consultant provides no actual consulting

services, but the wholesale telecoms company pays

it USD 1 million for “management consulting” in 4

instalments. The consultant then transfers the money

to the state-owned company’s CFO, who distributes it

to selected senior colleagues.

EXAMPLE 3: Family member acting as intermediary

• A former prime minister of a Latin American country,

who still serves as an inuential cabinet minister, is

approached by a well-known foreign businessman.

• The businessman is after political backing for his

resort development project.

• In return, the politician is promised a “generous

contribution” to his sizeable debt and large tax

liabilities.

• The proposition is appealing and the two devise a

plan, in which the politician’s daughter will be paid

for resort develpment consulting services’ she will

allegedly provide. These are entirely ctitious, and

she has no experience in this sector.

• Several million US dollars are deposited in her bank

account, and which she then transfers to the family’s

joint account.

EXAMPLE 4: Professionals as intermediaries

• An insurance broking rm specialises in nding

private insurers for government entities, and has a

good network of contacts in both public and private

spheres.

• The broker knows of an insurance company that

would like to expand its sales quickly, and in time for

the next quarter’s results.

• A sales manager of the insurance company has

already made contact with an ofcial in the Ministry

of Infrastructure who would help direct a number of

lucrative contracts to the insurance company in return

for a cash payment equal to 10% of the business the

company receives

• The sales manager of the insurance company

approaches the insurance broking company with a

proposition to act as a conduit for the payment to the

ofcial: the company would include the 10% bribe in

the broker’s fee.

• The ofcial would see to it that the brokerage would

be contracted by the Ministry, while the broker would

transfer the bribe to the ofcial’s Swiss bank account.

EXAMPLE 5: Professionals as intermediaries

• A family-owned multinational luxury goods company

based in a Mediterranean country has been

concealing some of its prots abroad in order to avoid

paying taxes.

• When the local tax authority presents the chief

accountant with a hefty ne for years of tax evasion,

she and the Vice President approach the tax ofcer

with a proposal.

• They ask the tax ofcial to negotiate a 40% reduction

in their ne with a “favourably disposed” senior tax

ofcial.

• In return, they let the tax ofcial know that he could

help himself to another 40% of their ne, keeping half

for himself and passing on the other half to the more

senior tax ofcial in return for his “cooperation.”

• The tax authority would still receive a ne, albeit only

20% of the original.

• The proposed bribe is signicant, so the tax ofcial

is unable to resist the temptation and agrees to the

proposition.

SOURCES OF FURTHER GUIDANCE

• Adequate Procedures and the UK Bribery Act – pp. 68 - 74 http://www.transparency.org.uk/working-with-

companies/adequate-procedures

• BusinessAnti-CorruptionPortal:DueDiligenceTools,AgentScreeningProcess http://www.business-anti-

corruption.com/en/due-diligence-tools/agent-screening-process/

• David Lawler, Frequently Asked Questions in Anti-Bribery and Corruption, p. 371

GUIDANCE

Intermediaries are a high-risk area. It is important to minimise and manage the risk.

• Monitoring and sufcient due diligence are key:

- Due diligence should be carried out on intermediaries before appointment – for example, to check

whether the agent has faced allegations for involvement in corruption, or requests payments to be

made in unusual ways such as via a tax haven.

- Enhanced or additional due diligence may at times be required.

- The purpose of due diligence is to identify and avoid dealing with questionable third parties. Look out

for key red ags, such as whether an intermediary is resistant to formal written agreements, appears

able to bypass legal or bureaucratic hurdles more easily than others, or charges fees or commissions

that are well above the market norm.

- Monitor the conduct of conduct of agents and intermediaries. If an intermediary is suspected of bribe-

paying, it is sensible to suspend the relationship immediately and make appropriate investigations.

• Communicate to all agents and intermediaries the company’s anti-corruption standards as well as

international regulations and ensure that they are contractually obliged to abide by these standards.

• Ensure that the market rate for their services is paid, that nothing “extra is included” and that the agent

delivers the services that are paid for.

• Do not use third parties as a conduit for making unethical payments.

• When employing public ofcials as consultants, extra care needs to be taken that the service is genuine

and all payments are properly recorded and disclosed:

- It should be clear that there was a legitimate business reason to contract the ofcial (e.g. for technical

expertise).

- It should be clear why that particular ofcial was selected.

- The appointment should be permissible under the ofcial’s employment contract as an ofcial, and

transparent to is/her employer.

- Fees should be based on market rates.

- Services provided should be recorded in detail.

2.2 BRIBERY THROUGH THE SUPPLY

CHAIN: SUB-CONTRACTORS AND

DISTRIBUTORS

EXAMPLE 1: Sub-contracting to a company

connected to a public ofcial as part of an offset

or industrial participation agreement

• A large defence company is bidding for a contract

to sell submarines to the Ministry of Defence of a

European country

• As part of its defence offset regulations, the country

requires that whoever wins the tender generates local

sub-contracts amounting to 30% of the value of the

main submarine contract

• The tender is in the nal stages, and the company is

competing with just one other.

• Each company is trying to put together the more

attractive offsets and local production package.

• The senior sales manager in the large defence

company nds out that the brother of one of the

chief Ministry of Defence Procurement ofcials owns

an electronics company that manufactures radar

systems that could be adapted for the submarines.

• The sales manager assures the ofcial that the

sub-contract for the manufacture and subsequent

maintenance of the radar systems would be granted

to the brother’s company.

• Even though the submarine produced by the rival

company is an overall better t for the specications

given by the Navy, the ofcial successfully pushes

for the award of the submarines contract to the large

defence company.

EXAMPLE 2: Sub-contract directed to an ofcial’s

business interest

• A group of energy and petrochemical companies

is setting up operations in a new market via a

consortium.

• It will need to import a large number of materials and

equipment, so the consortium management decides

to hire a local logistics and freight forwarding sub-

contractor.

• It is well known that the customs service is very

slow and inefcient, while the customs ofcials

purposefully delay imports to solicit bribes.

• The consortium’s management know that the deputy

director of customs secretly co-owns a logistics

company.

• To ensure that its imports are given priority, the

consortium management lets the deputy director of

the customs service know that the consortium is keen

to sub-contract its logistics and freight forwarding

services to the company that he secretly co-owns.

DESCRIPTION

In today’s globalised economy, corporations often rely on large supply-chains, made up of sub-contractors

based in a number of countries. However, complex networks of sub-contractors also increase the risk of bribery.

Any link, or sub-contractor, in the chain may be approached for a bribe or decide to pay a bribe. Complex supply

chains represent a high risk of corruption since they are local, often made up of small and medium-sized sub-

contractors that have less power to resist demands for bribes, or simply have more “contact” with centres of

bribery.

Moreover, sub-contractors are of course also interested in maintaining prots, and could bribe the prime

contractor to keep them on the suppliers’ list.

When operating overseas or fullling complex orders, corporations often hire local sub-contractors as they

lack local knowledge, expertise, or capacity in house. Selecting a sub-contractor with close links to an ofcial

who is in a position to favour the main company over its competitors is a common way of disguising a bribe. It

enables the ofcial to benet directly or indirectly, while the company can claim it was simply tapping into local

expertise.

EXAMPLE 3: Distributors acting as intermediaries

for bribe payment

• A company manufacturing medical equipment has a

local distributor in one of its countries of operation.

• When the company’s sales begin to dwindle, the

regional sales manager instructs the distributor to

make ‘incentive’ payments to the personal accounts of

doctors with whom it has contacts.

• In return, the doctors agree to steer “their” hospitals to

purchase the company’s products.

• The company also uses the distributor to channel

bribes to the country’s Intellectual Property Board

which approves patents of the company’s products.

EXAMPLE 4: Sub-contractor paying a bribe to

retain business

• A multinational manufacturer of ghter jets wins

a lucrative contract with an overseas Ministry of

Defence.

• However, according to the contract specications, 15%

of the ghter jet components must be produced locally.

• To full these terms, the company hires a manufacturer

of ejector seats as one of its subcontractors.

• However, due to continuous delays and cost-over-

runs by the ejector seat company, the ghter jet

manufacturer soon considers terminating the contract

and switching to a competitor.

• To avoid losing this lucrative contract, the ejector

seat manufacturer’s head of business development

promises a manager of operations at the jet-maker

a “commission” equal to 10% of future orders of the

ejector seats for the duration of the contract.

EXAMPLE 5: Distributor paying bribes to increase

remuneration

• A multinational FMCG company selling alcoholic

beverages in Eastern Europe appoints a local

distributor.

• The distributor is responsible to generating sales from

supermarkets, off-licences, and specialised shops

catering to government orders-- all a particularly

lucrative business area.

• The distributor’s fee directly depends on the order

volumes, and when government purchases begin

to decline, the distributor decides to protect his own

compensation.

• He offers the purchasing ofcials and shop managers

cash and free premium beverages in return for

authorising increased purchases of his principal’s

products and placing them in the most attractive

location on the shelves.

• The distributor then “recovers” the expense by

masking it as expenses for “special promotions”.

EXAMPLE 6: Going the extra mile for a customer

• An engineering consultancy has a customer in the

construction sector, for which is working on a stadium-

building project in the Middle East.

• The construction company wishes to free up some

cash that it can use to pay a bribe for work permits

related to the stadium-building project.

• Although the work permits are not directly related to

the engineering consultancy’s work, the construction

company’s project manager asks the engineering

consultancy to issued him with an invoice for services

that have not been provided so that he can create a

slush fund to pay bribes.

• The engineering consultancy wants to help put an

important client, and issues the false invoice; the

construction company pays the invoice.

• After the invoice is paid the construction company

asks the engineering consultancy for a credit note.

The credit note is raised for the invoice value and the

corresponding cash is returned to the construction

company.

• The construction company uses the cash to pay an

ofcial for the work permits it needs.

SOURCES OF FURTHER GUIDANCE

• Adequate Procedures and the UK Bribery Act – pp. 75-76

http://www.transparency.org.uk/working-with-companies/adequate-procedures

• BusinessAnti-CorruptionPortal:DueDiligenceTools,ContractorProcedure

http://www.business-anti-corruption.com/en/due-diligence-tools/contractor-procedure/

GUIDANCE

• Ensure that all associates, sub-contractors, and distributors are well aware of the company’s anti-bribery and

anti-corruption policies, as well as local and international anti-corruption laws.

• Try to make sure that there are anti-corruption provisions in agreements and that associates, sub-contractors,

and distributors are obliged to abide by the company’s anti-bribery policies.

• As with agents and other intermediaries, due diligence and risk assessment should be carried out on

associates, sub-contractors, and distributors before these are appointed.

• The purpose of due diligence is to identify any risks associated with associates, sub-contractors, and

distributors. Look out for key red ags - particular attention must be paid to ownership of companies and

organisations, for example to ensure that sub-contracts are not unwittingly granted to public ofcials or

persons who may have a conict of interest.

2.3 FALSE OR INFLATED INVOICING AND

PRODUCT PRICING. AKA: FRAUD.

PLAIN AND SIMPLE.

EXAMPLE 1: Customs agent pays bribe and

re-charges client using inated invoice

• A manufacturing company is setting up factories in

Latin America and must import all of its manufacturing

equipment into its various countries of operation.

• It hires a former customs agent to handle the

paper work – lling out the paper work, tracking the

shipments, and dealing with customs ofcials when

necessary.

• The company’s imports into one Latin American

country are held up because the local customs

ofcials “discover” a previous customs violation

punishable by a “fee.”

• The manufacturer’s chief logistics ofcer for the

region instructs the former customs agent to pay any

necessary fees and expenses to get the equipment

moving.

• She pays the customs ofcials USD 5000-7000

each to overlook the past violation and expedite the

approval for future imports.

• To conceal the actual purpose of these expenses,

the former customs agent presents invoices

for unspecied services with no supporting

documentation, which are promptly paid.

EXAMPLE 2: Supplier over-charges its customer to

pay bribes to customer’s corrupt employees

• A company supplying vegetables to a major

supermarket chain in the UK is facing the renewal of

its GBP 45 million supply contract.

• Unfortunately, the senior accounts manager is fearful

that this protable business will be lost.

• He invites the head buyer of the supermarket

chain, known for his love of luxury, to an expensive

restaurant, and over dinner offers him a monthly

“allowance” of GBP 20,000, to be spent on

restaurants, exclusive hotels, luxury goods and travel.

• In return, the head buyer was to make sure that the

supply contract is renewed for an even longer period

than is on the table.

• The head buyer agrees.

• The senior accounts manager then takes his plan to

his company’s nance director, who agrees to the

bribes in principle, but insists that their company does

not have enough cash at its disposal to make the

payments.

• The senior accounts manager then takes the

second part of his proposal to the supermarket chain

buyer. He asks him to approve inated prices for

the vegetables, after lower rates had already been

negotiated with the supermarket chain.

• The excess money would then be transferred to a

secret “fund” in an offshore bank account, for which

the buyer would be given a credit card. The senior

accounts manager assures him that the natural

variation in vegetable prices would allow them to

conceal the inated prices.

• The head buyer feels even more secure agreeing to

this scheme.

EXAMPLE 3: Company creates fake invoices to

disguise slush fund used for bribes

• A company manufacturing pesticides that supplies the

Ministry of Agriculture needs to register its products

with the government’s new Insecticides Board.

• However, as the company does not have the

necessary environmental impact assessment

certication, registration could be problematic.

• To secure registration despite the missing paperwork,

the company asks an old and trusted supplier to

submit a series of fake invoices totalling USD 50,000,

explaining they are ‘for tax reasons’.

• The USD 50,000 is used to create a slush fund to pay

ofcials in the Insecticides Board who then grant a

licence.

DESCRIPTION

The payment of a bribe is usually hidden or disguised within the organisation’s accounting records, or paid off

balance sheet (e.g. through bank accounts which are not recorded in the organisations’ accounting records).

Fake or inated invoices provide a common veneer of legitimacy to conceal bribery. An inated invoice can be

generated by a supplier, which covers both the fees legitimately due, and an additional amount to be used as a

bribe. An invoice can also be entirely false, and represent no legitimate service whatsoever.

GUIDANCE

• Ensure that all invoices are properly accounted for with supporting documentation.

• Carry out investigations and audits into any payments that do not have sufcient information or are supported

by suspicious invoices.

• Ensure that managers and employees are aware of forecasts for costs associated with future business,

allowing any ‘unforeseen’ costs to be agged and evaluated.

• Ensure there is a regular audit to monitor accounting practices that pays specic attention to irregularities or

eccentric spending. Particular attention should also be paid to accounts related to the granting and renewal

of contracts.

SOURCES OF FURTHER GUIDANCE

• Alexandra Wragge,HowtoPayaBribe:ThinkinglikeaCriminaltoThwartBriberySchemes, Chapter 3 by

Amy Sommers, pp. 26-28

• Guide to Combating Corruption & Fraud in Development Projects http://guide.iacrc.org/potential-scheme-

false-inated-and-duplicate-invoices/

2.4 SUNNY PLACES FOR SHADY

PEOPLE. OFF-SHORE

ARRANGEMENTS AND OFF

BALANCE-SHEET PAYMENTS.

EXAMPLE 1: Bribery through an off-shore

registered company

• A software company has a contract to supply the

state-owned telecommunications corporation of a

southern European country.

• To retain this business and to attract more orders

from the numerous subsidiaries controlled by the

telecommunications company, executives in the

software company’s regional sales division devise an

illegal payments scheme.

• A consultant is hired to facilitate sales in the region.

He says that the best way forward is to have the

company make unofcial payments to key ofcials

when necessary.

• The consultant sets up and off-shore company

to make these unofcial payments. Neither the

offshore company, nor its owner, provide any actual

business development or retention services for the

software company. Instead, their sole purpose is to

funnel payments to employees of the state-owned

telecommunications provider.

• Once a bribe has been agreed between the software

company and an employee of the state-owned

telecoms company, the consultant is instructed to

submit an invoice for consultancy services.

• The invoices are then paid directly into the bank

account of the offshore company; 85% of the amount

is channelled to the employees of the state-owned

company, while 15% is kept by the consultant.

EXAMPLE 2: Bribery through an off-shore registered

company 2 (bribery between private individuals not

involving public ofcials)

• A Western European food and drink company has a

lucrative supply contract with a wholesale cooperative

that brings in GBP 250 million annually.

• The contract is due to expire, and there are disputes

regarding future terms that may make it difcult to

renew.

• The CEO of the food and drink company, who started

it and built it up himself, however, would like to make

sure that it is extended for the next 30 month period.

• He hires a broker with whom he had worked in

the past, to negotiate the deal and iron out any

disagreements.

• The broker tells the CEO that there is a faster and

more certain way to make sure that the supply

contract is extended. He proposes paying to some

inuential directors of the wholesale cooperative

owner a “success fee” of GBP400,000 each.

• The broker adds that he has a company registered

in the Bahamas, which can issue invoices for “expert

advisory services.” The food and drink company

would then make cheques payable to this offshore

business, they would be deposited in its bank

accounts, and money transferred to the directors.

• The broker says that it is unlikely that the wholesale

cooperative will go for the deal without these extra

“incentives” and assures the CEO that he would

never be connected to the transfer, as he would

handle everything himself through his company.

• The CEO does not want to risk the supply contract

not being renewed and agrees to the scheme.

DESCRIPTION

In addition to, and often in conjunction with, the use of intermediaries, bribes are often transited through a

number of bank accounts or front companies. It is useful for those engaged in bribery if these are located in

foreign countries with lax regulation, poor transparency, or favourable secrecy laws. The goal is to distance the

bribe from both the payer and the recipient, and also to conceal the identities of both. Slush funds can also be

located offshore. Prots from legitimate company business may be directed into offshore slush funds through

ctional or vague invoices and using a chain of agents. Once these are set up, bribes may be paid from the

slush funds at any time – to develop a relationship, obtain a specic contract, as a ‘thank you’, to maintain

favourable relations, etc.

EXAMPLE 3: Bribery using an off-shore bank account

• An investment bank is contracted to represent and

advise the government of a Central Asian country

in the sale of rights to its oil elds. The director and

controlling shareholder of the bank is also given a

quasi-ofcial advisory role to the president of the

country in connection with oil and gas transactions.

• The investment bank is due a “success fee” to the

amount of USD 67 million over ve years, after the

sales are successfully closed.

• As the adviser on sale of rights, the investment bank

is in charge of collecting fees from the sales.

• To ensure that he remains in the privileged advisory

position that has allowed him to close so many

successful deals, the director of the bank transfers

USD 70 million from the fees paid by a number of

energy companies for oil and gas rights in the country

into a bank account in Switzerland, via several

“investments” into companies in the British Virgin

Islands.

• From the diverted funds, he then transfers payments

to four senior government ofcials in the Ministry

of Oil and Gas Industries, who have the power to

authorise his hire as adviser and to approve his

success fees.

EXAMPLE 4: Bribery using investment in

off-shore enterprises

• An US-based IT company is about to make its rst

initial public offering, and is facing scrutiny and

pressure to meet earnings forecasts.

• The director, and majority owner, has a strong

reputational and nancial stake in the success of the

IPO. To condition the market and hit various targets,

he transfers a signicant proportion of last year’s

prots to a Swiss bank account and “saves” the taxes

he would have paid on the funds in the US.

• However, questions are raised during an internal

audit, and US authorities request Swiss tax ofcials to

disclose the accounts.

• To avoid detection the IT company director enlists the

help of his friend, a former investment banker with a

multinational bank, who is very well connected.

• The banker proposes to make the tax ofcial

assigned to the case more “disposed” through making

him a large personal payment.

• The banker offers to route the money directly to the

tax ofcial’s account—funds that his friend will have

rst “invested” in a small Swiss bank the banker had

just joined.

GUIDANCE

• The use of off-shore accounts to pay bribes and off balance sheet payments is often linked to agents and

intermediaries. Apply relevant due diligence on intermediaries before appointment.

• Specically check whether the agents or intermediaries have faced allegations for involvement in corruption.

Monitor the conduct of agents and intermediaries.

- Be on your guard if they request payments to be made in unusual ways such as via a company in a tax

haven.

- If they are suspected of bribe-paying through a number of bank accounts or front companies it is

sensible to suspend the relationship immediately and make appropriate investigations

• Investigate any suspicions of payments being made that are outside the scrutiny of regulators.

• Always question whether funds routed via tax havens are legitimate in origin or objective.

SOURCES OF FURTHER GUIDANCE

• United States Securities and Exchange Commission (SEC), “Report and Recommendations Pursuant to

Section 401(c) of the Sarbanes-Oxley Act of 2002 on Arrangements with Off-Balance Sheet Implications,

Special Purpose Entities, and Transparency of Filings by Issuers,” pp. 98-103 http://www.sec.gov/news/

studies/soxoffbalancerpt.pdf

• The BriberyAct.Com http://thebriberyact.com/2011/06/15/the-bribery-act-the-view-from-offshore/

• FCPA Guide, p. 65 http://www.justice.gov/criminal/fraud/fcpa/guide.pdf

GUIDANCE

• Carry out due diligence on relevant companies before entering into a joint venture or consortium.

• Be condent that the prospective partners do not have a history of bribery.

• Ensure that other entities in a joint venture either have anti-corruption/anti-bribery policies in accordance

with your own, or communicate these policies and encourage all partners to adopt them.

• Monitor the performance of joint venture partners with regard to these policies, and take appropriate action

where there are discrepancies, including termination of contracts if necessary.

• Ensure that contracts with joint venture partners allow them to be terminated on ethical grounds such as

signicantly breaching a code of conduct or credible allegations of corruption.

• Ensure that the joint venture company itself has in place appropriate anti-bribery policies and procedures.

SOURCES OF FURTHER GUIDANCE

• Adequate Procedures and the UK Bribery Act – p. 71, http://www.transparency.org.uk/working-with-

companies/adequate-procedures

• Business Anti-Corruption Portal Due Diligence Tools: Vetting of Partners, http://www.business-anti-

corruption.com/en/due-diligence-tools/joint-venture-consortium/

2.5 JOINT VENTURES. FOR BETTER

FOR WORSE.

EXAMPLE 1

• A joint venture is created by four companies to bid for

natural gas projects of a Middle Eastern country.

• Each of the four partner companies has designated a

senior executive to be on the joint venture board.

• The four senior executives conspire to bribe

government ofcials in order to win contracts in the

project.

• The bribes are routed through the joint venture’s

agents, one of whom is a UK citizen and certied

solicitor.

• To pull this off, the joint venture concludes contracts

with a consultancy company operated by the

intermediary in Gibraltar, and transfers USD145

million to his bank accounts in Switzerland and

Monaco.

EXAMPLE 2

• A European state-owned shipbuilding company

enters into a joint venture agreement with a European

defence company.

• The joint venture puts in a bid to supply three

submarines to an East Asian government.

• To win the contracts (valued at close to USD 1

trillion), the JV pays USD160 million in “commissions”

to a “local business practices consulting” company.

• The company is in fact owned by an aide to the

defence minister at the time of the sale, with a brief to

advise on naval purchases.

DESCRIPTION

Joint venture structures can be used to channel bribes, with or without the knowledge of all the partner

companies in the enterprise. Sometimes, a joint venture structure may be created specically to distance a

company from illegal practices such as bribery.

2.6 THEY TAUGHT ME EVERYTHING

I KNOW! TRAINING COURSES.

EXAMPLE 1: Training fund set up for clients

• A Western European manufacturing company is keen

to secure a new contract in Asia.

• After months of negotiation, it becomes clear that

the customer wants the contract to include a visit to

Europe for 10 senior executives and their families.

• The manufacturing company writes a ‘training budget’

into the contract under which, at its own expenses,

it will bring ten ofcials to the UK to be trained in its

equipment and processes.

• Once the contract is signed, the ten senior executives

are invited to the course. Their ights are routed

via Paris. A London hotel is booked for them to stay

in, where the training course will take place. Since

they will be away for two weeks, tickets are also

provided for their partners. They are each given a per

diem allowance of USD500 to cover ‘out of pocket

expenses’.

• 8 of the executives y to the UK via Paris, with their

partners. The remaining 2 do not come, but have

already been sent their per diem.

• On the rst day of the course, one executive turns up

and signs in for the whole group. Nobody attends the

course from then on.

EXAMPLE 2: Holidays disguised as training

workshops

• A multi-national company is supplying

radiopharmaceutical products to state-owned

hospitals in a South American country.

• It operates a system of “support provision” to doctors

in the hospitals which it supplies.

• As part of this, the company establishes a fund, by

setting aside 3% of prot from the sales of equipment,

apparently to nance doctors’ attendance at training

workshops and educational seminars.

• In reality, the fund was used to y the doctors for

“training” at top tourist destinations, and to pay

for their administrative fees, travel expenses,

accommodation, meals and entertainment. They

were also provided with “travel allowances” while on

training, and supplied with “professional necessities”

such as laptops.

• In return, the doctors were incentivised to ensure that

their hospital kept up its orders with the company,

even when there were more cost effective providers.

DESCRIPTION

Customer training can be used to provide a cover for bribery. For instance, a company can create a “training

fund” or “training budget” out of which it can pay bribes in the form of travel, entertainment, per diems, and

gifts. Hospitality amounting to a bribe, such as lavish vacations organised for ofcials, and clients as well as

their friends and families, can also be recorded in the company’s books as “customer training”. Those actually

attending the “training” could be different from the list that was approved by management, to get around

company limits on hospitality. Another scenario is “recording” more participants than actually attended, and then

using the surplus training course funds to create a slush fund.

GUIDANCE

• Increase accountability with regards to funds spent on training and workshops. Create mechanisms for

regular monitoring and auditing on all training courses.

- Senior management or supervisors can request regular reports on training sessions including feedback

on effectiveness of training and details of completed courses by attendees.

- Approval procedures for training courses could be multi-level.

- Verication of a random selection of events would enhance the audit procedure.

• Set a standard or guidelines on how training courses and workshops must be run, and ensure compliance by

creating oversight positions/bodies.

• Limit overseas training to occasions where there is a clear and justiable business rationale for both the

people involved and the location.

• Avoid paying large per diems; ideally per diems should only be of nominal value and designed to cover small

out of pocket expenses.

• Ensure that hotel bills and other expenses are picked up directly and avoid reimbursing or providing

allowances to individuals.

• Consider insisting on post training reports (which could include photographs of the attendees) to verify the

training took place and place it in the training record.

SOURCES OF FURTHER GUIDANCE

• FCPA Guide pp. 17-18 & 24 http://www.justice.gov/criminal/fraud/fcpa/guide.pdf

• U.S. Department. of Justice, FCPA Opinion Release 96-01 (travel, lodging, and meal expenses of regional

government representatives to attend training courses in United States) http://www.justice.gov/criminal/

fraud/fcpa/opinion/1996/9601.pdf

• U.S. Department. of Justice, FCPA Opinion Release 04-01 (seminar expenses, including receptions, meals,

transportation and lodging costs) http://www.justice.gov/criminal/fraud/fcpa/opinion/2004/0401.pdf

• Alexandra Addison Wragge, HowtoPayaBribe:ThinkinglikeaCriminaltoThwartBriberySchemes,

Chapter 3 by Amy Sommers, pp. 24-28

GUIDANCE

Cash per diems should be avoided, or if they are paid, be of low or nominal value. Any larger per diems that are

deemed necessary should be strictly limited and monitored – for example:

• Implement transparent and efcient policies to decrease opportunities for abuse, including setting low

maximum values for per diems and expenses.

• Increase supervision and audit functions. This can include policies such as not paying full per diem amounts

in advance.

• Increase accountability. Require regular reports from staff about where per diems have been used and why.

• Always conrm that any per diem being paid is in line with the local laws and policies of the recipient.

SOURCES OF FURTHER GUIDANCE

• U4 Anti-corruption resource centre: Per diem policy analysis http://www.u4.no/publications/per-diem-policy-

analysis-toolkit/

2.7 POCKET MONEY. PER DIEMS

AND EXPENSES.

EXAMPLE 1: Customers’ generous expenses

claims reimbursed

• A European manufacturer is negotiating a sales

contract for the supply of products to the municipal

government of a North American country.

• The municipal government ofcer responsible for

procurement negotiates a clause in the contract

providing Euros 400 per person per day as an

allowance while attending technical training on the

product. The contract species that training will be

provided for 18 individuals, covering a 3 week period.

• The training place takes place in Europe shortly after

the contract has been signed. The air tickets are

provided by the manufacturing company.

• The technical element of the training takes 2 days.

• For the rest of the three weeks, the visiting party

spent their time as they wish. Some travelled to 3

European capitals, with logistical support from the

manufacturing company.

• The per diems were paid in cash to the head of the

municipal government delegation on the rst day of

their visit.

EXAMPLE 2: Providing improper travel per diems

• A company specialising in bespoke software for

deepwater oil drilling operations wants to win new

contracts from state oil companies in a country

beginning to increase its oil exploration.

• Through its local representative ofce, the company

begins paying the employees of the state-owned

companies to act as internal consultants to evaluate

the software and then convince the procurement

department of the oil companies to buy it.

• In addition to the “consultancy” fees the regional head

sales manager of the software company signed off on

travel for the “internal consultants”.

• The trips a were masked as customer training, and

while there, the employees of state-owned companies

would be paid USD400 cash per diems.

DESCRIPTION

Paying per diems can at times be equivalent to paying a cash bribe. Per diems are effectively a payment to an

individual for attending a meeting, course or event. Likewise, generous reimbursement of expenses can also be

a means of disguising a bribe. What may be considered to be reasonable, and therefore not potentially a bribe,

can be difcult to determine. Therefore, the safest option would be to avoid cash per diems all together, when

clients, ofcials, or business decision makers are involved.

GUIDANCE

• Make sure it is clear that these schemes are labelled as bribes/kickbacks in company compliance and training.

• Incorporate the concept of bribing through rebates, discounts, and refunds into anti-bribery and anti–

corruption policies.

• Be on the alert when potential business partners offer or request exclusive benets in return for business

decisions.

• Know how to deal with it if you are offered or requested suspicious rebates or discounts.

SOURCES OF FURTHER GUIDANCE

• Corruption Prevention Department Independent Commission Against Corruption, Governance and Internal

Control : A Best Practice Checklist, pp. 23-27 http://www.icac.org.hk/lemanager/en/content_1031/sme.pdf

2.8 REBATES AND DISCOUNTS

OR KICKBACKS

EXAMPLE 1: Customer rebate paid in cash to

client account manager

• A credit manager in a large company would like to

nd a debt collection agency which his company

could use on a regular basis to recover money from

defaulting customers.

• The credit manager has an introductory meeting with

a sales agent from a debt collections agency.

• During the meeting, the sales agent proposes a fee

scheme, in which the credit manager’s company

would pay the collection agency a “success fee” of

15% of the debt value when the debt is recovered.

• In addition, the agent promises that a 3% rebate

of the total amount of debt collected by the debt

collection agency during the month would be

transferred back to the credit manager’s company as

a rebate.

• The agent also adds that the usual means of paying

this would be in cash, directly to the credit manager.

He would then be at liberty to deposit it in the rm’s

account or treat it as a “contribution towards personal

discretionary business spending”, as the agent puts it.

• To receive the rebate, the credit manager would

of course have to use this agency, rather than its

competitors.

EXAMPLE 2: Rebates used as kickbacks

• A German copper trading company would like to

increase its copper sales in one of its countries of

operation.

• Together with the executives of its local subsidiary,

the company’s regional sales director sets up a

kickback scheme to channel payments to purchasing

managers of the state-owned copper wire and

electronics manufacturer.

• The copper trading company would charge inated

amounts for the copper supplies, and the purchasing

managers would then be “refunded” through rebates

equivalent to 5-10% of the purchasing price, which

would be transferred into their personal accounts.

DESCRIPTION

Rebates and discounts are commonly used as incentive schemes in business, particularly when they are linked

to a customer increasing the quantities it purchases. However, rebates and discounts may also be diverted to

the individuals who are responsible for procurement decisions, thus becoming a kickback to the vendor, and a

bribe in order to secure a contract.

2.9 E M P L O Y M E N T C O N T R A C T S A N D

CONSULTING AGREEMENTS

EXAMPLE 1: Fictitious employment contracts used

as vehicle for bribery

• A high end leather goods manufacturer just breaking

into the market is desperate to conclude a supply

contract with a luxury Western European retail chain.

• However, the barriers to entry in the upmarket retail

industry are high and competition is erce.

• The business development manager of the leather

goods company feels the chances of winning the

supply deal are slim.

• Over lunch with the retailer’s supply manager, who is

known to struggle to nance his lavish lifestyle from

his earnings, the business development executive

offers to retain him as a “consultant” after the contract

is concluded.

• The supply manager’s contract would say that he is

responsible for evaluating and inspecting the product,

which is entirely credible.

• The supply manager is promised cash payments, an

expense account and reimbursement of his ‘out of

pocket expenses’ to an agreed annual limit.

EXAMPLE 2: Specic partner mandated by local

government and used as a conduit for payments

• A North American FMCG company is looking to

expand into a new market in the Gulf.

• Before commencement of trading, a local government

ofcial with some clout insists on a specic local agri-

company becoming the company’s sole and exclusive

supplier of certain products in the local market.

• While looking into the local agri-company, the director

of local operations nds out that it is owned by

relatives of the government ofcial.

• This is clearly a breach of corporate policies and due

diligence regulations, so the operations manager

phones the government representative with his

concerns.

• However, the ofcial not only dismisses these

worries, he openly admits that the agri-company will

steer a percentage of the prots from the deal in his

immediate family’s direction. The ofcial explains

patiently that this is how business is done in his

country, and his ofcial salary is insufcient to support

his large family.

• The operations manager is of course aware that his

actions amount to bribery, but he feels the projected

prots are just too large to lose, and if he walks away

from the deal his own job will be in jeopardy.

• The operations manager therefore agrees to this

arrangement as a condition of doing business in the

country.

DESCRIPTION

While it may make business sense to hire candidates whose background is known, offering jobs or internships

to relatives or associates of clients or ofcials can also become a form of bribery. For example, hiring the

children or relatives of a client or an ofcial, whether for an internship, a job, or work experience, could unduly

inuence contract awards or other business decisions. Therefore, although there is no legal prohibition on this, it

is a risky area. There is also the possibility that a new ‘employee’ may never actually work for the company and

only be a ‘ghost’ employee purely created in the accounting records as a means to extract cash. The paperwork

for the individual can be fabricated to give the impression that the appointment was via a proper process.

GUIDANCE

• Ensure that any employment contracts or consulting agreements are open and transparent – for example,

not hidden or disguised internally.

• It must be clear that any employee has the skills/knowledge required for the position.

• Ensure there are policies in place to monitor and evaluate performance of employees and associates, and

these are applied across the board.

• Associates or relatives of clients or ofcials should be paid what other employees in a similar position are

paid, and separated from the business that deals with their high-placed relative or associate.

• Ensure that employees know that they will not be punished in any way for refusing to pay a bribe or favour

colleagues’ connections with business.

SOURCES OF FURTHER GUIDANCE

• David Lawler, Frequently Asked Questions in Anti-Bribery and Corruption, p. 381

4040

EXAMPLE 1: Inated invoices on a local

authority contract

In the world of bribery, the bribe payer rarely pays the

cost of the bribe. It will almost certainly be passed onto

the customer. The upshot is that the cost of providing the

goods or services agreed to be paid is increased in order

that the supplier can make the secret payment to the

person in charge of procurement. The result is that the

local authority, and ultimately the taxpayer, foots the bill

for the bribe. This example highlights the practice and the

risks associated with dealing with local authorities.

• A lift engineer working on behalf of several

local authorities is in charge of authorising lift

maintenance contracts for three authorities. He has

considerable discretionary decision making power

as it is a specialist area and nobody else seems to

know what such a service should cost or what the

specication should be.

• The lift engineer agrees a deal with a lift

maintenance company, awarding it a contract to

service the lifts for three authorities.

• In return, the lift maintenance company makes

payments to the engineer.

• In order to fund the payments to the engineer, the

local authorities are overcharged for work done and

charged for work that has not been done at all.

In this example, various individuals involved were

convicted and sent to prison.

EXAMPLE 2: Local authority planning departments.

Bribes can be small and a competitor smells a rat.

Planning consent is an area particularly ripe for bribery.

The decision to grant planning permission for real estate

to be developed can render a comparatively worthless

piece of scrubland into a valuable development site.

• A property developer is concerned that his planning

applications are turned down a disproportionate

number of times

• He arranges with an associate to record meetings

with an elected councillor to create some evidence

that the councillor is unethical.

• In two recorded meetings the councillor accepts

payments of £250 and another of £500 plus a bottle

of wine to improperly inuence planning decisions.

In this example, the councillor was sent to prison.

3 BRIBERY ON YOUR DOORSTEP

Not just a problem over there: examples in the United Kingdom

DESCRIPTION

Although, bribery is illegal across the board in the UK, experience shows that bribery also happens in the UK.

For example:

• a recent report by Transparency International showed that 5% of citizens polled in the UK said they had paid

a bribe at least one on the past twelve months

• the rst three prosecutions under the UK Bribery Act were for bribes paid in the UK

• a survey of the construction sector found that more than a third of the industry professionals surveyed stated

that they had been offered a bribe or incentive on at least one occasion.

It is fair to say that in common with many other countries, UK public ofcials are susceptible to bribery. Public

ofcials are almost all, universally, paid less than their peers may be paid in the private sector but in many cases

in their hands rests the power to make decisions which have huge nancial consequences for others. All the

ingredients for paying a bribe exist. Likewise, bribes may be paid in the private sector, and there is increasingly a

grey area between public and private sector as government services are contracted out.

The examples in this section are derived from real cases and illustrate how bribes can be paid within the UK.

1. Global Corruption Barometer, Transparency International, Berlin 2013

2. Chartered Institute of Building (CIOB) Corruption in the UK Construction Industry report 2013, http://www.

ciob.org/sites/default/les/CIOB%20Corruption%20in%20the%20UK%20Construction%20Industry%202013.

pdf

EXAMPLE 3: Local authority planning - again

• A property developer wishes to gain the support of a

councillor for planning applications.

• He arranges for the councillor to live rent-free at one

of his properties, running up arrears of £34,000 in

unpaid rent.

• In exchange, the councillor lends his support for the

property developer’s planning applications.

EXAMPLE 4: Local authority planning – yet again

• A property developer wishes to develop a piece of

land, but it has a restrictive covenant on it that needs

to be lifted in order to allow the development.

• The local council has the power to lift the covenant,

and the property developer approaches to relevant

ofcial to discuss how this can be arranged.

• The council ofcial demands a personal payment of

£1,000 in order to release the restrictive covenant

over the piece of land.

In this example, the council employee received a prison

sentence of 8 years.

EXAMPLE 5: Hospital Pass. The bribe that was never

paid results in guilty verdict.

• An NHS Trust’s Project Manager has a contract to

award.

• He approaches one of the bidders and offers to

award the contract at a favourable rate, if he is paid

£1,500 in return.

• The bidding company refuses to pay the £1500 and

reports the approach to the police.

In this example, the Project Manager was tried and

found guilty.

EXAMPLE 6: Even the Police are not immune

• A police force employee is in charge of awarding

refurbishment contracts.

• He awards a contract to a construction company.

• In return, he is paid around £30,000 as well as

receiving lavish Christmas hampers for himself and

certain colleagues.

EXAMPLE 7: Train company employees go off the

rails

• An employee of a UK rail company is responsible for

awarding contracts.

• His decision is clearly inuenced by bribery in the

form of gifts and hospitality.

• In a similar case, another employee in a similar

position receives cash payments made into a private

bank account.

In this example, the bribery was identied in each case

and the punishments included prison sentences.