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HUMBOLDT-VIADRINA School of
Governance
Motivating business to counter corruption
Overview of legal sanctions and incentives for encouraging corporate
integrity and reporting corruption
Expert Group Meeting on Legal Incentives for Corporate Integrity and Cooperation
Laxenburg / September 27, 2012

About the initiative ‘Anti-Corruption Incentives and
Sanctions for Business’
This initiative aims to
• provide interested parties from the Public Sector, Business Sector, and Civil
Society, with an overview of existing and potential sanctions and incentives to
motivate business to counter corruption,
• discuss their applicability in selected partner countries, and
• promote behavioral change.
Duration: January 1, 2011 – December 31, 2013
Steering Committee:
Supporter:
Dr. Valerie Federico-Weinzierl, Prof. Dr. Gesine Schwan,
Jermyn Brooks, Prof. Dr. Peter Eigen
Siemens as part of the Siemens Integrity Initiative
http://www.humboldt-viadrina.org/anti-corruption/
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Roles of different stakeholders
Businesses act in complex environments with a variety of different stakeholders, such as
public procurement agencies, business suppliers, civil society organizations, media, etc.
Stakeholders
Incentives
Sanctions
Business
Public
Sector
Business
Sector
Civil
Society
• Governmental Institutions
• Intergovernmental
Organizations, etc.
• Business
• Business Associations, etc.
• Civil Society Organizations
• Media
• Academia, etc.
Debarment
Confiscation
Termination of contract
Preferred supplier status
Increased risk premium
Examples
Public naming & shaming
Reduced sanctions
Fines
Public award
Imprisonment
Lower tax rates
Business
Company
as a whole
Company‘s
Representatives
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Anti-corruption sanctions and incentives
Punishments for
violating your
anti-corruption
standards
Commit or attempt corrupt act
Lack of commitment to good
practice anti-corruption standard
Anti-Corruption
SANCTIONS
for Business
Rewards for
meeting or
exceeding your
anti-corruption
standards
Refrain from corrupt act
Demonstrate commitment to good
practice anti-corruption standard
Anti-Corruption
INCENTIVES
for Business
While not all businesses need specific motivations to adhere to anti-corruption
standards, sanctions and incentives are key measures to counter corruption.
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A combined approach
Purpose:
Provide sanctions to punish violations
of your anti-corruption standards
Purpose:
Provide incentives to reward meeting
or exceeding your anti-corruption
standards
But, only sanctions …
• will likely lead to limited or no self-disclosure
(reporting) of corrupt practices
• do not provide motivation for companies to
cooperate (i.e. don’t signal trust to companies)
But, only incentives …
• do not punish non-compliance (i.e. companies
may consciously and openly operate in violation
of the standards)
• can lead to free-riding and window dressing
• could lead companies to adhere to your standard,
but they seldom provide motivation to go
further, etc.
• can create dependencies for a company, etc.
Provide sanctions and offer incentives to mitigate the threatened sanctions to
encourage reporting, cooperation and rehabilitation of companies
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2 major contexts to apply mitigation incentives
• There are two main contexts in which mitigation incentives can be applied:
Mitigation incentives
Context 1:
Before violation of anti-corruption
standard is known to stakeholder
e.g.: company self-discloses violation of anticorruption
standards (reporting) to
stakeholder
Context 2:
After violation of anti-corruption
standard is known to stakeholder
e.g.: company cooperates and enhances its
internal anti-corruption system
‣ Detects otherwise undiscovered corrupt
behavior
‣ Prevents from driving problems under
ground (i.e. break pact-of-silence)
‣ Offers ways back to legality, etc
‣ Motivate companies to enhance their
internal anti-corruption systems
‣ Motivate business proactive engagement
with stakeholder
‣ Recognize existence of ‘rogue
employees’ , etc
*Mitigation incentives are no ordinary incentives as they require a (threatened) sanction which can be reduced by the company through mitigating factors
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Example for context 1
• US Sentencing Guidelines acknowledge self-reporting by companies in the calculation of the culpability score
(example: Pride International received 55% reduction of fine due to self reporting and cooperation)
Sources: http://www.ussc.gov/Guidelines/2011_guidelines/Manual_HTML/Chapter_8.htm and http://www.justice.gov/criminal/fraud/fcpa/cases/pride-intl.html
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Example for context 2
• US Sentencing Guidelines’ conditions for probation for organization allows to require a supervised
establishment/enhancement of an internal compliance program (example: Kellogg Brown & Root LLC agreed
in 2009 to retain an external compliance monitor in plea agreement for organizational probation)
Sources: http://www.ussc.gov/Guidelines/2010_guidelines/Manual_HTML/8d1_4.htm and http://www.justice.gov/criminal/fraud/fcpa/cases/kelloggb/02-11-
09kbr-plea-agree.pdf
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Categorizing anti-corruption sanctions and incentives
• Public prosecution offices, procurement offices and state-owned enterprises can reduce legal,
commercial & operational and reputational sanctions in return for reporting, cooperation and
rehabilitation
Legal
Commercial &
operational
Reputational
Anti-Corruption
SANCTIONS
for business
• Fine
• Compensation for damages
• Confiscation of proceeds of
corruption
• Imprisonment (only business
representatives)
• Termination of relationship
• Exclusion from opportunities
• Assignment of unfavorable
conditions
• Punishment through casespecific
publication
• Punishment through
analysis of comparative
performance
Anti-Corruption
INCENTIVES
for business
• Reduced legal sanction*
• Access to opportunities
• Assignment of preferential
conditions
• Reduced commercial &
operational sanction*
• Reward through casespecific
publication
• Reward through analysis of
comparative performance
• Reduced reputational
sanction*
*Mitigation incentive; Categorization based on HUMBOLDT-VIADRINA‘s initiative „Anti-corruption incentives and sanctions for business“
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7 key principles for implementing and/or benchmarking
anti-corruption sanctions and incentives
ESTABLISHING
1
2
3
IMPACT: Be relevant and proportionate!
COMMUNICATION: If nobody knows, nobody cares!
MONITORING: Trust is good, monitoring is necessary!
EVALUATING
ENHANCING
7
EVALUATION: Are your measures working?
4
MULTIPLICATION: The more, the merrier!
5
RESPONSIBILITY: Extend who‘s accountable!
6
MITIGATION: Apply incentives for rehabilitation!
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Findings from a global expert survey on anti-corruption
incentives and sanctions*
Ranking of sanctions and incentives
Other related findings
• 85% considered Governmental
Institutions as very important stakeholder
in setting incentives and sanctions for
businesses
• 70% of respondents agreed that the
increase use of approaches for
streamlining prosecution encourages
self-reporting
• 58% of respondents agreed that mitigation
factors should be used less frequently
as they reduce the initial deterrent effect of
a sanction
* HUMBOLDT-VIADRINA School of Governance (2012). Motivating Business to Counter Corruption – A Global Survey on Anti-Corruption Incentives and
Sanctions. (see www.humbold-viadrina.org/anti-corruption)
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Key facts on anti-corruption mitigation incentives to
encourage reporting, cooperation and rehabilitation
S
… provide sanctions and offer incentives to mitigate the threatened sanctions to
encourage reporting, cooperation and rehabilitation of companies
… mitigation incentives can be offered before and after violation of anti-corruption
standards is known (e.g. disclosure programs, settlements)
… consider legal, commercial & operational, and reputational sanctions and related
mitigation incentives when evaluating their best course of action
… consider 7 key principles for implementing and/or benchmarking anti-corruption
sanctions and mitigation incentives to encourage reporting, cooperation and
rehabilitation of companies
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Questions?
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Thank You for your attention.
The HUMBOLDT-VIADRINA School of Governance in Berlin/Germany was founded in 2009 by the Humboldt-
Universität zu Berlin and the European University Viadrina in Frankfurt (Oder) to bring together the public
and private sectors, civil society, academia, and the media. Its aim is to find practical solutions for social
challenges and to contribute to sustainable democratic politics by building political consensus through
multi-stakeholder cooperation. The School has a special character: it seeks to be an academically respected
institution, as well as an active civil society organization that encourages public debates and long-term
policy projects.
The School is advised by respectable global governance practitioners, including Peter Eigen, Pascal Lamy,
Joseph Nye, Mary Robinson, Richard von Weizsäcker, and Festus Gontebanye Mogae.
http://www.humboldt-viadrina.org/anti-corruption/
sebastian.wegner@humboldt-viadrina.org
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Appendix
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Towards a list of incentives and sanctions by the public
sector to encourage reporting, cooperation and
corporate integrity
Reduce fines for self-reporting
Reduce fines for voluntary corrective actions (e.g.
payment of damages, proceeds of corruption)
Reduce/refrain from fine in case of existence of an
anti-corruption system and for its enhancement
Offer shares of sanctions to whistleblowers which
provided key information
Refrain from exclusion from public funds in case of
self-reporting and existence of anti-corruption systems
Terminate exclusion from public contracts if
company established anti-corruption system
Reduce prison sentence or refrain from
imprisonment in case of self-reporting
Refrain from termination of contracts in case of selfreporting
and existence of anti-corruption systems
Reduce sanctions for cooperation with investigation
Refrain from making corruption public in case of
self-reporting
Make existence of effective anti-corruption systems
mandatory to receive public funds
…
Measures require e.g. law enforcement, resources and elaborated legal procedures such as voluntary
disclosure programs, settlements and other agreements between companies and the authorities.
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