THE PREVENTION OF CORRUPTION AS PART OF MANDATORY DUE DILIGENCE IN EU LEGISLATION - April 2021
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THE PREVENTION OF CORRUPTION AS PART OF MANDATORY DUE DILIGENCE IN EU LEGISLATION Prepared by Olivier De Schutter at the request of Transparency International EU and Global Witness April 2021
EXECUTIVE SUMMARY
This study examines the existing legal framework on anti-corruption in the EU in
the context of the proposal for new EU legislation on mandatory human rights
and environmental due diligence for companies carrying on business in the EU.
It argues in favour of introducing a requirement for companies to address their
corruption risks and impacts as part of a broader human rights and
environmental due diligence obligation and discusses how these and other
complementary measures can advance the EU’s fight against corruption.
EU Member States have committed to imposing instruments and the adoption of the Framework
due diligence obligations on companies in order Decision 2003/568/JHA on combating corruption
in the private sector. Only three of the 27 EU
to ensure that they address corruption across
Member States (France, Germany and Italy)
multinational groups and within global supply
currently impose legal obligations on larger
chains, by monitoring their subsidiaries and their
enterprises relating to the prevention and
business partners. All the EU Member States are detection of corruption. Distortions of
parties to the 2003 United Nations Convention competition thus remain within the internal
against Corruption (UNCAC). They also operate market: depending on the jurisdiction under
under the OECD framework, defined by the 1997 which companies operate, they are subject to
OECD Convention on Combating Bribery of different requirements with regard to due
Foreign Public Officials in International Business diligence to prevent and combat corruption. This
also requires that companies seek information
Transactions, as well as by 2009 the OECD
about the legal requirements in 27 different
Recommendation for Further Combating Bribery
jurisdictions when they have EU-wide activities,
of Foreign Public Officials in International
and that they plan their activities on the basis of
Business Transactions and its annex on the Good 27 variations in legislation. In contrast, a
Practice Guidance on Internal Controls, Ethics, harmonised legal framework would allow
and Compliance, as well as the OECD Guidelines companies to adopt group-wide policies that
on Multinational Enterprises originally. 22 EU shall apply to all the entities operating in the EU,
Member States are also parties to the Council of with no or only minor differences from Member
Europe's Civil Law Convention on Corruption. The State to Member State. This should facilitate the
International Chamber of Commerce also planning of transnational economic activities for
businesses operating in the EU.
adopted a model "anti-corruption clause" in
2011, encouraging businesses to insert such a The strengthening of the EU anti-corruption
clause in the contractual agreements between framework should clearly distinguish the role of
companies and their suppliers. prevention (by obliging companies to conduct
due diligence for these risks) from any liability
Taken together, these various instruments
illustrate the strong alignment of EU Member that might result from prevention having failed: if
States on certain standards in the fight against the adoption of appropriate prevention measures
corruption. Yet, significant discrepancies remain were to result in legal immunity in the case of
between Member States, despite these failure, this would be counterproductive, leading
GLOBAL WITNESS & TRANSPARENCY INTERNATIONAL EU. APRIL 2021 The Prevention of Corruption as Part of Mandatory Due Diligence in EU Legislation 1to compliance becoming a "box-ticking" exercise, indirectly, insofar as it may lead to certain laws or rather than a tool through which the company is regulations being circumvented or under- encouraged to proactively improve its standards enforced. Therefore, while some tools have been and procedures to prevent corruption. The proven somewhat effective in corporate procedural tools through which the duty to compliance programmes to prevent corruption prevent human rights, labour rights or (such tools include financial auditing, a environmental impacts, on the one hand, and protection for whistleblowers, or the possibility corruption on the other hand, should also take to provide information to a compliance officer into account the specific relationship of each to anonymously or confidentially), other tools may identified victims. Indeed, whereas the victims be less effective when they rely primarily or are generally easily identifiable where human, exclusively on complaints filed by victims. labour or environmental rights are adversely impacted, corruption often affects victims GLOBAL WITNESS & TRANSPARENCY INTERNATIONAL EU. APRIL 2021 The Prevention of Corruption as Part of Mandatory Due Diligence in EU Legislation 2
CONTENTS EXECUTIVE SUMMARY .................................................................................................................................. 1 Introduction .................................................................................................................................................. 4 1. The fight against corruption as a human rights issue ............................................................................... 4 2. The role of the European Union ................................................................................................................ 9 1. The role of the 2014 Non-Financial Reporting Directive ..................................................................... 9 2. Moving beyond the 2014 Non-Financial Reporting Directive............................................................ 10 3. A common set of commitments against corruption ......................................................................... 11 i. The United Nations Convention against Corruption (UNCAC) ........................................................... 12 ii. The OECD Anti-Bribery Framework .................................................................................................... 13 Box 1. The OECD Anti-Bribery Framework .................................................................................................. 13 iii. The Council of Europe's Civil Law Convention on Corruption ......................................................... 15 iv. The Anti-Corruption Clause of the International Chamber of Commerce ....................................... 15 Box 2. The Anti-Corruption Clause of the International Chamber of Commerce ....................................... 16 Box 3. The example of the United Kingdom Bribery Act 2010 .................................................................... 18 Box 4. The duty to adopt anti-corruption preventive measures under the French Law of 9 December 2016 (Sapin 2) ............................................................................................................................................. 19 v. Providing greater legal certainty to business enterprises................................................................. 21 vi. Strengthening the role of the EU in the regulation of international business ................................. 21 vii. Responding to the concerns expressed by European public opinion ............................................ 22 3. Due diligence to prevent corruption ....................................................................................................... 23 4. Improving the EU framework against corruption ................................................................................... 27 5. Conclusion ............................................................................................................................................... 27 Endnotes ..................................................................................................................................................... 29 GLOBAL WITNESS & TRANSPARENCY INTERNATIONAL EU. APRIL 2021 The Prevention of Corruption as Part of Mandatory Due Diligence in EU Legislation 3
INTRODUCTION imposing on companies doing business in the EU
that they adopt robust anti-corruption measures
This study argues that the European Union
as part of HREDD (Part 2).It further explains that if
should seek to ensure that business enterprises
corruption is to be addressed effectively, it
operating in the EU internal market, address
should be not only by the imposition of due
corruption risks and impacts as part of a broader
diligence obligations that include corruption, but
human rights and environmental due diligence
also by the imposition of administrative, civil and
obligation. Such anti-corruption measures should
criminal sanctions (Part 3). Finally, it explains
therefore be required under the forthcoming
why such a harmonization should not be seen as
legislation. The European Commission’s
a substitute for strengthening the liability of
legislative proposal on mandatory corporate due
companies in cases where, despite efforts aimed
diligence in European Union law provides a
at preventing corruption, corruption does occur.
unique opportunity for the EU to strengthen its
Imposing due diligence obligations to prevent
anti-corruption framework, in order to ensure
corruption should be seen as part of a broader
that companies doing business in the EU
effort to strengthen the fight against corruption
contribute to the fight against corruption in
in the EU context (Part 4).
multinational groups and in global supply chains.
This would help to ensure that corruption 1. THE FIGHT AGAINST
resulting from economic globalization the result
CORRUPTION AS A HUMAN RIGHTS
of the deepening of the international division of
labour and the segmentation of the production
ISSUE
process across different jurisdictions is The lack of enforcement or underenforcement of
addressed. It would also allow the European regulatory requirements is a major obstacle to
Union to fully implement the UN Convention the effective protection of human rights,
against Corruption, to which it acceded in 2008. including labour rights and environmental rights.
Such deficiencies in enforcement may be the
According to the UN Guiding Principles on result of law enforcement agencies, including the
Business and Human Rights (UNGPs), endorsed police, the prosecuting authorities, courts, labour
on 16 June 2011 by the Human Rights Council, inspectorates or specialised agencies tasked with
human rights due diligence refers to the duty of enforcing human rights and environmental
companies to "avoid infringing on the rights of legislation, being understaffed or lacking
others and to address adverse impacts with financial resources or political support to fulfil
which they are involved" by identifying, their duties effectively. It may also be due to
preventing, mitigating and accounting for how corruption of public officials by the business
they address their impacts on human rights, undertakings concerned. Corruption therefore
whether such impacts are caused by the business has a direct impact on the human rights and
enterprise itself or whether they are "directly environmental impacts of business activities: if
linked to its operations, products or services by left unchecked, it can significantly weaken the
its business relationships".1 protection of local communities against such
The study first recalls the close links between the impacts, and undermine the efforts to strengthen
fight against corruption and the protection of respect for human rights and environmental
human rights that may be affected by business rights in global supply chains.
activities (Part 1). It then explains why the The Sustainable Development Goals
European Union should harmonise across the 27 implementing the 2030 Agenda for Sustainable
EU Member States the due diligence obligations Development2 acknowledge the links between
associated with the fight against corruption, by sustainable development and corruption, by
GLOBAL WITNESS & TRANSPARENCY INTERNATIONAL EU. APRIL 2021 The Prevention of Corruption as Part of Mandatory Due Diligence in EU Legislation 4including a specific commitment (expressed in Business and Human Rights noted that such
target 16.5) to reduce corruption and bribery in legislation "would help to counter corruption and
all their forms. Various resolutions of the UN promote human rights"9. Indeed, the Working
Human Rights Council also underline the direct Group referred to a number of submissions they
link between the fight against corruption and the received emphasizing that the two objectives --
protection of human rights,3 noting in particular preventing corruption and preventing human
that corruption "renders those in vulnerable rights abuses in the course of business activities -
situations more prone to adversely suffering from - are closely linked. These submissions noted
the negative social and environmental impact of that:
economic activities".4 Such links were also
Companies could not avoid assessing
highlighted in detail in a report by the UN Human
corruption’s impact on human rights while
Rights Council Advisory Committee5 and by
conducting human rights impact assessments. In
various reports of the United Nations High
places where corruption is rife, companies need
Commissioner for Human Rights, both acting at
to consider human rights and anti-corruption
the request of the Human Rights Council.6 The UN
measures as linked, for example, in situations
Committee on Economic, Social and Cultural
where officials expected bribes to approve
Rights has expressed the view that States would
inspections, human rights abuses were also
violate their duty to protect the rights listed in the
likely. In situations of grand corruption, where
International Covenant on Economic, Social and
corruption may be endemic within a State or
Cultural Rights (a treaty ratified by all the EU
State institutions, businesses need to engage in
Member States) by failing to prevent or to
enhanced due diligence to prevent corruption,
counter conduct by businesses that leads to such
and to identify the heightened risk of human
rights being abused, or that has the foreseeable
rights abuses, given weak or corrupted political
effect of leading to such rights being abused.7
institutions and lack of rights protections.10
In a recent report to the Human Rights Council,
The reports of the UN High Commissioner for
the UN Working Group on business and human
Human Rights clarify the link between the
rights noted that corruption
international agenda on business and human
“may undermine the availability, quality and rights and the fight against corruption. Recalling
accessibility of goods and services that States that, under the UN Guiding Principles on Business
need to provide to meet their international and Human Rights, corporations have a duty to
human rights obligations. Moreover, corruption carry out human rights due diligence, i.e. to
undermines the functioning and legitimacy of assess actual and potential human rights impacts
State institutions and weakens the rule of law. that business enterprises may cause or
Groups and individuals who have been contribute to through their own activities or that
marginalized and discriminated against suffer may be directly linked to their operations,
disproportionately from corruption, and products or services by their business
corruption involving business harms the human relationships (principle 17), and to integrate the
rights of workers and communities affected by findings from their impact assessments and take
it.” 8 appropriate action (principle 19), the High
Commissioner for Human Rights took the view
Referring to the announcement made by the
that this human rights due diligence obligation
European Commission in April 2020 that it would
should be considered to entail a duty to adopt
propose legislation on mandatory human rights
corporate anti-corruption preventive measures:
and environmental due diligence for businesses
operating in the EU, the Working Group on
GLOBAL WITNESS & TRANSPARENCY INTERNATIONAL EU. APRIL 2021 The Prevention of Corruption as Part of Mandatory Due Diligence in EU Legislation 5Given the negative impact of corruption on the enforcement of legislation implementing human
enjoyment of human rights, adopting anti- rights, labour rights and environmental rights, a
corruption compliance procedures can be seen to due diligence process not including the issue of
be part of human rights due diligence. Linking corruption would be incomplete and thus
anti-corruption compliance with human rights weaker. Finally, there is a strong similarity
due diligence can improve the effectiveness of between the tools and processes to be put in
both methods.11 place for human rights due diligence and those
generally included in corporate compliance
This is also the conviction on which this study
programmes. In order to illustrate this similarity,
builds. The introduction of mandatory human
Table 1 presents the expectations expressed,
rights and environmental due diligence in EU law
respectively, by the United States Sentencing
-- which should cover human rights, labour rights
Commission's description of an effective
and environmental harms -- provides a unique
compliance and ethics program, and by the due
opportunity to also address corruption in
diligence framework presented by the
corporate groups or in supply chains. Beyond the
Organisation for Economic Cooperation and
opportunity however, there is a logical link
Development (OECD), building on the OECD's
between the two: because corruption
Guidelines for Multinational Enterprises:
undermines the rule of law and the effective
Table 1. Analogies between effective corporate compliance programs and due diligence
Main components of an effective Main components of due diligence
compliance and ethics program
(excerpts from: OECD, Due
(excerpts from: United States Diligence Guidance for
Sentencing Commission, Chapter 8 Responsible Business Conduct
(Sentencing of Organisations), part B: (2018))
Remedying harm from criminal
conduct, and effective compliance and
ethics program (2015))
Establishing The organization shall establish Embed responsible business
procedures and standards and procedures to prevent conduct (RBC) into policies and
oversight at highest and detect criminal conduct. management systems. Assign
level oversight and responsibility for
The organization's governing authority
due diligence to relevant senior
shall be knowledgeable about the
management and assign board
content and operation of the
level responsibilities for RBC more
compliance and ethics program and
broadly.
shall exercise reasonable oversight
with respect to the implementation
and effectiveness of the compliance
and ethics program.
High-level personnel of the
organization shall ensure that the
organization has an effective
compliance and ethics program, as
GLOBAL WITNESS & TRANSPARENCY INTERNATIONAL EU. APRIL 2021 The Prevention of Corruption as Part of Mandatory Due Diligence in EU Legislation 6described in this guideline. Specific
individual(s) within high-level
personnel shall be assigned overall
responsibility for the compliance and
ethics program.
Monitoring and The organization shall take reasonable Identify and assess actual and
auditing to identify steps ... to ensure that the potential adverse impacts
risks organization's compliance and ethics associated with the enterprise’s
program is followed, including operations, products or services.
monitoring and auditing to detect
Carry out a broad scoping exercise
criminal conduct...
to identify all areas of the
business, across its operations and
relationships, including in its
supply chains, where RBC risks are
most likely to be present and most
significant.
Starting with the significant areas
of risk identified above, carry out
iterative and increasingly in-depth
assessments of prioritised
operations, suppliers and other
business relationships in order to
identify and assess specific actual
and potential adverse RBC
impacts.
Response to After criminal conduct has been Cease, prevent and mitigate
identified risks or detected, the organization shall take adverse impacts.
criminal conduct / reasonable steps to respond
Stop activities that are causing or
adverse human appropriately to the criminal conduct
contributing to adverse impacts on
rights impacts and to prevent further similar criminal
RBC issues, based on the
conduct, including making any
enterprise’s assessment of its
necessary modifications to the
involvement with adverse impacts
organization's compliance and ethics
... Develop and implement plans
program.
that are fit-for-purpose to prevent
and mitigate potential (future)
adverse impacts.
Develop and implement plans to
seek to prevent or mitigate actual
or potential adverse impacts on
RBC issues which are directly
GLOBAL WITNESS & TRANSPARENCY INTERNATIONAL EU. APRIL 2021 The Prevention of Corruption as Part of Mandatory Due Diligence in EU Legislation 7linked to the enterprise’s
operations, products or services by
business relationships.
Ongoing The organization shall take reasonable Monitor and track implementation
improvement of the steps— ... and effectiveness of the
procedures enterprise’s own internal
(B) to evaluate periodically the
commitments, activities and goals
effectiveness of the organization's
on due diligence, e.g. by carrying
compliance and ethics program; and
out periodic internal or third party
(C) to have and publicize a system, reviews or audits of the outcomes
which may include mechanisms that achieved and communicating
allow for anonymity or confidentiality, results at relevant levels within the
whereby the organization's employees enterprise.
and agents may report or seek
guidance regarding potential or actual
criminal conduct without fear of
retaliation.
Communicating The organization shall take reasonable Communicate externally relevant
about standards steps to communicate periodically and information on due diligence
and procedures in a practical manner its standards and policies, processes, activities
procedures, and other aspects of the conducted to identify and address
compliance and ethics program, to actual or potential adverse
[the members of the governing impacts, including the findings and
authority, high-level personnel, outcomes of those activities.
substantial authority personnel, the
organization's employees, and, as
appropriate, the organization's agents]
by conducting effective training
programs and otherwise disseminating
information appropriate to such
individuals' respective roles and
responsibilities.
Where prevention After criminal conduct has been When the enterprise identifies that
fails: providing an detected, the organization shall take it has caused or contributed to
appropriate reasonable steps to respond actual adverse impacts, address
response appropriately to the criminal conduct such impacts by providing for or
and to prevent further similar criminal cooperating in their remediation.
conduct, including making any
necessary modifications to the
organization's compliance and ethics
program.
GLOBAL WITNESS & TRANSPARENCY INTERNATIONAL EU. APRIL 2021 The Prevention of Corruption as Part of Mandatory Due Diligence in EU Legislation 8The similarities between human rights and matters, respect for human rights, anti-
environmental due diligence and corporate corruption and bribery matters, including:
compliance programs to address corruption
> a brief description of the undertaking's
should be seen as an opportunity. For companies,
business model;
combining the two may appear the most efficient
way to fulfil the objectives of both. It has been > a description of the policies pursued by the
noted in this regard that "[a] company with bits undertaking in relation to those matters,
and pieces of a program organizationally including due diligence processes
scattered, and operating in a complex implemented;
environment, is greatly challenged from a cost- > the outcome of those policies;
efficiency and effectiveness standpoint.
Oftentimes regulatory processes are siloed > the principal risks related to those matters
linked to the undertaking's operations
leading to a host of inefficiencies. While
including, where relevant and proportionate,
enterprise software can go a long way towards
its business relationships, products or services
addressing these inefficiencies, it often comes which are likely to cause adverse impacts in
down to the organizational and cultural those areas, and how the undertaking
considerations to ensure an effective program manages those risks; and
across all significant risk areas".12
> non-financial key performance indicators
The following chapter explores the potential role relevant to the particular business.14
of the European Union in strengthening the anti- Directive 2014/95/EU imposes such non-financial
corruption framework across the EU Member reporting requirements on "public-interest
States, by imposing on companies doing business entities [15] exceeding on their balance sheet
in the EU that they adopt anti-corruption dates the criterion of the average number of 500
measures as part of discharging their due employees during the financial year": in practice,
diligence obligations. 6,000 large companies in the EU are concerned,
that are publicly listed, or that are banks,
2. THE ROLE OF THE EUROPEAN
insurance companies or other companies listed
UNION as public-interest entities in domestic legislation.
1. The role of the 2014 Non-Financial
In June 2017, the European Commission adopted
Reporting Directive
non-binding guidelines on how to discharge the
new non-financial information reporting
EU legislation already indirectly addresses the
requirements.16 As regards the disclosure on the
role of companies in preventing corruption in
policy concerning due diligence, these guidelines
corporate groups and supply chains.
-- which, the Commission emphasises, are
Directive 2014/95/EU of 22 October 2014 on the
without prejudice to the interpretation that the
disclosure of non-financial information by certain
Court of Justice of the European Union may give
large undertakings and groups,13 indeed,
to the directive -- provide:
imposes on large companies that they include in
the management report a non-financial > Due diligence processes relate to policies, to
statement containing information to the extent risk management and to outcomes. Due
necessary for an understanding of the diligence processes are undertaken by a
undertaking's development, performance, company to ensure that it delivers against a
position and impact of its activity, relating to, as a concrete objective (e.g. to ensure that carbon
emissions are below a certain level or that
minimum, environmental, social and employee
supply chains are free from trafficking in
GLOBAL WITNESS & TRANSPARENCY INTERNATIONAL EU. APRIL 2021 The Prevention of Corruption as Part of Mandatory Due Diligence in EU Legislation 9human beings). They help identify, prevent establishment of standards and procedures to
and mitigate existing and potential adverse address corruption include the setting of criteria
impacts. used in corruption-related risk assessments; the
> Companies should provide material establishment of internal control processes and
disclosures on due diligence processes the allocation of resources assigned to
implemented, including, where relevant and preventing corruption and bribery; the provision
proportionate, on its suppliers and of training to employees; or the use of
subcontracting chains. They may also consider whistleblowing mechanisms.
disclosing appropriate information on the
decisions taken to set them up and how the Certain legitimate expectations may be derived
processes are intended to work, in particular from these clarifications, and such expectations
as regards preventing and mitigating adverse may influence the interpretation of general civil
impacts. Companies may also consider liability provisions by courts (in particular, by
providing relevant information on setting leading courts to define 'fault' in tort litigation as
targets and measuring progress. a failure to comply with the commitments
> For example, OECD Guidance documents for announced by the company). The information
several sectors, UN Guiding Principles on conveyed to the public under the reporting
Business and Human Rights, the Tripartite requirements, moreover, can be considered as a
Declaration of Principles concerning form of advertising, which -- if it is considered as
Multinational Enterprises and Social Policy, or misrepresenting the facts -- may give rise to a
ISO 26000 provide useful guidance on this. specific form of liability for misleading
As regards the provision of information on advertising.17
corruption issues, the guidelines presented by
2. Moving beyond the 2014 Non-
the Commission explain:
Financial Reporting Directive
> Companies are expected to disclose
material information on how they manage Strictly speaking however, the 2014 Directive on
anti-corruption and bribery matters and the disclosure of non-financial information does
occurrences.
not impose on these companies a duty to take
> Companies may consider making certain actions, such as to adopt a due diligence
disclosures on organisation, decisions, plan on human rights or social or environmental
management instruments, and on the impacts; nor does it require companies to take
resources allocated to fighting corruption and robust measures to address the risk of
bribery. corruption. Instead, the Non-Financial Reporting
> Companies may also consider explaining Directive relies on a 'comply or explain'
how they assess fighting corruption and approach, according to which "Where the
bribery, take action to prevent or mitigate undertaking does not pursue policies in relation
adverse impacts, monitor effectiveness, and to one or more of those matters [i.e.,
communicate on the matter internally and environmental, social and employee matters,
externally. respect for human rights, anti-corruption and
> Companies may find it useful to rely on bribery matters], the non-financial statement
broadly recognised, high quality frameworks, shall provide a clear and reasoned explanation
for instance in the OECD Guide lines for for not doing so". Moreover, the directive does
Multinational Enterprises, or ISO 26000. not link the requirement to disclose non-financial
information to the establishment of a new duty of
According to the same communication, key
care. In particular, it does not state that, in the
performance indicators related to the
GLOBAL WITNESS & TRANSPARENCY INTERNATIONAL EU. APRIL 2021 The Prevention of Corruption as Part of Mandatory Due Diligence in EU Legislation 10absence of the adoption of certain policies to the following sections first review the main
prevent risks in environmental, social, human standards that apply to the EU Member States
rights and anti-corruption / bribery matters, the (section 3). This study argues, however, that
company may be held liable for any impacts that despite this set of commitments, strong
might have been prevented by the adoption of differences remain between the EU Member
such policies. States. This results in distortion of competition in
the internal market (section 4). It also does not
Therefore, although the Non-Financial Reporting
ensure legal certainty for businesses (section 5).
Directive was an important initial step towards
EU Member States are falling behind the standard
encouraging companies operating in the EU to
set by the United States Foreign Corrupt
prevent corruption in the corporate group and
Practices Act of 1977 (FCPA) and companies
throughout the supply chain, this remains an
operating in the EU will continue to be subject to
unfinished task. This study argues that the
prosecution under the FCPA (section 6). Finally,
European Union has an essential role to play in
the differences do not allow companies to
strengthening the due diligence obligations
respond to the growing concerns of public
imposed on companies to ensure that they
opinion towards corruption (section 7).
prevent corruption in multinational groups and in
global supply chains. Unless harmonization 3. A common set of commitments
proceeds at EU level, the EU Member States against corruption
acting individually will be reluctant to impose
robust obligations on the companies operating All EU Member States are parties to the 2003
under their jurisdiction, as this may be seen as United Nations Convention against Corruption
imposing a competitive disadvantage in the (UNCAC) (3.1.). They also are all parties to the
internal market, particularly since it may restrict other major international instrument that exists
the choice of suppliers and thus reduce cost in this regard, the 1997 OECD Convention on
competitiveness. The result of EU inaction in this Combating Bribery of Foreign Public Officials in
area will be, at best, a fragmented space in which International Business Transactions. The OECD
strong divergences are allowed to subsist across anti-bribery framework also includes the OECD
Member States, resulted in distortions to Recommendation for Further Combating Bribery
competition -- an uneven playing field for of Foreign Public Officials in International
companies. At worst, it will delay progress in this Business Transactions (adopted on 26 November
area, and means that EU based companies are 2009) and the Good Practice Guidance on Internal
vulnerable to corruption in their global supply Controls, Ethics, and Compliance (adopted as
chains. annex II of the 2009 recommendation), as well as
Key arguments are set out below in favor of EU the OECD Guidelines on Multinational Enterprises
intervention in this field. There is already originally adopted in 1976 (3.2.). 22 EU Member
significant alignment across the EU Member States are also party to the Council of Europe's
States in the adoption of measures to combat Civil Law Convention on Corruption (3.3.). Finally,
corruption. The implementation of their the International Chamber of Commerce adopted
commitment, however, remains highly uneven Rules on Combating Corruption in 2011 and
across the EU. Further harmonization measures encourages companies to insert a model clause
are warranted, therefore, to avoid distortions of (called the "anti-corruption clause") in the
competition within the internal market. contractual agreements between companies and
their suppliers (3.4.). Taken together, these
In order to describe the consensus that exists on various instruments illustrate the strong
core commitments in the field of anti-corruption,
GLOBAL WITNESS & TRANSPARENCY INTERNATIONAL EU. APRIL 2021 The Prevention of Corruption as Part of Mandatory Due Diligence in EU Legislation 11alignment of EU Member States on certain long-term contractual relationships with business
standards in the fight against corruption. partners abroad, or that own shares in a
subsidiary established abroad. Moreover, States
i. The United Nations Convention may extend the prohibition, and take action, vis-
against Corruption (UNCAC) à-vis any act of corruption committed by a
The European Union is a party to the United company domiciled under its jurisdiction,
Nations Convention against Corruption (UNCAC) whether because the company is incorporated
since 12 November 2008.18 UNCAC provides that under its jurisdiction, or has its main place of
States Parties shall prohibit their officials from business or its central place of administration on
receiving bribes and prohibit private entities from its territory, in accordance with the general
bribing domestic public officials, as well as understanding of the "nationality" of a legal
foreign public officials and officials of public person.
international organisations: in principle, bribing
or offering to bribe a public official "in order that There is no explicit reference to due diligence
the official act or refrain from acting in the obligations being imposed on companies in order
exercise of his or her official duties", should be to discharge that general duty of Parties to
made a criminal offence (article 15). The liability prevent corruption. Chapter II of the Convention
of legal persons for corruption or for the other does refer to preventive measures, however. That
related offences referred to in the convention, chapter includes a provision (article 12) on the
however, may be criminal, civil or administrative private sector, according to which States parties
(article 26(2)), provided legal persons "are subject should "prevent corruption involving the private
to effective, proportionate and dissuasive sector, enhance accounting and auditing
criminal or non-criminal sanctions, including standards in the private sector and, where
monetary sanctions" (article 26(4)). appropriate, provide effective, proportionate and
dissuasive civil, administrative or criminal
The convention imposes on States parties that penalties for failure to comply with such
they establish their jurisdiction over the offences measures". Parties to the Convention are
established in accordance with the convention, at expected to ensure that "private enterprises,
a minimum, when the offence is committed in the taking into account their structure and size, have
territory of the State party concerned (article sufficient internal auditing controls to assist in
42(1)(a)). States parties may go beyond that, preventing and detecting acts of corruption and
however, and assert their jurisdiction also over that the accounts and required financial
their nationals, wherever they may be operating statements of such private enterprises are
from: this is consistent with the principles of subject to appropriate auditing and certification
general international law concerning State procedures".19
jurisdiction (article 42(2)(b)).
It follows that, under the UN Convention against
The implication is that the State should address Corruption, the Parties should impose on all
instances of corruption which have been decided corporations (i) a prohibition to resort to
under its territorial jurisdiction (for instance, corruption, as well as (ii) a duty to take measures
when the decision is made within the to prevent corruption, to ensure that any act of
headquarters of the company, where such corruption (or related to corruption) leads to
headquarters are located on the State's territory), effective sanctions. While this is a duty for Parties
even where the corruption concerns a foreign insofar as the act is adopted within their territory,
public official and took place on foreign territory. Parties may -- and are encouraged to -- extend
This is of particular relevance as regards the prohibition to all corporations over which
transnational corporations that have established
GLOBAL WITNESS & TRANSPARENCY INTERNATIONAL EU. APRIL 2021 The Prevention of Corruption as Part of Mandatory Due Diligence in EU Legislation 12they can exercise jurisdiction, wherever the should be liable for bribery thus defined, either
specific act of corruption takes place. by the imposition of criminal liability, or by the
imposition of "effective, proportionate and
ii. The OECD Anti-Bribery Framework dissuasive non-criminal sanctions, including
The 1997 OECD Anti-Bribery Convention entered monetary sanctions" (art. 2 and art. 3(2)).
into force on 15 February 1999. It is
complemented by the Recommendation for The "other improper advantage" referred to in
Further Combating Bribery of Foreign Public the definition of prohibited bribery "refers to
Officials in International Business Transactions something to which the company concerned was
(adopted on 26 November 2009) and the Good not clearly entitled, for example, an operating
Practice Guidance on Internal Controls, Ethics, permit for a factory which fails to meet the
and Compliance (adopted as annex II of the 2009 statutory requirements" (commentaries, para. 5).
recommendation). These instruments provide Thus, payments to a public official, or the
that companies should be obliged to "develop provision of other advantages to that official, in
and adopt adequate internal controls, ethics and order for instance to circumvent requirements
compliance programmes or measures for the related to labor legislation, to respect for the
purpose of preventing and detecting foreign rights of local communities, or to compliance
bribery". The OECD Guidelines on Multinational with environmental rules, falls under the
Enterprises moreover -- initially adopted in 1976 definition of bribery under the convention. Since
as part of the Declaration on International bribery should be prohibited whether it is made
Investment and Multinational Enterprises20 and directly or through intermediaries, liability should
most recently revised in 2011 -- clarify the due extend to a lead corporation in global supply
diligence obligations that result from the chains directing or authorizing its suppliers to
prohibition imposed on companies to resort to bribe public officials, or to a parent company
bribery (see box 1). directing or authorizing a subsidiary entity to do
so. This is stipulated in a 2009 recommendation
Box 1. The OECD Anti-Bribery Framework which notes that "a legal person cannot avoid
All EU Member States are parties to the 1997 responsibility by using intermediaries, including
OECD Convention on Combating Bribery of related legal persons, to offer, promise or give a
Foreign Public Officials in International Business bribe to a foreign public official on its behalf".
Transactions (OECD Anti-Bribery Convention). As This understanding is further confirmed by the
such, they have committed to define as a criminal 2009 Good Practice Guidance on Internal
offence "for any person intentionally to offer, Controls, Ethics, and Compliance, which states
promise or give any undue pecuniary or other explicitly that the ethics and compliance
advantage, whether directly or through programmes or measures designed within the
intermediaries, to a foreign public official, for that company to prevent and detect foreign bribery
official or for a third party, in order that the should apply not only to all directors, officers,
official act or refrain from acting in relation to the and employees, but also "to all entities over
performance of official duties, in order to obtain which a company has effective control, including
or retain business or other improper advantage in subsidiaries", as well as "where appropriate and
the conduct of international business" (art. 1(1)). subject to contractual arrangements, to third
Complicity in such an offence (including parties such as agents and other intermediaries,
incitement, aiding and abetting, or authorizing consultants, representatives, distributors,
bribery), as well as attempt and conspiracy to contractors and suppliers, consortia, and joint
bribe a foreign public official, shall equally be venture partners", referred to as "business
punishable offences (art. 1(2)). Legal persons partners".
GLOBAL WITNESS & TRANSPARENCY INTERNATIONAL EU. APRIL 2021 The Prevention of Corruption as Part of Mandatory Due Diligence in EU Legislation 13States parties should establish their jurisdiction controls, ethics and compliance programmes or
over the bribery of a public official "when the measures, including those which contribute to
offence is committed in whole or in part in its preventing and detecting bribery") and by the
territory" (art. 4(1)), although "extensive physical establishment of "monitoring bodies,
connection to the bribery act is not required" independent of management, such as audit
(commentaries, para. 25); or when the bribery is committees of boards of directors or of
committed by one of its nationals (art. 4(2)). supervisory boards".
International law has not settled on any single
The Good Practice Guidance on Internal Controls,
criterion to determine "the circumstances under
Ethics, and Compliance, adopted as annex II of
which a legal person can be deemed to possess
the 2009 recommendation, clarifies the
the nationality of the state claiming jurisdiction".
implications of these due diligence obligations.
It thus leaves it to each municipal law to set its
As regards business partners in global supply
own criteria for determining which legal persons
chains, they require that the lead company
will be considered to have its "nationality".
(typically, the buyer of goods or services) (i)
Current international practice appears however
ensures risk-based due diligence pertaining to
to impose on States a duty to control companies
the hiring of business partners, as well as
which either have been incorporated under their
appropriate and regular oversight of business
jurisdiction (and have thus established their
partners, and documents these practices; (ii)
statutory seat within that jurisdiction), or have
informs business partners of "the company’s
the central place of administration or the main
commitment to abiding by laws on the
place of business within that jurisdiction: these
prohibitions against foreign bribery, and of the
are, for instance, the criteria for the definition of
company’s ethics and compliance programme or
the "domicile" of the corporation under the
measures for preventing and detecting such
"Brussels I" Regulation (which determines the
bribery"; and finally (iii) seeks "a reciprocal
conditions under which domestic courts of the EU
commitment from business partners".
Member States should recognise their jurisdiction
in civil liability claims), and this was the position The OECD Guidelines for Multinational
adopted by the UN Committee on Economic, Enterprises also provide useful indications
Social and Cultural Rights in its general comment concerning the duties of companies to address
no. 24 on the duties of States in the context of bribery -- and duties here are not limited to the
business activities. bribery of foreign public officials, but extend to
any bribery "to obtain or retain business or other
Certain due diligence obligations follow from the
improper advantage", including exemption from
1997 OECD Convention on Combating Bribery of
having to comply with generally applicable
Foreign Public Officials in International Business
regulations. The Guidelines specifically indicate
Transactions. Indeed, a 2009 recommendation
that multinational enterprises domiciled in OECD
provides that the States parties to the OECD Anti-
countries (or in non-OECD countries having
Bribery Convention should encourage companies
adhered to the Guidelines) should also ensure
to "develop and adopt adequate internal
that their business partners do not resort to
controls, ethics and compliance programmes or
bribery:
measures for the purpose of preventing and
detecting foreign bribery", which should be "Enterprises should not use third parties such as
further strengthened by a public commitment of agents and other intermediaries, consultants,
the management (the management should representatives, distributors, consortia,
include "statements in their annual reports or contractors and suppliers and joint venture
otherwise publicly disclose their internal partners for channeling undue pecuniary or other
GLOBAL WITNESS & TRANSPARENCY INTERNATIONAL EU. APRIL 2021 The Prevention of Corruption as Part of Mandatory Due Diligence in EU Legislation 14advantages to public officials,...". noteworthy however that liability should be
possible in situations where "the defendant has
Section VII, para. 2 of the Guidelines provide a
committed or authorised the act of corruption, or
concise restatement of the due diligence
failed to take reasonable steps to prevent the act
obligations that result from the prohibition
of corruption" (art. 4(1) (emphasis added)). The
imposed on companies to resort to bribery.
Civil Law Convention on Corruption therefore
Companies should:
assumes, at the very least, that private persons
"Develop and adopt adequate internal controls, (including legal persons23) should take preventive
ethics and compliance programmes or measures measures to avoid the risk of corruption and
for preventing and detecting bribery, developed provide for effective remedy. This is confirmed by
on the basis of a risk assessment addressing the the Explanatory Report to the Convention, which
individual circumstances of an enterprise, in states:
particular the bribery risks facing the enterprise
[T]hose who failed to take the appropriate steps,
(such as its geographical and industrial sector of
in the light of the responsibilities which lie on
operation). These internal controls, ethics and
them, to prevent corruption would also be liable
compliance programmes or measures should
for damage. This means that employers are
include a system of financial and accounting
responsible for the corrupt behaviour of their
procedures, including a system of internal
employees if, for example, they neglect to
controls, reasonably designed to ensure the
organise their company adequately or fail to
maintenance of fair and accurate books, records,
exert appropriate control over their employees.24
and accounts, to ensure that they cannot be used
for the purpose of bribing or hiding bribery. Such There is therefore a solid legal culture against
individual circumstances and bribery risks should corruption across the EU Member States, and one
be regularly monitored and re-assessed as element of that culture is the affirmation of
necessary to ensure the enterprise’s internal liability of companies for failing to prevent
controls, ethics and compliance programme or corruption in their business activities. However,
measures are adapted and continue to be harmonization across member States remains
effective, and to mitigate the risk of enterprises incomplete, particularly as regards the imposition
becoming complicit in bribery, bribe solicitation on companies of due diligence obligations to
and extortion". prevent corruption, both because of the
vagueness of the provisions of these international
iii. The Council of Europe's Civil Law instruments concerning the precise scope of the
Convention on Corruption due diligence obligations, and because
The Council of Europe's Civil Law Convention on implementation of the prescriptions of these
Corruption21 is also relevant. This instrument, instruments remains uneven.
which entered into force in 2003, was ratified by
22 EU Member States (the exceptions are
iv. The Anti-Corruption Clause of the
Denmark, Germany, Ireland, Luxembourg and
International Chamber of Commerce
Portugal).22 The main aim of this convention is to The International Chamber of Commerce (ICC)
ensure that the Parties provide in their internal adopted Rules on Combating Corruption in 2011
law for effective remedies for persons who have and seeks to encourage companies to insert a
suffered damage as a result of acts of corruption, model clause in the contractual agreements
"to enable them to defend their rights and between companies and their suppliers (see Box
interests, including the possibility of obtaining 2). The influence of these Rules has been modest,
compensation for damage" (art. 1). It is however, and the model clause has not been
widely adopted; moreover, soft law and self-
GLOBAL WITNESS & TRANSPARENCY INTERNATIONAL EU. APRIL 2021 The Prevention of Corruption as Part of Mandatory Due Diligence in EU Legislation 15regulation cannot be seen as a substitute for proposed a model clause, to be inserted in the
legislative harmonization. contractual agreements between companies and
their suppliers. The basic philosophy underlying
Box 2. The Anti-Corruption Clause of the the model clause is that, if a business partner
International Chamber of Commerce failed to comply and did not take remedial
The International Chamber of Commerce has also action, or if remedial action is not possible, and if
provided guidance to businesses in order to the partner in question failed to provide an
improve the monitoring of supply chains, and adequate defence (for instance, by
thus to ensure that instances of corruption would demonstrating that it has put into place
be identified and addressed. The ICC Rules on adequate anti-corruption preventive measures,
Combating Corruption adopted in 2011, after and thus has deployed its best efforts to prevent
providing in Article 1 a description of the corruption), the contract may be suspended or
prohibited "corrupt practices" largely inspired by terminated (“[a]n Enterprise should include in its
the 1997 OECD Anti-Bribery Convention and the contracts with Business Partners a provision
2003 Convention against Corruption,25 state in allowing it to suspend or terminate the
Article 2 that companies shall endeavour to relationship, if it has a unilateral good faith
ensure that their business partners in the concern that a Business Partner has acted in
broadest sense of the expression also shall be violation of applicable anti-corruption law [or of
made to comply with the prohibition: the Rules on Combating Corruption]"26). The
precise scope of the due diligence obligation to
With respect to Third Parties subject to the prevent corruption that should be imposed on
control or determining influence of the business partners is described as follows:
Enterprise, including but not limited to agents,
business development consultants, sales A Party is not required to prevent by all means
representatives, customs agents, general any of its subcontractors, agents or other third
consultants, resellers, subcontractors, parties, subject to its control or determining
franchisees, lawyers, accountants or similar influence, to commit any form of corrupt
intermediaries, acting on the Enterprise’s behalf practice. Each Party shall, however, based on a
in connection with marketing or sales, the periodical assessment of the risks it faces, put
negotiation of contracts, the obtaining of into place an effective corporate compliance
licenses, permits or other authorizations, or any programme, adapted to its particular
actions that benefit the Enterprise or as circumstances; exercise, on the basis of a
subcontractors in the supply chain, Enterprises structured risk management approach,
should: instruct them neither to engage nor to appropriate due diligence in the selection of
tolerate that they engage in any act of corruption; subcontractors, agents or other third parties,
not use them as a conduit for any corrupt subject to its control or determining influence;
practice; hire them only to the extent appropriate and train its directors, officers and employees
for the regular conduct of the Enterprise’s accordingly.27
business; and not pay them more than an
The content of the "corporate compliance
appropriate remuneration for their legitimate
programme" is thus decisive, since it shall
services.
determine whether a Party is indeed practicing
In order to encourage full compliance with this appropriate due diligence in order to effectively
requirement, the ICC's Commission on Corporate comply. Article 10 of the ICC Rules on Combating
Responsibility and Anti-corruption and Corruption 2011 lists certain measures which may
Commission on Commercial Law and Practice be included in such a corporate compliance
GLOBAL WITNESS & TRANSPARENCY INTERNATIONAL EU. APRIL 2021 The Prevention of Corruption as Part of Mandatory Due Diligence in EU Legislation 16programme. Such measures include the business enterprises in addressing corruption in
expression of a "strong, explicit and visible multinational groups and in global supply chains.
support and commitment to the Corporate It simply noted in this regard that significant
Compliance Programme" at the highest level of progress had been achieved by the United
the company; "establishing a clearly articulated Kingdom in this area by the adoption of the
and visible policy reflecting [the ICC Rules on Bribery Act 2010, which "not only criminalises the
Combating Corruption 2011] and binding for all payment and receipt of bribes and the bribing of
directors, officers, employees and Third Parties a foreign official but also extends criminal liability
and applying to all controlled subsidiaries, to commercial organisations that fail to prevent
foreign and domestic"; providing for "periodical bribery committed on their behalf" (see Box 3).
risk assessments and independent reviews of The OECD has otherwise criticised other Member
compliance with these Rules and recommending States for "insufficient or non-existent
corrective measures or policies, as necessary"; prosecution of foreign bribery, considering the
appointing senior officers reporting directly to corruption risks their companies face abroad".29
the Board of Directors on the implementation of
Indeed, it is striking that, according to a recent
the Corporate Compliance Programme, and
report, despite the various international
establishing independent auditing; etc. The list of
instruments referred to in this study, only three of
such measures is not meant to be exhaustive, and
the 27 EU Member States (France, Germany and
it is intended to be used flexibly: each company is
Italy) currently impose legal obligations on larger
expected to select from the list the measures
enterprises relating to the prevention and
deemed necessary or adequate for organizing its
detection of corruption.30
own anti-corruption prevention system.4.
Uneven implementation across EU Member In Germany, administrative sanctions, in the form
States. of fines, may be imposed on businesses on the
basis of Article 30 of the Federal Law on
As follows from the various instruments reviewed Administrative Offences (OwiG)31 where
in the preceding section, there exists a strong managers or employees have committed acts of
consensus across the EU Member States on the corruption, where it is found that the business
need to impose due diligence obligations on enterprise has failed to put in place effective anti-
companies in order to ensure that they address corruption compliance programmes. In Italy,
corruption across multinational groups and Decree 231/2001 of 8 June 200132 imposes on
within global supply chains (by monitoring their large undertakings that they adopt a corporate
subsidiaries and their business partners). Yet, compliance programme, including at a minimum
significant discrepancies remain between an identification of the activities that may lead to
Member States. It is striking, first, that the corruption; the setting up of mechanisms in the
perception of corruption varies between them, as management of financial resources that could
illustrated in figure 1 below, based on the ranking prevent the risk from materializing; and the
by Transparency International in its Corruption establishment of a disciplinary system that is
Perceptions Index. dissuasive enough to prevent corruption. The
The disparity between Member States is further adoption of such a corporate compliance
confirmed in the 2014 EU Anti-Corruption Report, programme may allow the company concerned
which noted "a considerable divide among to be exempt from criminal liability, in the event
Member States concerning prevention of where an act of corruption would be committed
corruption".28 The report was in fact almost on its behalf. The case of France, finally, is
entirely silent about the question of the role of detailed in Box 4.
GLOBAL WITNESS & TRANSPARENCY INTERNATIONAL EU. APRIL 2021 The Prevention of Corruption as Part of Mandatory Due Diligence in EU Legislation 17You can also read
