Incidents revealing inadequate integrity and putting public confidence in the financial sector to the test still occur with some regularity, also in the Netherlands. Is is therefore essential for Dutch financial undertakings to take measures to prevent such incidents from arising. To support banks and insurers in their efforts to combat corruption, DNB has identified Good practicesfighting corruption. In this context, the definition of corruption includes bribery as well as conflicts of interest.
Examination of corruption risks
One of the reasons for DNB to bring together these good practices is the outcome of its recent examination covering thirteen banks and insurers, which revealed that institutions themselves recognise the risk of corruption but at the same time inadequately address this risk. For instance, banks and insurers do not tackle the risk of corruption consistently and mainly regard it as a risk associated with their clients. However, by doing so they ignore the risks of corruption relating to their own organisations, managers and employees. They also take insufficient account of the risks involved in dealing with national and international third parties, such as intermediaries and agents. In addition, the risk of breaching the rules often receives more attention than risks associated with the undertaking’s activities and the countries in which it operates. Moreover, although in most cases senior management is committed to fighting corruption and spreading the message throughout the organisation, staff awareness at other levels is wanting. Employees often fail to properly understand that preventing corruption is important for reasons other than ‘because the rules say so’.
More consistent approach to corruption risks
These good anti-corruption practices provide a series of potential solutions, measures and ideas to arrive at a more consistent approach. They are all elements of the risk management cycle that DNB proposes as a standard, which is based on a systematic assessment of corruption risks.
The assessment should encompass a wide range of factors. One of these is geographical risk, given that operating in a corrupt country increases the likelihood of becoming involved in bribery or conflicts of interest. Elements such as local culture, legislation (or lack thereof) and political instability in a country in which the undertaking is or intends to be active increase the risk and must be included in the assessment as such. In addition, specific attention must be paid to risks inherent in certain sectors, including defence and commodity trading, and in certain services, for instance project finance. The assessment must also focus on the risks associated with third parties involved in business transactions and on the personal networks and interests of individual executives and staff. Financial undertakings have a duty to prevent conflicts of interest, or the appearance of such conflicts, involving their managers or employees. For instance, what relationship does the local CEO have with the executives of an undertaking that is about to be acquired and what risks does this entail?
Appropriate control measures
Having identified and assessed the relevant risks, the undertaking can take appropriate measures to control them. Such measures may involve the implementation of sound operating procedures and the creation of a corporate culture in which corruption is unacceptable.
More specifically, a financial undertaking may for instance use different methods to push its anti-corruption message to the forefront, from e-learning modules in one year to group debates or dilemma training sessions in the next. It may also decide to report regularly to the Supervisory Board on compliance and anti-corruption efforts.
As an example of a measure at another level, an insurer may address an increased risk at a third party by stipulating in the contract between them that it is authorised to examine the third party’s anti-corruption efforts at any time. A multinational bank could for instance start a debate that zooms in on the cultural aspects of accepting and offering gifts and entertainment and addresses the desirability or necessity of explicit decisions whether or not to engage in certain cultural practices that can be regarded as a form of corruption.
To read and download the brochure Good practices fighting corruption, click here.