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Over the (Near) Horizon: EU-Required Disclosures on Anti-Corruption Programs

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If you are a large company listed on a European stock exchange, you may find your anti-corruption program subject to public scrutiny because of forthcoming changes to disclosure requirements. EU Directive 2014/95/EU requires certain companies to make non-financial disclosures about their corporate compliance programs and other non-financial information starting in 2017, after adoption of enabling legislation by EU member states (required by December 6, 2016). The new directive is intended to make the existing EU non-financial disclosure requirements clearer and more effective.

The Directive highlights the European view that disclosure of certain non-financial corporate activities benefits society, and that there is a public interest in having large corporations be more transparent concerning “development, performance, position and impact of [its] activity, relating to, as a minimum, environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters.”

Certain U.S. companies that are EU exchange-listed or are “public interest entities” (and otherwise meet the requirements) will be subject to the Directive. Depending upon the final form of the EU member states’ legislation, additional US companies may also be subject to the disclosure requirements covered in the Directive.

General Counsel and Corporate Compliance Officers (GCs/CCOs) should start thinking now about what this means for their companies. Perhaps most importantly, if your qualifying company does not have compliance policies in certain areas—including anti-corruption—the company will have to explain why this is the case when it files the required reports. Thus, the new reporting requirements create a clear incentive for companies to develop compliance programs addressing anti-corruption and other business risks.

Will the new reporting requirements apply to my company?

Yes, if the following is true:

  • Your company has over 500 employees;
  • Your company is an EU-listed company or another “public-interest” entity (such as a bank, an insurance company, or a company designated as such by EU member states); and
  • Your company has a balance sheet of at least EUR 20 million (about USD 22.5 million) or a net turnover of at least EUR 40 million (about USD 45 million).

What will my company have to do?

It will need to publish an annual environmental, social, and governance (ESG) report, either as part of the annual report or in a separate filing. The report must address the following areas: (i) environmental matters; (ii) social and employee related matters (e.g., gender equality, workplace health and safety); (iii) human rights; and (iv) anti-corruption and bribery. Specifically, your report needs to discuss the following:

  • Your company’s business model;
  • Your company’s primary risks related to the above areas;
  • Your company’s policies in these areas (including due diligence processes);
  • The outcome of your policies; and
  • Non-financial key performance indicators relevant to the business.

What does this have to do with my anti-corruption program?

Your company may already have in place compliance programs addressing corruption and other risks to your business. If so, the new reporting requirement will require thoughtful treatment of the existing anti-corruption program, consistent with the overall approach the company is taking to the required disclosure—whether detailed and supported by quantitative date, de minimis, or somewhere in-between.

However, if your company does not already have in place a compliance program addressing anti-corruption or other risks, the new disclosure policy creates a strong incentive to put such program(s) in place. A company that does not have policies in place must “provide a clear and reasoned explanation for not doing so” in its annual report. Doing so would likely subject that company to the scrutiny of its shareholders and other significant stakeholders. The comparison to competitors and others that have disclosed the required data may result in unflattering assessments and a variety of negative assumptions.

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