Strengthening business integrity requires states to consider the right mix of sanctions and incentives, which demonstrates their commitment to counter corruption and recognizes the importance of the private sector’s contributions and efforts. Often, a sanction is connected to an incentive that seeks to alter behaviour pre-emptively. The table below demonstrates this.
Table 6.1. Sanctions, incentives and purpose
States have at their disposal a wide range of measures for sanctioning private sector corruption. These sanctions may serve remedial, compensatory, or punitive purposes. UNCAC and the OECD Anti-Bribery Convention require that sanctions be “effective, proportionate and dissuasive”. This will usually be satisfied through a mix of sanctions and complementary measures that could include monetary sanctions, confiscation of the bribes and proceeds of bribery and remedial measures that compensate victims of corruption. Taken together, these should be of sufficient magnitude to deter future misconduct. Factors including organizational size and severity of misconduct are critical when assessing the appropriate magnitude of a sanction. Measures adequate to deter future violations by a small business may not be adequate for a larger company. Conversely, the substantial penalties applied to a large national or multinational company could be disproportionate for a smaller enterprise.
Measures mandated or recommended by UNCAC and the OECD anti-bribery standards to encourage private sector cooperation and reporting are essential, but these must be supported by adequate investigative resources.67 Investigating and prosecuting corruption can present special challenges due to the complexity and concealed nature of violations. One strategy for stretching resources includes focusing enforcement resources on a specific sector or type of corruption so that information and experience developed in an initial investigation can be used in other similar actions. This type of targeted initiative is most appropriate for States that have well developed investigative and prosecutorial services, and whose economy is dominated by specific sectors or characterized by economic concentration in specific high-risk sectors.
A monetary sanction may be imposed on legal persons for violations of a State’s anti-corruption laws, including – where appropriate – the failure of a company to prevent misconduct by its employees or agents. Some States make a company responsible for violations under common law principles, while others do so by statute. One benefit of the legislative approach is that it provides advance notice to companies of their responsibility to prevent bribery or other corrupt acts by employees. This places the onus on companies to address corruption risks pre-emptively by strengthening their anti-corruption programmes. A legislative offence for failing to prevent corruption establishes the legal basis for enforcement action when violations occur.
Fines should reflect the gravity of an offence, taking into account an enterprise’s size, culpability and other factors such as the harm caused by misconduct, the amount of the bribe paid, and the profits and other benefits derived from the corrupt transaction.75 In general, legislation will set out either a maximum fine or base penalty level and the actual fine will be determined upon consideration of aggravating or mitigating factors. For example, in the sentencing model used in the United States, enforcement authorities establish a “base fine” and then apply a culpability “multiplier” to determine a range for fines.76 The French Anti-Corruption Agency provides guidelines for the implementation of judicial public interest agreements (a non- trial resolution mechanism introduced by the French SAPIN II Act) which outlines the factors taken into consideration when determining the amount of the public interest fine.77 Culpability factors that can affect a criminal fine include: whether high-level personnel were involved in or condoned the conduct; prior criminal history; whether a company had an effective anti-corruption programme; voluntary disclosure; cooperation; and acceptance of responsibility. In addition, the United States has a separate alternative fine provision that would allow courts to impose a fine up to twice the pecuniary gain obtained by the defendant or twice the pecuniary loss suffered by any other person.
While an organization cannot go to jail, it can be required to implement various reform measures as a condition of a settlement. There are many examples of multinational companies that have strengthened their anti-corruption programmes in response to a formal legal enforcement action, and this is a standard requirement for settlement in some jurisdictions. In some States, independent monitoring is common, where independent corporate monitors are appointed pursuant to prosecutorial guidelines.78 The company may be subject to monitoring for a set period to ensure it is acting on its commitments made under the legal enforcement action. In addition, settlements may require turnover of a company’s board of directors or senior management, the termination of culpable employees, and impose various audit and other accounting requirements. Reform measures ensure responsibility for past actions while remediating a company to ensure appropriate prevention measures are in place to avoid future misconduct.
Confiscating the proceeds of corruption is another important measure to disincentivize corrupt acts. The confiscation of proceeds can dwarf legal fines in a major corporate corruption case.
The 2021 OECD Anti-Bribery Recommendation specifically recognizes the important role that confiscation can play in the sanctions regime of States.79 It calls for States to use their national laws for the identification, freezing, seizure, and confiscation of bribes and the proceeds of bribery of foreign public officials, or property the value of which corresponds to that of such proceeds. It also emphasizes that States should be proactive in their approach, engage in awareness-raising activities with law enforcement and other competent authorities, and consider developing and disseminating guidelines to assist in implementation.
Confiscation or asset forfeiture is used to deprive wrongdoers of their ill-gotten gains and deter violations of anti-corruption laws. The practice is common, particularly for violations in antitrust or competition laws and in combating organized crime. Confiscation serves several purposes such as deterring potential offenders, remedying enrichment that has occurred due to the corrupt act, or repairing damage that has been done to victims as a result of corruption. Confiscation may also prevent the “penetration of illegal proceeds of corruption into the legitimate economy” and eliminate the “instruments used to commit subsequent offences such as money laundering”80.
Confiscation is typically limited to the recovery of the amount that is ascertained to have been earned or acquired from illicit conduct. This may be the profit from a particular contract award secured through
Companies that do business with the government or receive concessions or other benefits, must comply with their legal responsibilities. Companies should also receive clear notice of the potential consequences for violations. This helps ensure that contractors and grantees take their responsibilities seriously and can also strengthen the legal basis for remedial action.
In addition, contract remedies on the company side (business-to-business), are an important part of maintaining ethical supply chains. Contractors who make use of anti-corruption clauses will be able to enforce non-performance of their contracts for breaches of those provisions, thereby maintaining the integrity of their supply chain.
Suspension and debarment restrictions are a severe sanction for private sector corruption. Suspension and debarment are court-ordered or administrative actions taken by governments or organizations such as multilateral development banks (MDBs) to address corruption offences committed by individuals or corporate entities. They are meant to prohibit individuals or companies from participating in government contracts, subcontracts, loans, grants and other assistance programmes in order to protect the integrity of the procurement process or government programme. It is ordinarily imposed on a government-wide basis and may lead to cross-debarment by other States or public agencies. It can also lead to a loss of business opportunities as many companies check sanctions lists in their due diligence processes.
While both suspension and debarment are designed to protect public procurement and other forms of public financial assistance from falling victim to corruption, there are some key differences between them:
Because of the severity of this sanction, especially for individuals and smaller businesses, clear standards of conduct and procedural protections to prevent abuse are essential. States should also consider issuing robust guidance on expectations regarding anti-corruption programmes and whether they can be relied on as a defense against the possibility of debarment.
Limiting access to benefits or services is another potential sanction for corruption, analogous to the suspension and debarment for government procurement.
Governments provide a range of benefits and support to their citizens and companies, from licences for doing business and exporting to tax incentives and job-creation for export operations. These are privileges granted by the government that may be restricted or withdrawn as a sanction for violations of law or not adhering to contractual agreements, including corruption offences. The link between benefit restrictions and corruption is especially strong for international business activities supported by a national export credit agency.93
Many States also provide access to trade commissioner services to assist domestic companies with their exporting ambitions and reaching new markets. These services may include funding assistance; access to various networks; assistance navigating import/export requirements, including obtaining appropriate visas and assistance navigating the business environment in a given market. Denying these benefits to a company may result in significant lost value. Similarly, providing access based on adherence to specific integrity principles can help encourage compliance.
Liability for damages from a corrupt offence can be another significant private sector sanction. Article 35 of UNCAC states that “each State Party shall take such measures as may be necessary, in accordance with principles of its domestic law, to ensure that entities or persons who have suffered damage as a result of an act of corruption have the right to initiate legal proceedings against those responsible for that damage in order to obtain compensation.” States should ensure that victims, including a competitor and the State itself, have a right to initiate legal proceedings against those responsible for compensation for the consequences of corruption.
The domestic laws in most States authorize legal proceedings for compensation for damages caused by individuals and organizations as a matter of course. States may also consider establishing an express private action procedure for compensatory damages resulting from a corruption offence. As in other civil actions, the victim will ordinarily have to prove breach of duty, the occurrence of damage and a causal link between the corruption offence and damage. In a business setting, compensation may include lost profits and other indirect or non-financial damages.
Other general business laws can also provide a basis for civil action against companies that engage in corruption. For example, competitors in some States have relied upon “unfair competition” laws to seek damages for lost business. In others, criminal laws relating to conspiracy or participation in criminal groups have been used by customers harmed by a corrupted procurement process.
The use of international trade and investment treaties may also result in consequences against a private company, or even a State, for failing to adhere to the anti-corruption commitments under the treaty and making them liable for damages.
The private sector has also been active in ensuring that business-to-business relationships take stock of anti-corruption provisions and develop integrity clauses to protect their investments [see case study on the International Chamber of Commerce (ICC) anti-corruption clause in chapter IV].
Investors also possess tools to hold companies accountable. In some countries, shareholders can bring “derivative” actions, or lawsuits initiated on behalf of a company against the company’s senior leadership for breach of duty or other violations of their responsibilities. They have been used to bring legal proceedings against public companies for bribery offences, alleging that the leaders of the company committed securities fraud or that there was a failure of oversight. Although damages can be difficult to recover, such actions serve as a warning to leadership and can catalyze investments in a company’s anti- corruption efforts.
Incentives that reward a company for good practice are an important complement to enforcement sanctions. They recognize that meaningful commitment to, and investment in, anti-corruption programmes and other measures that strengthen business integrity are largely voluntary and can be encouraged through inducements that signal their priority to company leadership.
Section XXIII(D) of the 2021 OECD Anti-Bribery Recommendation emphasizes that government agencies may consider encouraging companies to prevent and detect foreign bribery by using incentives for corporate compliance in the context of law enforcement actions as well as in connection with decisions to grant public advantages, including public subsidies, licences, procurement contracts, development assistance, and export credits.
Various mechanisms that range from offering exemptions from prosecution to other penalty mitigation can be used to incentivize different behaviours that promote business integrity and anti-corruption compliance.94 Conduct that qualifies for penalty mitigation can range widely from jurisdiction to jurisdiction. Factors when considering penalty mitigation may include self-reporting, implementation of robust anti- corruption programmes, cooperation with investigations, remediation measures, restitution to victims and repair to the harm caused by corruption.95
While some States may be reluctant to let offenders of serious crimes, such as corruption, receive significantly reduced or even no punishment, companies, and individuals who self-report and/or substantially cooperate with the investigation demonstrate their commitment to taking responsibility for past misconduct. In this regard, they are materially different from offenders who seek to avoid responsibility at all costs.
In some cases, States may even opt to decline entirely to prosecute an individual or a company. This should not mean that there is no cost for their transgressions. States may still seek to impose disgorgement or other conditions on the transgressor to ensure that the offender does not profit from the wrongdoing. In addition, they should seek to hold the individuals and executives who were involved in corruption accountable for their actions. Options include charging the individuals, seeking injunctions to limit their ability to serve as officers or directors of publicly listed companies, and entering into agreements that force their removal from executive positions. In addition, though a company may not face prosecution, the reputational harm may still consist of a severe punishment. Even when opting for declination, States may wish to issue press releases or other communication materials explaining their decision consistent with due process considerations. These public-facing decisions may still name the company involved and thereby affect how they may be perceived by the public and their consumers.
When offering penalty mitigation or prosecution exemption incentives, States should ensure that there are reasonable and efficient investigative and judicial processes in place to encourage more cooperation by reporting companies. For businesses, penalty mitigation or immunity is only one factor to consider when deciding whether to self-report a violation. Judgments are also made about the risk of discovery or prosecution and the consequences of a disclosure. When there is a perception that self-reporting will lead to lengthy investigative or judicial proceedings, the calculation may be made that it is less risky to remain silent – especially where the risk of discovery and prosecution is thought to be low.
Finally, States should adopt policies that take self-reporting into account when granting incentives such as penalty mitigation or exemptions from prosecution. Self-reporting is a crucial means for obtaining information about otherwise hidden corruption schemes. This information allows States to identify problematic areas and assign resources to places most in need. It also allows States to self-assess what areas of their own anti-corruption are and are not working and gives them essential data on where adjustments are required. States, therefore, should not only think of self-reporting as a measure necessary for penalty mitigation, but something that will help them prevent and counter corruption. Policies that incentivize this public-private dialogue and allow space for companies to come forward can enhance a country’s anti-corruption efforts.
Some States have adopted a system that rewards prevention procedures by allowing these to be used as a defence for corporate liability offences. In this way, a company that is charged with a criminal or administrative offence will have a defence to the competent authority if it can demonstrate that it had sufficient procedures in place designed to prevent corruption. Companies that do not have such systems in place risk being convicted of an offence.
Under the UK Bribery Act 2010, failing to prevent corruption by an associated person is a strict liability offence that is only applicable to legal persons. Having adequate procedures in place at the time of the offence may constitute a complete defence for the company. In the event of conviction, the anti-corruption policies, and procedures in place at the time will impact significantly on sentencing and will be assessed for possible mitigation.
As an alternative model, France’s SAPIN II law requires companies meeting certain criteria to implement an anti-corruption compliance programme (see case study below for more details on the SAPIN II law requirements). These companies can be sanctioned administratively if they fail to implement their compliance obligation, even in the absence of any suspected foreign bribery violation.
Maintaining adequate procedures to prevent corruption implies that companies consider the basic minimum criteria for an effective anti-corruption programme: strong, explicit and visible support and commitment from leadership; risk-based operational guidelines and training; channels for seeking advice and reporting concerns; and systems and controls for oversight and periodic reviews to refine the programme based on evolving risks.96 Companies are also expected to manage risks relating to their third- party relationships and to establish an organizational culture that encourages ethical conduct and a commitment to compliance.
States parties that seek to strengthen business integrity with incentives for anti-corruption compliance programmes or measures will want to consider specialized guidance and training for law enforcement personnel to ensure that the rewards accurately reflect the quality of the anti-corruption programme and its implementation. Expertise in the evaluation and assessments of anti-corruption compliance programmes is a key element to ensuring the successful application of this incentive. States will need to identify the features an anti-corruption compliance programme must have to be effective and elaborate on what additional elements are needed to go beyond minimum criteria. Raising awareness and expertise on the specificities of sectors and types of companies is also highly encouraged. If the requirement is placed on businesses to establish such programmes and procedures, the equivalent requirement should exist to assess their efficacy.
To assist companies in determining what constitutes adequate procedures, the government of the United Kingdom has published guidance on the elements of an anti-corruption programme that might satisfy this defence under the Bribery Act 2010, including: proportionate procedures, top-level commitment, risk assessment, due diligence, communication (including training), and monitoring and review. The burden of proof is on the defendant company to demonstrate these adequate procedures.97
Communication of expectations with the private sector is also crucial. Businesses will require guidance on how to address the requirements set out in law, as well as how to properly implement their programmes. States should publish appropriate guidance with periodic updates for the private sector on implementing adequate procedures to prevent corruption. This should also include the latest developments in good practice.
States will need to balance a demand for precision and predictability from the private sector with an approach tailored to the defendant’s specific circumstances. Further research will be needed to help States develop effective ways to assess the effectiveness of corporate anti-corruption efforts.
Preferential access to government support or services may include public subsidies, licences, development assistance, officially supported export credits, access to trade assistance, public procurement preferences, or otherwise.
This form of incentive is the counterpart to the sanction of denial of benefits, and suspension and debarment. As noted earlier, evidence of bribery or that a company is not conducting business with integrity may be grounds for the denial or withdrawal of government benefits. In contrast, these benefits may also be made available on a preferential basis to individuals and companies that are able to demonstrate a commitment to good practice. This incentive may take the form of an eligibility requirement – for example, that an applicant for government benefits meets specified minimum programme standards. Preference may also be given to enterprises that take voluntary measures to strengthen their integrity.
Procurement benefits may be in the form of an eligibility requirement or affirmative competitive preference. Either form can be applied in both the public and private sectors. States offering procurement incentives must be cognizant of possible trade-offs: reducing government market access to only those who qualify could negatively impact competition. Potential negative impacts to smaller companies can be prevented by providing appropriate technical assistance and scaling. States must, however, be vigilant of incentives becoming an administrative means to extort bribes from businesses.
The simplest form of this incentive is a requirement that companies meet certain minimum good practice standards as a condition for doing business with State agencies in charge of procurement. Mandatory programme requirements based on recognized sector-specific standards, such as codes of ethics, can be an effective way to strengthen business integrity practices, particularly in industries where a large portion of the marketplace consists of public purchasing or reimbursement. Multinational corporations frequently make available good practice guidance and training of key partners in their supply chains, including SMEs and other third-party intermediaries. Governments and industry associations also provide technical assistance to companies on the corporate integrity practices necessary for doing business with State agencies. This assistance takes the form of codes of ethics and guidance, training seminars, model content and other means.
Good practice may also be encouraged by conferring preference in public procurement on companies that take voluntary measures to strengthen their integrity. This form of incentive – sometimes referred to as a ‘genuine’ incentive – offers a counterpoint to suspension and debarment for corrupt acts. In a responsible contractor procurement model, a company’s poor record or practice on corruption will weigh against its suitability as a business partner for the government. Conversely, companies that have made business integrity a priority are more likely to be responsible and trustworthy and may be rewarded for this in the competitive process.
This basic principle is central to commercial business dealings, particularly in preferential selection processes that give priority to local business partners with a proven record of reliability and integrity. Similar considerations inform government procurement and serve both to protect State interests and to advance benchmark practices for contractor integrity. As with mandatory programme requirements, potential negative impacts for smaller companies can be addressed through technical assistance and phasing.
Some States have imposed “self-cleaning” requirements – a process in which companies that have previously been involved in misconduct must take specific measures to demonstrate their commitment to compliance and ethical behaviour before they can participate in future public procurement processes. Access to public markets is an immense economic opportunity for many companies. The conferring of government contracts allows States to exert their influence and engage the private sector in ensuring ethical practices.
Procurement preferences can also encourage private sector integrity in States that face resource constraints or other obstacles to a traditional enforcement approach. Incentives that reduce the impact of sanctions can only have a limited effect in environments where the perceived risk of discovery and prosecution is low or non-existent. By contrast, incentives that reward the good practice of companies that have invested in an effective prevention programme can potentially still be effective in the absence of a meaningful law enforcement risk. Governments that use preferences to promote compliance, however, will need to devote resources to ensuring that they are reserved for companies that have put into place genuine anti-corruption programmes or other measures. When using business integrity registers, governments will also need to regularly update them to ensure that they do not impede participation from companies that have taken steps to develop adequate anti-corruption programmes. Governments should also be aware that procurement or other incentives can create new opportunities for corruption to occur. They may promote collusion (especially in restricted markets by reducing further competition) or foster ‘opportunistic’ behaviours in corrupt environments (e.g. by providing an additional channel for extortion by governments). This can be mitigated by creating capacity building and training for public procurement officials so that they recognize potential conflicts of interest. Periodic monitoring and auditing of procurement processes and contracts can also help mitigate this issue.
Some States may make use of “allowlists” that recognize a company for good practice as a counterpart to traditional debarment. Companies on a State’s “allowlist” benefit from being pre-approved to respond to public tenders and enter into public procurement contracts.98 States may require that companies pledge support for anti-corruption initiatives, provide evidence of their implementation of best practices, and require them to sign an attestation as part of the procurement process. States may also add companies to an “allowlist” of preferred contractors when they have been deemed reliable in the past. Preferred supplier status can also be communicated by publicly recognizing companies that have had their integrity measures evaluated.
Preferential access may also be used to provide “fast-track” access to certain services such as customs clearance or export credit support. It is important that any preferential access programme ensures that the identified specified prevention measures have substance and do not have unintended disparate effects on smaller companies. As with other types of incentives, developing methodologies and tools to assess the effectiveness of anti-corruption efforts is as essential as it is challenging. Although the factors may vary according to the types of incentives and their beneficiaries, strong and effective inter-agency cooperation is critical to national authorities gathering experience and good practice for this purpose.
States may wish to provide tax incentives or rebates if companies can demonstrate that they have taken significant measures to counter corruption. Implementing anti-corruption measures can be costly for businesses and tax incentives may provide financial recognition to companies who have taken the initiative to be integrity leaders.99 This sends a message to the private sector that investments in quality prevention programmes are as important as other business investments.
Certain incentives may result from compliance requirements imposed by stock exchanges that set rules, regulations, and standards to ensure fair, transparent, and orderly trading of securities within their marketplace. These requirements are designed to maintain market integrity, protect investors, and promote confidence in the financial system.
