A group of the biggest players in the banking industry have re-written the rules for establishing an effective compliance programme, but proportionality is still the name of the game.
For the first time in six years, the anti-bribery and corruption guidance issued by the Wolfsberg Group has been updated, bringing important considerations for firms in the financial services sector.
Last updated in 2017, the Wolfsberg Anti-Bribery and Corruption Compliance Programme Guidance (‘the Guidance’) is designed to provide the sector with a map and compass for the development, implementation, and maintenance of an effective approach to countering bribery and corruption.
The issuer of the Guidance, the Wolfsberg Group, is an association of thirteen major global banks with the mission of supporting financial institutions in managing financial crime risk.
Although the Guidance does not impose any legal obligations, it does give a clear indication of the standards industry practitioners are setting for themselves in the area of anti-bribery and corruption.
Key updates and their implications
A lot has happened since 2017. Over the last six years, a global pandemic, a rapidly accelerating climate crisis, the emergence of war in Europe and the introduction of new incumbents to our highest seats of power have all made the world a very different place.
In this context, the revision of the Guidance was an opportunity for practitioners to consider whether some of the more traditional anti-bribery and corruption precepts were still fit for purpose. This exercise has led to some important developments, three of which we examine below.
1. Broadening our focus in line with the times
The 2017 Guidance was explicitly ‘focused on corruption in the form of bribery’, i.e. exchanging anything of value for the purposes of improperly inducing or rewarding the performance of an activity.
This scope has been extended in the revised version to cover the broader sense of ‘corruption’ as ‘abuse of entrusted power for improper personal advantage’.
Among its points of reference for this extended scope, the 2023 Guidance cites Transparency International’s definition of corruption (‘abuse of trusted power for private gain’).
This increased focus on power-abuse, along with the reference to Transparency International in defining it, could feasibly represent a response to the latter’s Corruption Perceptions Index.
The latest Index, covered by us in a previous piece here, found that 155 countries had made no significant progress or had fallen behind in their efforts to counter corruption in the public sector since 2012. In the UK specifically, this was attributed to a ‘worryingly low’ public trust in politics.
In this context, the Guidance’s focus on abuse of ‘entrusted power’ seems hardly surprising and could signal a renewed effort to curb inappropriate influence on public-sector decision-making, as recommended by Transparency International in this most recent Corruption Perceptions Index.
Those seeking to implement the revised Guidance should ensure they read it with this in mind, adapting controls where necessary to counter inappropriate lobbying activities and public-sector relationships as well as more straightforward business-to-business risks.
2. The opportunity to look deeper into investment relationships
The section of the Guidance relating to investments, acquisitions, and joint ventures has been significantly augmented in this updated version.
As well as the previous recommendations to conduct risk-based due diligence on targets and joint-venture partners, the revised Guidance asks financial institutions to consider a list of post-investment measures to help manage bribery and corruption risk at the investee level.
These include enhancing anti-bribery and corruption policies and procedures; providing training on these policies and procedures for relevant employees; and promptly resolving any identified ‘bribery and corruption-related issues or control weaknesses’.
Perhaps most interestingly, the latest Guidance also calls on financial institutions to complete a ‘compliance review’ of newly acquired target-entities.
In addition to basic due diligence measures, these ‘compliance reviews’ have the potential to offer financial institutions a clearer perception of their own risk-exposure, by examining how anti-bribery and corruption controls are implemented by investee organisations on the ground.
Institutions seeking to uphold the revised Guidance should consider how compliance reviews can be conducted in order of risk, using the results of preliminary due diligence activities to determine which relationships bring the greatest exposure, and prioritising further reviews on this basis.
3. Challenging customer-related transactions
The latest Guidance also includes a significantly extended section on risks related to customers.
New risks cited in this section include: wilful blindness to obvious red flags around a customer’s operations; insider threats posed by employees facilitating illicit customer activity; laundering of corrupt proceeds; and the reputational risk of becoming involved with a corrupt client.
In response, the Guidance offers a helpful list of good-practice measures which the constraints of space will prevent us from discussing in full.
These recommendations include, as an example, conducting enhanced assessments of higher-risk projects earmarked for financing, in order to determine the extent to which these projects are exposed to corrupt activities. Projects in this category could include, for example, public infrastructure projects involving politically exposed persons in high-risk jurisdictions.
For the highest-risk transactions, the Guidance recommends independent follow-up checks to confirm that the proceeds of financing are being used as intended.
Both of the example recommendations adduced above will require a degree of bribery and corruption expertise to get right. For the highest-risk transactions, financial institutions will need to consider what expert resources they have available to assess projects for corruption risk in the first instance, before following up to ensure that project financing is not being used for corrupt activity.
What happens next
When we look collectively at these key updates to the Wolfsberg Anti-Bribery and Corruption Compliance Guidance, what predominates is a sense of expansion. Definitions, investor-liability, and customer-risk considerations all appear to have expanded since the Guidance was last issued.
This could reflect an increase in the prevalence of basic corruption, as suggested by the latest Corruption Perceptions Index. However, it could also reflect the potential for corruption-related issues to emerge from a greater number of angles, including our investment and client relationships.
Whether or not this expansion continues, financial institutions at least have clear instructions for the short-term, encouraging them to:
- Consider anti-corruption controls in the broader context of inappropriate influence and power-abuse, as well as in response to straightforward acts of bribery
- Conduct ‘compliance reviews’ of newly acquired target-entities where appropriate, to gain a clearer perception of the associated corruption risk-exposure
- Clarify the risks linked to customer transactions, by implementing enhanced project-financing checks for bribery and corruption before and during the engagement
With an increasing number of best-practice criteria to consider, it has never been more important for financial institutions to adopt a risk-based approach to bribery and corruption compliance.
If they are incorporated too quickly or disproportionately into our compliance programmes, the two additional pages of notes added to the Wolfsberg Guidance will remain exactly that. However, if adopted progressively and proportionately, these additional considerations offer financial institutions an opportunity to take their compliance programmes to the next level.
This expanded list of anti-bribery and corruption considerations has the potential to take us further, but only if kept within the limits of what is proportionate.
For information on how we are helping our clients to meet the increasing demands of international anti-bribery and corruption best practice, please contact Michael Pollitt or Simon Stiggear.
