Wolfsberg Group Anti-Corruption Guidance 2011

• Wolfsberg Group Anti-Corruption Guidance
• The Wolfsberg Group 2011

This Guidance replaces the Wolfsberg Statement against Corruption issued by the Wolfsberg Group* in 2007. Transparency International and the Basel Institute on Governance have been closely involved in the development of this Guidance, which aims to:

• describe the role of the Wolfsberg Group, and the financial institutions more generally, in support of international efforts to combat corruption
• identify some of the measures financial institutions may consider in order to prevent bribery in their own operations and protect themselves against the misuse of their operations in corruption
• set out guidance for a internal framework against corruption appropriate for a global financial institution.

1. Introduction

Bribery is commonly described as involving the promise, offer/acceptance or transfer of an advantage either directly or indirectly, in order to induce or reward the improper performance of a function or an activity. It may occur in a commercial arrangement (so called commercial bribery) or involve the misuse of public office or public power for private gain in order to obtain, retain or direct business or to secure any other improper advantage in the conduct of business.

The fight against corruption requires a comprehensive, multi-stakeholder approach including supranational and national government agencies and law enforcement, assisted by civil society and the wider business community. The members of the Wolfsberg Group are committed to participating in this fight and are opposed to all forms of corruption, including commercial bribery and the bribery of public officials and commit to abide by laws designed to fight corruption.

The Wolfsberg Group members recognise that their institutions may be misused for the purpose of paying bribes or laundering their proceeds and, as such, recognise the need to take practicable measures to counteract such misuse. While members are legally obliged to report suspicious activity in accordance with applicable laws that may be related to corruption when detected in customers’ financial operations, in many instances and without further information (for example, absent red flags), it may not be apparent from account activity that misuse is occurring and therefore it is hardly possible for financial institutions to detect whether customers' transactions involve, or are otherwise linked to, corruption.

* The Wolfsberg Group consists of the following leading international banks: Banco Santander, Bank of Tokyo-Mitsubishi-UFJ, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan Chase, Société Générale and UBS. This Statement was made in conjunction with Transparency International and Professor Mark Pieth of the Basel Institute on Governance.

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• Wolfsberg Group Anti-Corruption Guidance
• The Wolfsberg Group 2011

2. Scope

This Guidance addresses the issue of corruption as follows:

• First, the internal measures to prevent corruption that financial institutions may themselves consider to ensure that their own employees adhere to high standards of integrity are outlined below and further developed in Appendix 1
• Secondly, it considers the misuse of financial institutions to further acts of corruption, together with some of the measures that financial institutions could implement to attempt to mitigate activity involving corruption, which are further developed in Appendix 2
• Thirdly, it highlights the importance of taking a multi-party approach to combating corruption which includes efforts by governments and other entities. Areas for cooperation relevant to the financial aspects of corruption are set out for further consideration in the last section of this Guidance, the aim of which is to promote further dialogue amongst the relevant parties.

3. Financial Institutions' Internal Measures/Anti-Corruption Programme

Financial institutions should risk assess their own activities, products and services as appropriate to develop and implement effective Anti-Corruption policies, procedures and measures, which are proportionate to the corruption risks identified. The following internal measures are important mitigants that a financial institution should consider implementing to prevent bribery and to protect employees, as well as the organisation itself, in the event that an allegation of direct or indirect bribery or corruption is raised:

• Senior Management Commitment
  Senior management should establish a culture in which bribery is strictly prohibited and which requires employees and officers to adhere to high standards of integrity.
• Risk Assessment
  Financial institutions should understand and assess the nature and extent of the risks relating to bribery to which they are exposed.
• Establishment of a Control Environment
  Clear, practical and proportionate policies and procedures should be implemented to mitigate the risks of bribery. These are likely to include procedures relating to due diligence when engaging third parties and the inclusion of anti-bribery representations and warranties in contracts with third parties, where appropriate; due diligence in relation to corruption risks in M&A (where the financial institution is acting in a principal and not merely an advisory capacity) and other transactions that are potentially higher risk; gifts and entertainment; charitable and political donations, hiring and internship practices; and whistleblowing.
• Monitoring and Review
  The institution should have mechanisms in place to ensure compliance with key policies and procedures and implement improvements where appropriate.

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• Wolfsberg Group Anti-Corruption Guidance
• The Wolfsberg Group 2011

4. Misuse of the Financial System through Corruption

Financial institutions may be misused to further acts of corruption or to launder the proceeds of bribery. For example:

• a customer directing or collecting funds for the purpose of paying a bribe
• a recipient of a bribe placing proceeds of the illicit bribe payment into the financial system
• the deposit of misappropriated state assets
• the clearing of transactions in any of the above cases.

In many instances, and without further information (for example, absent red flags), it may not be apparent from account activity that misuse is occurring and, therefore, it is hardly possible for financial institutions to make a distinction between accounts and transactions associated with corruption and those accounts and transactions that have a legal and sound commercial basis. This is particularly, but by no means exclusively, the case when dealing with substantial companies with complex business operations. The primary responsibility to ensure that funds are neither collected nor used for illicit operations, including bribery, must rest with a financial institution's customer or that customer's representatives. This is particularly true since a financial institution will seldom have a complete overview of its customer’s financial activity.

Transactions involving the proceeds of corruption often follow patterns of behaviour common to money laundering associated with other criminal activities. Adherence to existing anti-money laundering policies, procedures and controls is therefore important in the fight against corruption. By the same token, the standards and guidance set out in existing Wolfsberg papers are similarly relevant to determine and manage money laundering risks related to corruption.*

5. Risk Based Approach

The Anti-Corruption programme addressing internal bribery risks should be based upon the financial institution's wider risk management strategy which will encompass a risk based approach. How a financial institution’s risk assessment methodology and its anti-money laundering measures may apply to customer related corruption is addressed in Appendix 2 and is based on the following criteria: Services Risk, Country Risk, Customer Risk, Industry Risk and Transaction Risk Indicators ('red flags').

Where risk factors are identified, an assessment should be made as to whether the customer should be the subject of enhanced due diligence, transaction monitoring, senior management approval and/or other measures, including review and oversight of their financial operations, as may be appropriate. In some circumstances the filing of a Suspicious Activity Report or other notification to the authorities may be required by local law or regulations.

* See http://www.wolfsberg-prinicples.com

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• Wolfsberg Group Anti-Corruption Guidance
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6. A Multi-Stakeholder Approach

The International community recognises the need for States to cooperate with one another in order to prevent and eradicate corruption. Organisations like the OECD and the UN also recognise that if efforts are to be effective, the involvement and support of individuals and groups outside the public sector are required, including civil society, non-governmental organisations and community-based organisations. Private sector companies and their related industry organisations, Chambers of Commerce and other industry organisations also have an important role to play in this regard in apprising financial institutions of developments to prevent corruption by industrial sectors or individual firms.

The Wolfsberg Group supports the publicly led multi-stakeholder approach to addressing the following important areas where further dialogue and co-operation may lead to improvements in preventing and deterring bribery and other corrupt activity as it affects the financial sector, in particular:

• Governments and international institutions (IMF, World Bank): where governments, through their diplomatic services or political analysts, have evidence of corruption in foreign countries or have evidence that foreign officials and their families have acquired assets through corruption, they should take appropriate action such as sharing this assessment with civil society and the private sector in an appropriate manner.
• Governments and their agencies: export credits agencies, development aid, lending and trade departments, should carry out co-ordinated due diligence and monitoring so that an appropriate audit trail in respect of money transfers and credits may be established by them.
• Governments and international bodies: in order that a more co-ordinated and harmonised approach may be developed between governments as to the recovery and repatriation of assets held by financial institutions and identified as connected to corruption*.
• Law enforcement and Financial Intelligence Units: should identify new techniques used by money launderers in relation to bribery and other corrupt activity, communicate typologies to the financial community and develop appropriate countermeasures.
• Regulators and supervisors: in relation to the development of policies and procedures that are consistent with regard to the definition and identification of Politically Exposed Persons as well as the initial and on-going management of relationships with customers who fall into this category.
• Civil society and non-governmental organisations: should identify trends, patterns and mechanisms used by bribe payers and recipients, thereby gaining a better understanding of the causes and effects of bribery and other corrupt activity, in order to prevent the misuse of financial institutions and support the development of appropriate standards and controls.

The Wolfsberg Group believes that constructive dialogue in this area will help to increase the knowledge and ability of such agencies and institutions to identify trends, patterns, money laundering techniques and mechanisms used in the furtherance of acts of bribery and corruption and, with an effective public private partnership, financial institutions will be better placed to assist in the fight to prevent and/or detect and disclose incidents of corruption.

* See for example the World Bank Stolen Asset Recovery (StAR) Program.