Chapter 1. Corruption risks, mitigation measures and incentives of cross-cutting relevance across the extractive value chain

This chapter identifies risks of cross-cutting relevance commonly observed across the value chain of extractives and that contribute to increasing exposure and vulnerabilities to corruption. It also recommends mitigation measures for host government, companies’ home governments and extractive industries to address those risks and offers options to make corruption less attractive by putting a price on it.

  

Corruption risks of cross-cutting relevance across the extractive value chain

A number of corruption risks account for increased vulnerability to corruption across the extractive value chain. First, weaknesses in the anti-corruption legal and judicial system may undermine host governments’ capacity to effectively detect, prevent and sanction corruption. Regarding the extractive sector more specifically, high politicisation and discretionary power in decision-making processes, as well as inadequate governance arrangements leave room for favouritism, clientelism, political capture and interference, conflicts of interest, bribery and other corrupt practices. On the company’s side, gaps and discrepancies in internal corporate anti-corruption compliance and due diligence procedures contribute to weakening detection and prevention efforts. Finally, shortcomings in corporate integrity measures, both in host and home governments and in particular with regards to the disclosure of beneficial ownership arrangements, provide opportunities for corruption to thrive.

Figure 1.1. Corruption risks of cross-cutting relevance across the extractive value chain

Gaps in the anti-corruption legal and judicial system

On the host government’s side, a weak anti-corruption legal and institutional framework may constitute a major risk factor increasing vulnerability to corruption and undermining the state capacity to effectively prevent and prosecute cases of corruption. In particular, a host governments’ anti-corruption legal, judicial and regulatory system may be inadequate due to lack of state institutional capacity, and lax, ambiguous, incomplete or outdated legislation, or lack of effective enforcement of existing laws and regulations, including prosecution and sanctioning.

More specifically, for host governments, legislative gaps may include failure to define corruption in all its forms as a criminal offence, including cross-border bribery, which is a major risk in the extractives sector, or lack of or insufficient coverage of specific anti-corruption measures such as guaranteeing the reporting by and protection of whistle-blowers or making a bribe payment expressly non-tax deductible.

Host governments are sometimes also home governments. They may host local companies with activities abroad. They may also host subsidiaries of multinational enterprises for the purpose of exporting the resources they have extracted. Where a host government is also a home government to companies with substantial activities abroad in the extractive sector, it is essential that it criminalise the bribery of foreign public officials in accordance with international standards, and ratify the OECD Anti-Bribery Convention, which focuses on stemming the supply of bribes to foreign public officials in international business transactions.1

Although usually equipped with more robust legal and judicial frameworks, home governments may also suffer from similar shortcomings that undermine the state’s capacity to effectively prevent and sanction the bribery of foreign public officials by extractive companies. This may be the result of failure to include bribery of foreign public officials or facilitation payments in the legal definition of corruption or may be due to a weak enforcement record. Home governments with substantial extractive activities abroad should also ratify the OECD Anti-Bribery Convention.

Discretionary power and high politicisation of decision-making processes in the extractive value chain

Empirical analysis reveals a high level of politicisation of decision-making processes and of discretionary power held by both high and lower-ranking public officials as major risk factors undermining the effective prevention of corruption in the extractives sector. This may be observed for example in the process of approval of environmental impact assessments, in the granting of authorisations or waivers, in bidding or negotiation procedures, revenue collection, customs clearance, immigration visa application or administrative authorisations, and procurement of goods and services.

Moreover, discretionary power and politicisation of decision-making processes may result from insufficient compliance with public integrity standards regarding the management of conflicts of interest, the regulation of lobbying and political campaign financing and the transparency of public financial management systems. In particular, the legislation may not provide for safeguards against risks of collusion and political interference associated with the “revolving door phenomenon”, whereby individuals frequently switch between high-level positions in both the public and private sectors.

Inadequate governance of the extractive sector

Risk factors related to the governance of the extractive sector include lack of or insufficient segregation of roles and responsibilities between administrative, regulatory and supervisory functions. In many instances, state-owned companies were found to be acting both as the administrator and regulator of the sector. More generally, the lack of transparency in the management and governance of state-owned companies may account for heightened risks of corruption in the extractive sector.

The lack of independence and accountability in monitoring and oversight activities as well as the lack of involvement and participation of local communities affected by extractive activities in decision-making processes may increase risks of corruption across the extractive value chain.

Gaps and discrepancies in corporate due diligence procedures

General risk factors on the company’s side include the lack of effective anti-corruption compliance and due diligence procedures applicable to employees, subsidiaries, business partners and intermediaries across the extractive value chain.

In particular, due diligence systems may not guarantee strict control over employees in compliance-sensitive positions, business partners, intermediaries and third parties, and they may fall short of providing adequate oversight of the parent company over the subsidiary’s operations and robust internal financial controls related to anti-corruption compliance and internal audit processes.

Opacity on beneficial ownership

Moreover, transparency measures both in host and home governments may fail to adequately reflect the increasing complexity of patterns of corruption, which often rely on multi-layered structures across various jurisdictions and involve shell companies and corporate vehicles to channel or disguise corrupt payments and distance the corrupt agent from the crime. The lack of access to adequate information on these corporate structures, including on beneficial ownership, ranks among the greatest corruption risks in the sector.

Effectively detecting risks of corruption and money laundering through corporate vehicles requires capacity from the state to trace and identify the beneficial owners exercising effective control over a legal entity or on whose behalf a transaction is being conducted.2 In this regard, national legislation on transparency may present important gaps with regard to the disclosure requirements of beneficial ownership. The nature of the information provided, the management of available data as well as harmonisation of national disclosure standards with international standards may be insufficient (OECD, 2014b; World Bank, 2011).3 The risks associated with these grey zones and discrepancies are not the exclusive purview of home and host governments but also of third countries with attractive tax systems and opaque beneficial ownership disclosure requirements. Indeed, third countries may offer a safe place for disguising, channelling and laundering corrupt funds and payments.

These risk factors may arise in any transactions or payments involving corporate vehicles, shell companies, offshore bank accounts, front companies or local entities owned by politically affiliated persons; and they may impact, in particular, the award of contracts, commodity trading, enforcement of local content requirements, formation of joint ventures, privatisation or acquisition of shares in a public company.

Risks and recommended mitigation measures of cross-cutting relevance across the extractive value chain

RISK FACTORS	RECOMMENDED MITIGATION MEASURES
Gaps in the anti-corruption legal and judicial system	What host governments can do Carry out a preliminary risk mapping of relevant institutions (leadership, independence and authority; culture and incentives; policies and processes; organisational structure, resources and capacities), including judicial and legislative bodies as well as institutions in charge of administering and regulating the extractive sector, to identify possible vulnerabilities and high-risk areas of corruption (Chêne, 2007). Explicitly criminalise corruption in all its forms at the public and private levels, including cross-border bribery, by introducing and strictly enforcing anti-corruption rules in accordance with international standards. Host governments that are also home governments with substantial exporting activities in the extractives sector should also be encouraged to ratify the OECD Anti-Bribery Convention, which focuses on stemming the supply of bribes to foreign public officials (OECD, 2011, UN, 2004). Include facilitation payments in the definition of corruption in national legislations. Provide effective, proportionate and dissuasive civil, administrative or criminal penalties for omissions and falsifications of the books, records, accounts and financial statements of companies (making of off-the-books, the recording of non-existent expenditures, the entry of liabilities with incorrect identification of their object, as well as the use of false documents for the purpose of bribing public officials or of hiding such bribery). Establish effective systems for reporting corruption, including through on-line platforms and protection of whistle-blowers (Davies and Fumega, 2014). What home governments can do Adopt anti-corruption criminal laws and ensure their application, providing for effective, proportionate and dissuasive sanctions and incentives, including for the bribery of foreign public officials, in accordance with international standards such as the OECD Anti-Bribery Convention. Home governments with substantial extractive activities abroad should also ratify the OECD Anti-Bribery Convention. Ensure that law enforcement authorities have necessary resources and institutional frameworks for detecting, investigating and prosecuting corruption cases involving bribery of foreign public officials. Eliminate any indirect support of foreign bribery, in accordance with the 2009 OECD Recommendation on Further Combating the Bribery of Foreign Public Officials in International Business Transactions, 2009 OECD Recommendation of the Council on Tax Measures for Further Combating Bribery of Foreign Public Officials in International Business Transactions, and 2006 OECD Recommendation on Bribery and Officially Supported Export Credits. What donors can do In partner countries: Provide support for the development or strengthening of anticorruption authorities; or strengthen citizen control via NGOs, media and parliament. Provide support for the development of a whistle-blowing system against corruption. In home countries: Encourage their respective governments to ensure anti-bribery legislation is updated and in line with international standards and provides for sanctions for companies that engage in bribery of foreign public officials.
Discretionary power and high politicisation of decision-making processes in the extractive value chain	What host governments can do Set pre-determined and objective criteria to be explicitly and transparently considered in decision-making processes (e.g. contract renegotiation, selection of bidders and suppliers, pre-qualification of local suppliers, and granting of waivers). Limit political interference in state-owned companies’ technical decisions by making merit-based appointments. Invest in staff integrity and capacity and adopt strong employee accountability provisions. Introduce standardised and automatic procedures (e.g. customs clearance, immigration visa application, revenue collection, bid submission, etc.)/develop standardised models or guidelines (e.g. licences and contract terms). Set clear ethical standards and codes of conduct and provide certification and regular training for public officials in compliance-sensitive positions.
	Adequately regulate lobbying activities with a view to increasing transparency in the interaction between public officials and lobbyists, thus reducing the risk of policy capture, undue influence and unfair competition while recognising their importance for informed decision making. This may include a requirement for the establishment of publicly accessible lobbying registries that chronicle all lobbying efforts by corporations, civil society organisations and individuals, and codes of conduct (OECD, 2016; OECD, 2015c; OECD, 2010b).4 Properly regulate political campaign finance, including limits on contributions by corporations and individuals, and the requirement for publicly accessible registries of all contributions to all political parties and candidates. Further measures include banning anonymous/foreign donations, automating and using online technologies for collecting donations, and allocating sufficient human and financial resources to electoral monitoring bodies (OECD, 2016; OECD, 2015c; OECD, 2010b).5 Put in place mechanisms for preventing or detecting conflicts of interest of key public officials, including declarations of asset, specific disclosure requirements for Politically Exposed Persons (PEPs),6 employment restrictions, regular redeployment of officials in positions susceptible to corruption (EITI, 2015; OECD, 2004; OECD, 1999). A conflict-of-interest policy should provide for a clear definition of conflicts of interest situations, specifying the information government officials are expected to disclose in order to identify and declare conflicts-of-interest situations and setting up clear procedures for managing and resolving those situations as they arise (OECD, 2004; OECD, 1999).7 To the extent possible, favour the automation of procedures and the use of online technologies for the management of asset declaration by public officials to increase transparency and accountability to the public. What companies can do Strictly control and monitor the relationship between corporate personnel and public officials. Due diligence rules and internal codes of conduct may, for example, require that discussions and interactions with public officials involve at least two employees from different functions, that employees periodically report on the activities carried out in relationship with public officials; that internal formal authorisation and delegation of powers are made at the appropriate level in order to bind the company; and that traceability and transparency of payments is ensured.8 Rotate personnel in compliance-sensitive positions on a regular basis.
Inadequate governance of the extractive sector	What host governments can do Clarify the role of state-owned enterprises separating the sector’s administration and regulation functions. Ensure independent oversight of state-owned enterprises. Require state-owned enterprises to establish anti-corruption compliance programmes based on risk assessments and have their content and implementation reviewed by internal and external independent bodies. Publish consistent reporting on state-owned enterprises in accordance with International Financial Reporting Standards (OECD, 2005). Disclosure requirements may include information related to the ownership, governance, operations, and financial situation of state-owned enterprises including for example, pricing policies, costs, revenue flows, tax payments, financial flows between the state-owned enterprise and the state, procurement plans, and shareholders including beneficial ownership (OECD, 2005). Develop efficient internal audit procedures for state-owned enterprises and perform an annual independent external audit based on international standards (OECD, 2005). Engage with affected local communities in order to provide meaningful opportunities for their views to be taken into account in relation to planning and decision making for extractive projects. In particular, clarify expectations, commitments or legal requirements for engaging with indigenous peoples about resource development, in accordance with applicable international standards and principles (ILO, 1989; IFC, 2012). Promote the uptake and observance by extractives industries of the OECD Due Diligence Guidance on Meaningful Stakeholder Engagement in the Extractives Sector (OECD, 2015b). Foster participatory monitoring and other independent oversight mechanisms separate from state regulatory authorities (e.g. civil society and/ or parliamentary committees and courts). Build community capacity to monitor extractive projects (Beevers, 2015). What companies can do Observe the OECD Due Diligence Guidance on Meaningful Stakeholder Engagement in the Extractives Sector. In particular, establish strong policies against the use of manipulation, illegal conduct (e.g. bribery, misrepresentation) in the course of stakeholder engagement activities and establish corrective procedures for such conduct (OECD, 2015b). What donors can do Assist national EITI secretariats or other relevant initiatives to ensure adequate monitoring and oversight over all phases of the extractive value chain. Engage with all stakeholders, in particular extractive companies or in public-private partnership initiatives. For example, organise multi-stakeholder dialogues, train company staff on relevant standards.
Gaps and discrepancies in corporate due diligence procedures	What companies can do Establish a robust and comprehensive anti-corruption management system (in accordance with OECD Good Practice Guidance on Internal Controls, Ethics and Compliance) supported by an adequate and dedicated budget; and based on a properly documented assessment of corruption risks, which is reviewed on a regular basis and designed to prevent and detect the risks of bribery for the company (including its management and employees), its subsidiaries and where appropriate its business partners9 and intermediaries (OECD, 2010a). In particular: Secure strong, explicit and visible support and commitment and ensure senior management’s overall responsibility for the anti-corruption management system. (OECD, 2010a). Put in place an independent and adequately resourced compliance oversight function with the authority to report matters directly to independent monitoring bodies such as internal audit committees or boards of directors and supervisory bodies (OECD, 2010a). Put in place ethics and compliance measures covering inter alia the following areas: gifts, hospitality, entertainment and social expenses, customer travel, political contributions, charitable donations and sponsorships, facilitation payments, and solicitation and extortion (OECD, 2010a). Put in place a system of financial and accounting procedures, including a system of internal controls designed to ensure the maintenance of fair and accurate books, records and accounts, to ensure that they cannot be used to bribe or hide bribery (OECD, 2010a). Undertake properly documented risk-based due diligence pertaining to the hiring, as well as to the appropriate and regular oversight of business partners (OECD, 2010a). Inform business partners of the company’s commitment to abiding by laws against corruption and foreign bribery, and of the company’s ethics and compliance programme or measures for preventing and detecting such bribery and seek a reciprocal commitment from business partners. Ensure effective communication and documented training on the anti-bribery management system for all levels of the company, in particular for employees in compliance-sensitive positions and, where appropriate, subsidiaries and business partners (OECD, 2010a). Adopt effective measures for confidential reporting by, and the protection of directors, officers, employees and, where appropriate, business partners, not willing to violate professional standards or ethics under instructions or pressure from hierarchical superiors, as well as for directors, officers, employees and, where appropriate, business partners, willing to report breaches of the law or professional standards or ethics occurring within the company, in good faith and on reasonable grounds; and undertake appropriate action in response to such reports. This may involve putting in place policies and procedures against retaliation, feedback on investigations and discipline and sanction mechanisms for those who have been found responsible of violations. Provide for regular documented reviews of the system to ensure its continued effectiveness (OECD, 2010a). Co-ordinate collective action by establishing country-specific industry-based groups in order to share experiences and practices on implementing effective measures to address corruption risks.10 Design and implement appropriate internal rules on planning, authorisation, implementation and monitoring of investments. What home governments can do Encourage companies operating overseas to develop and adopt adequate internal controls, ethics and compliance programmes or measures for the purpose of preventing and detecting risk of corruption, including foreign bribery, taking into account the OECD Good Practice Guidance on Internal Controls, Ethics, and Compliance (OECD, 2010a). In particular, encourage companies to prohibit or discourage the use of facilitation payments in internal company controls, ethics and compliance programmes or measures, recognising that such payments are generally illegal in the countries where they are made, and must in all cases be accurately accounted for in company books and financial records. Provide information and training on anti-corruption laws, regulations and sanctions as appropriate for public officials posted abroad, including on home country laws implementing the OECD Anti-Bribery Convention, so that such personnel can provide basic information and appropriate assistance to home country companies operating abroad and appropriate assistance when such companies are confronted with bribe solicitations. Mandate regular independent and certified audits of corporate internal due diligence procedures and associated risk management strategies and require companies to remedy any gaps or discrepancies and integrate any recommendations for improvement in their policy or risk management strategy as identified by the auditors.
Opacity on beneficial ownership	What host governments can do Establish an enabling legal framework for the disclosure of public beneficial ownership arrangements.11 In particular: -Adopt a definition of “beneficial owner” that captures the natural person(s) who ultimately owns or controls extractive companies operating in the country with specific reference to PEPs. -Consider requiring public disclosure of beneficial ownership information for extractive companies and public beneficial ownership registries of extractive companies, reflecting changes in ownership and corporate structures over time. -Ensure effective supervision of beneficial ownership disclosure requirements, including the establishment and enforcement of effective, proportionate and dissuasive sanctions for non-compliance. -To the extent possible, seek harmonisation of national regulations related to beneficial ownership with international standards on transparency of ownership and consider making use of model beneficial ownership declaration forms, such as the one developed by the EITI.12 -When the company ownership is structured across multiple jurisdictions, ensure that competent authorities participate in information exchange on beneficial ownership with international counterparts in a timely and effective manner. For home countries Promote increased understanding of complex corporate structures by establishing an easily and freely accessible public registry with charts of the MNE group(s) headquartered in the country illustrating the legal and ownership structure, and geographical location of operating entities, including all subsidiaries (domestic and foreign). Create public beneficial ownership registers of companies incorporated or having their seat in the home country, reflecting ownership changes over time. Require companies to disclose beneficial ownership and communicate any changes over time (OECD, 2014a). What companies can do Designate a senior company official to attest that the beneficial ownership information submitted or disclosed is correct.13 Make information on the group corporate structure and beneficial ownership available to home and host governments to help them build charts/public registries. Limit as far as possible transactions and operations involving offshore companies.14

Risks and recommended incentives and disincentives across the extractive value chain

RISK FACTORS	WHERE IN THE VALUE CHAIN?	RECOMMENDED INCENTIVES/DISINCENTIVES
Gaps in the anti-corruption legal and judicial system	Cross-cutting relevance	What host and home governments can do Consider adopting laws and regulations allowing authorities to suspend, to an appropriate degree, from competition for public contracts or deny other public advantages (including public subsidies, officially supported export credits, and contracts funded by official development assistance) to enterprises determined to have bribed foreign or domestic public officials in contravention of the country’s national laws. Consider adopting laws and regulations allowing authorities to de-list companies guilty of corruption from stock exchanges. Consider adopting laws and regulations recognising advantages (for instance participating in public tenders, requesting public subsidies) for companies with continuous certified compliance with ethical standards and anti-corruption programmes. Consider implementing measures to encourage co-operative behaviours and corporate self-reporting regarding instances of corruption (e.g. leniency mechanisms, alternative means of settlements such as deferred prosecution agreements, reduced financial penalties, compliance defence or limitation of liability, exemption from interim measures), while avoiding condoning deviant behaviours. Make bribes or expenditures incurred in furtherance of corrupt conduct in contravention of criminal or any other laws non tax-deductible, and ensure that tax authorities rigorously detect bribe payments concealed as allowable expenses (OECD, 2009). Provide adequate guidance to taxpayers and tax authorities as to the types of expenses that are deemed to constitute bribes for foreign public officials. What home governments can do Consider adopting laws and regulations allowing authorities to de-list companies guilty of corruption from stock exchanges. Organise awareness-raising initiatives in the public and private sectors for the purpose of preventing and detecting corruption (including foreign bribery) and provide specific written guidance to companies on anti-corruption laws, including, if applicable, those implementing the OECD Anti-Bribery Convention.
Discretionary power and high politicisation of decision-making processes in the extractive value chain	Cross-cutting relevance	What host governments can do Take merit-based human resource decisions, developing positive career development paths, offering competitive base pay and reward packages for high ethical performance in order to encourage public officials to comply and exceed anti-corruption compliance standards.
Gaps and discrepancies in corporate due diligence procedures	Cross-cutting relevance	What companies can do Adopt a “zero tolerance” policy towards corruption and put in place appropriate incentives to encourage observance of anti-bribery management systems by directors, officers, employees and, where appropriate, business partners, and appropriate disciplinary measures for violations (OECD, 2010a). What home governments can do Reward (directly or through NGOs) good corporate conduct and behaviour, including continuous certified compliance with ethical standards and anti-corruption programmes, through for example case-specific publication, public comparison of companies’ positive anti-corruption performance (Humboldt-Viadrina School of Governance, 2013).
Non-transparent and asymmetric negotiation and contracts	Award of mineral, oil and gas rights through contract negotiation	What host and home governments and companies can do Participate in international fora such as the Negotiation Support Forum, a joint effort between the OECD Initiative for Policy Dialogue on Natural Resource-based Development and the G7 CONNEX Initiative to share knowledge, experience and good practices in contract negotiations.
Opacity and discretion in bidding processes	Award of mineral, oil and gas rights through bidding processes	What host and home governments can do Debar companies found guilty of violating tender regulations from participating in future bids for a set period of time determined on the basis of the seriousness of the violation.15 Consider adopting laws and regulations recognising advantages (for instance participating in public tenders, requesting public subsidies) for companies complying with ethical standards and adopting and implementing effective anticorruption programmes. What host governments can do Prohibit campaign contributors from receiving contracts and concessions during their candidate’s term in office when the latter is in a position to influence the assignment of such contracts and concessions.16 Consider evidence of unreliable or fraudulent statements or information, including on beneficial ownership, provided by the company obtaining a licence as legal grounds for terminating the licence, taking into account the seriousness of the violation.
Lack of, or inadequate due diligence procedures governing relationships with suppliers	Regulation and management of operations – Procurement of goods and services	What extractive companies or main contractors17 (public or private) can do Provide preferential treatment to suppliers that adhere to anti-corruption standards such as granting preferred supplier status to the extent it does not distort fair competition (e.g. inclusion in a list of pre-qualified suppliers), guarantee higher visibility for compliant companies (Humboldt-Viadrina School of Governance, 2013). Grant public recognition to compliant companies (e.g. “business partners of the year” award, mention on websites, promotional activities, etc.) (Humboldt-Viadrina School of Governance, 2013). Consider the establishment of a list of qualified suppliers (where possible cross-industry) where a host government’s pre-qualification standards are lower than industry standards.
Lack of co-ordination and asymmetries of information between national and sub-national governments	Revenue management – Redistribution of resource revenue through transfers	What central governments can do Allocate extra grants supplementing funding of local development projects based on performance in budgetary information disclosure and results of audit reporting.18
Insufficient capacity for budget planning and execution	Revenue spending and social investment projects – Public spending	What central governments can do Introduce penalties applicable to local authorities when they deviate from planned revenue and expenditure targets.
Lack of transparency of public procurement processes	Revenue spending and social investment projects – Public spending	What central and local governments can do Provide attractive, competitive and merit-based career options for procurement officials, and ensure protection from political interference in the procurement process. Include prevention and detection of bid rigging or corrupt practices in procurement officers’ professional duties and make it a requirement for career development/progression. Provide that money saved from uncovering a cartel formed as part of a public procurement process remains in part with the administration that helped discover it. Debar companies found guilty of violating tender regulations from participating in future bids, and for a set period of time as determined on the basis of the seriousness of the violation.19 Prohibit campaign contributors from receiving contracts during their candidate’s term in office when the latter is in a position to influence the assignment of such contracts.20 Insert anti-collusion tender clauses specifying sanctions for breaches of competition rules in public procurement contracts (OECD, 2015a).

References

Beevers, D.M. (2015), “Large-scale mining in protected areas made possible through corruption: Options for donors”, U4 Brief, U4 Anti-Corruption Resource Centre, June.

Chêne, M. (2007), “Corruption and the renegotiation of mining contracts”, U4 Expert Answer, U4 Anti-Corruption Resource Centre, 30 November.

Davies, T. and S. Fumega (2014), “Mixed incentives: Adopting ICT innovations for transparency, accountability, and anti-corruption”, U4 Issue 2014:4, www.u4.no/publications/mixed-incentives-adopting-ict-innovations-for-transparency-accountability-and-anti-corruption/#sthash.6jYd9HQm.dpuf.

EITI (2016), The EITI Standard, https://eiti.org/files/english-eiti-standard_0.pdf.

EITI (2015), EITI Progress Report 2015 – Making Transparency Matter, Section “Breaking ground on beneficial ownership transparency”, http://progrep.eiti.org/#!/2015/looking-ahead/beneficial-ownership.

FATF (2012), International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, updated October 2015, FATF, Paris, France, www.fatf-gafi.org/recommendations.html.

G20 (2014), G20 High-Level Principles on Beneficial Ownership Transparency, www.g20australia.org/sites/default/files/g20_resources/library/g20_high-level_principles_beneficial_ownership_transparency.pdf.

Humboldt-Viadrina School of Governance (2013), Motivating Business to Counter Corruption, A practitioner Handbook on Anti-Corruption Incentives and Sanctions, October.

IFC (2012), “International Finance Corporation Performance Standard 7 on Indigenous Peoples”, www.ifc.org/wps/wcm/connect/1ee7038049a79139b845faa8c6a8312a/PS7_English_2012.pdf? MOD=AJPERES.

ILO (1989), “International Labour Organisation Convention 169 on Indigenous and Tribal Peoples”, www.ilo.org/indigenous/Conventions/no169/lang--en/index.htm.

OECD (2016), Financing Democracy: Funding of Political Parties and Election Campaigns and the Risk of Policy Capture, OECD Public Governance Reviews, OECD Publishing, Paris, https://doi.org/10.1787/9789264249455-en.

OECD (2015a), “Draft report to the Council on Implementation of the 2012 Recommendation on Fighting Bid Rigging in Public Procurement”, Note by the Secretariat prepared for the Working Party No.2 on Co-operation and Enforcement, 15 June.

OECD (2015b), “Due Diligence Guidance on Meaningful Stakeholder Engagement in the Extractive Sector”, April, www.oecd.org/daf/inv/mne/OECD-Guidance-Extractives-Sector-Stakeholder-Engagement.pdf.

OECD (2015c), “Transparency and integrity in lobbying”, in Government at a Glance 2015, OECD Publishing, Paris, https://doi.org/10.1787/gov_glance-2015-35-en.

OECD (2014a), Guidance on Transfer Pricing Documentation and Country-by-Country Reporting, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, https://doi.org/10.1787/9789264219236-en.

OECD (2014b), Illicit Financial Flows from Developing Countries: Measuring OECD Responses, OECD Publishing, https://doi.org/10.1787/9789264203501-en.

OECD (2011), “Convention on Combating Bribery of Foreign Public Officials in International Business Transactions”, OECD Publishing, www.oecd.org/daf/anti-bribery/ConvCombatBribery_ENG.pdf.

OECD (2010a), “Good Practice Guidance on Internal Controls, Ethics and Compliance”, adopted by the OECD Council as an integral part of the Recommendation of the Council for Further Combating Bribery of Foreign Public Officials in International Business Transactions of 26 November 2009, 18 February, www.oecd.org/daf/anti-bribery/44884389.pdf.

OECD (2010b), Post-Public Employment: Good Practices for Preventing Conflicts of Interest, OECD Publishing, Paris, https://doi.org/10.1787/9789264056701-en.

OECD (2009), “Recommendation of the Council for Further Combating Bribery of Foreign Public Officials in International Business Transactions”, C(2009)64, 25 May, www.oecd.org/tax/crime/2009-recommendation.pdf.

OECD (2005), “OECD Guidelines on Corporate Governance of State-owned Enterprises”, in OECD, Corporate Governance of State-Owned Enterprises: A Survey of OECD Countries, OECD Publishing, Paris, https://doi.org/10.1787/9789264009431-10-en.

OECD (2004), Managing Conflicts of Interest in the Public Service: OECD Guidelines and Country Experiences, OECD Publishing, Paris, https://doi.org/10.1787/9789264104938-en.

OECD (2001), Behind the Corporate Veil: Using Corporate Entities for Illicit Purposes, OECD Publishing, https://doi.org/10.1787/9789264195608-en.

OECD (1999), Public Sector Corruption: An International Survey of Prevention Measures, OECD Publishing, Paris, https://doi.org/10.1787/9789264173965-en.

UN (2004), United Nations Convention Against Corruption, www.unodc.org/documents/treaties/UNCAC/Publications/Convention/08-50026_E.pdf.

World Bank (2011), The Puppet Masters – How the Corrupt Use Legal Structures to Hide Stolen Assets and What to Do About It, Stolen Asset Recovery Initiative, The World Bank and United Nations Office on Drugs and Crime, Washington, DC.

For further reading

FATF (2014), Guidance on Transparency and Beneficial Ownership, October 2015, FATF, Paris, www.fatf-gafi.org/media/fatf/documents/reports/Guidance-transparency-beneficial-ownership.pdf.

OECD (2015), Consequences of Corruption at the Sector Level and Implications for Economic Growth and Development, OECD Publishing, Paris, https://doi.org/10.1787/9789264230781-en.

OECD (2014), OECD Foreign Bribery Report: An Analysis of the Crime of Bribery of Foreign Bribery Officials, OECD Publishing, Paris, https://doi.org/10.1787/9789264226616-en.

Notes

← 1. The full name of the OECD Anti-Bribery Convention is the Convention on Combating the Bribery of Foreign Public Officials in International Business Transactions. It currently has 41 Parties, the 34 OECD countries plus seven non-members (Argentina, Brazil, Bulgaria, Colombia, Latvia, Russia and South Africa).

← 2. According to the Financial Action Task Force (FATF), the beneficial owner is defined as “the natural person(s) who ultimately owns or controls a customer and/or the person on whose behalf a transaction is being conducted. It also incorporates those persons who exercise ultimate effective control over a legal person or arrangement.” See FATF (2012), International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation – The FATF Recommendation, Financial Action Task Force FATF-OECD, Paris, February 2012. www.fatf-gafi.org/media/fatf/documents/recommendations/pdfs/FATF_Recommendations.pdf. Similarly, the OECD defines beneficial ownership as “the ultimate beneficial ownership or interest by a natural person. In some situations, uncovering the beneficial owner may involve piercing through various intermediary entities and/or individuals until the true owner who is a natural person is found. With respect to corporations, ownership is held by shareholders or members. In partnerships, interests are held by general and limited partners. In trusts and foundations, beneficial ownership refers to beneficiaries, which may also include the settlor or founder.” See OECD (2001), Behind the CorporateVeil: Using Corporate Entities for Illicit Purposes, OECD Publishing, https://doi.org/10.1787/9789264195608-en.

← 3. Written comments received from participants in the Working Group on Corruption Risks during the consultations between January and November 2015.

← 4. Comments received from participants in the Working Group on Corruption Risks during the consultations between September and November 2015.

← 5. See note 4.

← 6. PEPs are considered to be persons who occupy important public positions: heads of state or government, high-level regional or national politicians, senior officials of the administration, judiciary, military and parties at national or regional level, the highest organs of state enterprises of national importance, companies and people who are close to the above-mentioned persons for family, personal or business reasons.

← 7. See note 4.

← 8. Comments received from participants in the Working Group on Corruption Risks during the consultations between January and May 2015.

← 9. Business partners include third parties such as agents and other intermediaries, consultants, representatives, distributors, contractors and suppliers, consortia, and joint venture partners. Factors to be taken into account in conducting due diligence on a business partner include whether it is a legitimate entity, is qualified and has the necessary resources to fulfil its part of the contract, whether it has an effective anti-bribery management system, whether it has been investigated, prosecuted or convictedof fraud or bribery, and whether it has direct or indirect links to an authority involved in the decision to award the contract. See OECD (2010), “Good Practice Guidance on Internal Controls, Ethics and Compliance”, adopted by the OECD Council as an integral part of the Recommendation of the Council for Further Combating Bribery of Foreign Public Officials in International Business Transactions of 26 November 2009, 18 February, www.oecd.org/daf/anti-bribery/44884389.pdf.

← 10. Global Economic Symposium, Selected Solutions 2014/2015.

← 11. See Requirement 2.5 of the EITI Standard (2016), https://eiti.org/files/english-eiti-standard_0.pdf.

← 12. See note 4. See also G20 (2014), G20 High-Level Principles on Beneficial Ownership Transparency, www.g20australia.org/sites/default/files/g20_resources/library/g20_high-level_principles_beneficial_ ownership_transparency.pdf.

← 13. EITI Beneficial Ownership Pilot, https://eiti.org/pilot-project-beneficial-ownership#Progress.

← 14. See note 4.

← 15. See the countryprofiles available on the Business Anti-Corruption Portal at: www.business-anti-corruption.com/country-profiles.

← 16. See www.business-anti-corruption.com/country-profiles/the-americas/colombia/initiatives/public-anti-corruption- initiatives.aspx.

← 17. “Contractors” is an all-inclusive notion encompassing all entities with whom extractive companies enter into a contractual relationship.

← 18. Open Government Partnership, “Promoting Good Local Governance through Performance-Based Grants in Philippines”, www.opengovpartnership.org/sites/default/files/Inspiring%20Story%20-%20Philippines.pdf.

← 19. See note 15.

← 20. See note 15.