Russian Energy Compliance Alliance
The Russian Compliance Alliance goal is to create a private-sector certification process that defines ethics compliance standards for Russian supply chains of multinational companies operating in Russia. The process is analogous to the ISO Quality Management Certification process, where standards are set by industry specialists, and certification is required by purchasers and obtained by vendors on a voluntary basis.
This certification concept is based on four principles:
- Global Legal Principles: The Foreign Corrupt Practices Act, UK Bribery Act, and others require that multinationals be responsible for the behavior of their vendors and agents. Compliance standards tailored to Russian conditions will reduce multinationals' liability.
- Market Incentives: Russian vendors wishing to do business with multinationals will improve their opportunities by obtaining certification.
- Collective Action: Consensus on standards and a process for disseminating compliance information will create 1) market pressure for change and 2) economies of scale for training and demonstrating compliance with anti-corruption clauses now included in most business contacts.
- Performance Measurement: In the spirit of "you manage what you measure", a scoring system will help to define what is important and ensure management focus.
The 2013 Russia-hosted B20 Anti-Corruption Working Group has endorsed the multinational supply chain as an ethics standards distribution system:
"We recommend that, from 2013, B20 companies and business organizations should regularly exchange best practices in devising training for SMEs in their supply chains."
This section will document the Center's progress in implementing a private-sector compliance certification process.
On September 15, 2012, the oil and gas company TNK-BP publicly announced that it was ending a contract with a long-standing supplier of services. According to the announcement, TNK-BP decided to end the contract based on concerns that the supplier was not complying with TNK-BP anti-corruption policies, standards and procedures. At a Moscow forum hosted by TNK-BP for suppliers on September 15, the company’s Executive Director German Khan stated: “We’re building robust long-term relationships with our contractors on the basis of best international practice and strongly recommend that our partners comply unconditionally with TNK-BP’s business ethics standards. This is a vital requirement for the development of our mutually beneficial collaboration, and for the companies themselves it’s a guarantee of the sustained growth and prosperity of their business.”
This step by TNK-BP sets an important precedent in improving compliance in the Russian oil and gas industry for other companies to follow.
RECA members Ilsur Akhmetshin from ABB and Larisa Potapova from Siemens Energy attended an event hosted by the American Chamber of Commerce featuring the head of the Federal Anti-Monopoly Service Igor Artemyev. Mr. Artemyev discussed FAS’s recent decision in the Novo-Nordisk case and its implications for global companies conducting anti-corruption compliance due diligence on third parties in Russia.
In July CFBE’s Project Team members worked with Siemens and ABB on next steps in Module 1 of the Russian Energy Compliance Alliance. CFBE is finalizing training and anti-corruption tool-kits for delivery to the partner chains of RECA members by the beginning of 2012. The interest and commitment of RECA members underpins the scope of work that has been done by RECA and paves the road to sharing best practices throughout the power industry. The training and tool-kit is designed to measure RECA members’ commitment in raising public awareness and creating a new standard of anti-corruption compliance in the market.
In June, CFBE managers met with ABB Country Compliance Officer Ilsur Akhmetshin, and Siemens Energy Compliance Officer Larisa Potapova to discuss next steps in the development of RECA’s Module 1. They discussed different strategies for delivery of an anti-corruption toolkit for members of the “partner chains” of ABB, Siemens and other multinationals in RECA. We agreed that the delivery should focus on three different types of Russian companies in the partner chain: End-users, System Integrators and Entrepreneurs. The meeting helped to lay groundwork to identify challenges in this process and ways to address them, including by working closely with Russia’s regulatory agencies such as the Federal Antimonopoly Service. ABB and Siemens have agreed to take the lead on the delivery of Module 1.
RECA’s summer Research Interns Alina Shlyapochnik and Cameron Hood began an educational and research-oriented dimension to the Alliance’s work focusing primarily on RECA’s Module 2 for collective action – sharing best practices of anti-corruption in public procurement with government agencies and officials. The Research Project Team’s work furthered CFBE’s program objectives to establish a paradigm for increasing transparency and competition in public procurement for energy efficiency technologies.
On April 13, 2011, the Russian Energy Compliance Alliance met with a delegation of senior Russian government officials in Washington, D.C. to discuss reform of the Russian public procurement system. The roundtable was held at the Carnegie Endowment for International Peace and organized by the Center for Business Ethics & Corporate Governance (CFBE) in cooperation with Carnegie and the Eurasia Foundation.
The Russian delegation included officials from the Federal Anti-Monopoly Service (FAS), Ministry of Economic Development, Ministry of Internal Affairs and Investigative Committee. The U.S. Department of State and U.S. Department of Justice sponsored the delegation’s visit as part of a bilateral program to exchange know-how for ensuring integrity in public procurement, with a focus on the prevention, investigation and prosecution of fraud and collusion. For further reference, please see the report FAS posted on the April 13 meeting with RECA.
The meeting was opened by Matt Rojansky, the Deputy Director of Russia and Eurasia program at the Carnegie Endowment. CFBE Chair Matthew Murray then introduced the Russian Energy Compliance Alliance (RECA). He discussed RECA’s goal to work in a public-private partnership with the Russian government to increase transparency of competition in the market for power generation technology and services. Mr. Murray emphasized that RECA is comprised of business and civil society who seek an open dialogue with government officials regarding how to increase voluntary compliance in public procurement. He noted that April 13th meeting is an important milestone in RECA’s program to promote the exchange of best practices between business and government in the Russian power industry.
Three officials from the Russian delegation summarized the goals of the government’s new public procurement reform and the results of their trip to Washington. Sergey Puzyrevsky, Head of the Department for Legal Affairs of FAS presented the agency’s mission to stop cartels, protect small companies from large companies and prohibit officials from abuse their power. Mr. Puzyrevsky stressed that FAS protects Russian, American and any other foreign company from abuse by officials. Mikhail Evraev, Head of Control of Public Procurement for FAS, presented new reforms that Russian government is making, and discussed the type of best practices he is seeking from RECA. Mr. Evraev was particularly interested in discussing how to reduce official corruption by conducting electronic auctions through a web portal.
Sergey Shamin, Chief of the Serious Economic Crimes Division of the Ministry of Internal Affairs, discussed how the visit to the U.S. is a vital form of collaboration with U.S. law enforcement colleagues. The Ministry seeks to gain know-how and experience that could be applied at home. He spoke of the Ministry’s mission to protect all businesses, domestic and foreign, small and large. Mr. Shamin indicated that while Russia has a number of laws to prohibit corruption and fraud, the difficult question is implementation. Three business executives from the Russian Energy Compliance Alliance presented global best practices of business ethics that their companies follow in connection with public procurement.
Sandy Merber , Senior Manager for Regulatory Affairs for General Electric summarized the company’s code, called the “The Spirit and the Letter”. Mr. Merber stressed that a company cannot have a culture of compliance without both. The letter is the strict execution of rules while the spirit is putting beliefs into practice, putting value into action. Mr. Merber emphasized the GE’s compliance system is based on leadership engagement, risk assessment, and detection.
Kevin Rogan, Senior Compliance Officer for Siemens North America discussed his company’s approach to ethics and compliance. Mr. Rogan stressed how important it is to implement compliance rules through employee trainings, due diligence and in dealings with third parties. Siemens has become leading advocate and supporter of collective action initiatives such as RECA in several global markets. Mr. Rogan discussed how in Russia, such action can help strengthen overall market conditions for honest competition in public procurement.
William Schoelwer, CFO of Alstom in the United States, talked about the importance of establishment of ethical culture from top to bottom in a company. He emphasized that collaborative effort is required by all lines of management in order integrate compliance with business goals. He expressed strong support for the Russian Energy Compliance Alliance as a way of helping government officials understand the pressures that business face.
Two officials from the World Bank, Knut Liepold and Michael Jarvis, were also present to share their know-how on public procurement with the Russian government delegation. Mr. Liepold, an expert on e-governance, provided a summary of how electronic auctions work in different global markets. Michael Jarvis provided a summary of recent global trends in industry collective action.
During closing remarks, Mr. Murray emphasized the fact that the Russian officials were leading an important trend in Russia focused on implementation of the law. Their deep commitment to making the procurement process work transparently and efficiently in Russia was evident from the dialogue that took place at Carnegie. Representatives of the multinational corporations, the World Bank, Eurasia Foundation, Carnegie Endowment and all other stakeholders present share the Russian delegation’s objective to increase transparency not only in Russian but in the U.S. and other global markets.
*The photos are courtesy of The Carnegie Endowment for International Peace
On March 15, 2011, the Center for Business Ethics and Corporate Governance hosted the third meeting of the Russian Energy Compliance Alliance (RECA) on the threshold of the «Russia and CIS Summit on Anti-Corruption» in Moscow. The meeting was key-noted by U.S. Assistant Attorney General Lanny Breuer who came from Washington, D.C. for these events. As reported by the U.S.-Russia Bilateral Presidential Commission, Mr. Breuer called the Alliance an “innovative effort to promote voluntary compliance in a difficult environment”.
We were privileged that the Russian government sent Sergey Belyakov from the Ministry of Economic Development to address the March 15 meeting of RECA. Mr. Belyakov is the Head of the Ministry’s Department of Investment Policy and Private-Public Partnerships, which is crucial to Russia’s economic growth strategy. Mr. Belyakov made a dynamic presentation on several new initiatives underway, which was very well-received by business executives. Antonina Firsova, Chief Specialist of Strategic Development at the Russian Energy Agency, also provided remarks on Russia’s energy efficiency goals. The Government of the Kaluga region sent a delegation of three officials to discuss its plans to attract investment in the power sector.
The RECA meeting was attended by representatives from more then 10 leading companies in the Russian power generation industry. The Center of Business Ethics and Corporate Governance facilitated discussions around enforcement of Russian domestic and international law and increasing the level of cooperation of all stakeholders in power generation industry.
Mr. Breuer opened the meeting by giving the participants of the meeting an overview on the importance of internal anti-corruption compliance programs in companies and their supply chains. Mr. Breuer emphasized that RECA is the type of initiative that can make a free market system work. He noted that the environment in which RECA members are doing their business is very challenging and that leaders in their industry should take this opportunity of collective action.
The Russian federal government speakers emphasized that they are ready for an open dialog with business leaders in RECA on improving transparency in procurement and stimulating responsible investment in Russia’s national energy grid. Experts from the Kaluga regional government introduced their program on increasing energy efficiency and investment into the region based on transparent procurement processes.
Matthew Murray, Chair of CFBE, provided an update on “4 Modules for Collective Action” that RECA is developing. These include:
Module 1: Increase Compliance in Power Generation Industry Partner Chain
Module 2: Exchange Best Practices with Government for Public Procurement
Module 3: Dialogue with Law Enforcement Authorities
Module 4: Integrity Pact for Specific Public Tender for Equipment
This review was followed by presentations from Elena Zheltovskaya of General Electric, Ilsur Akhmetshin of ABB and Andrei Shpilenko of Technopark Sistema-Sarov. These speakers discussed steps for implementing Module 1, including a proposal for a conference in which multinational companies would present their global best practices of compliance to Russian partners in the power generation industry. The meeting concluded with a group discussion that generated many practical ideas including an initiative under Module 2 to cooperate with Russian government agencies to support reform of public procurement laws.
February 2011 CFBE Chair Matthew Murray speaks at the Utilities and Energy, Compliance and Ethics Conference
On February 28, 2011, CFBE Chair Matthew Murray spoke at the Utilities and Energy, Compliance and Ethics Conference in Houston, Texas. Mr. Murray presented the Russian Energy Compliance Alliance (RECA) and its goals to achieve a new scale and quality of voluntary anti-corruption compliance in Russia. He invited conference participants to join RECA and help form a public-private partnership between leading multinational corporations, Russian businesses and state regulatory agencies will lead to an agreed standard of compliance in the procurement process in the Russian power industry.
On February 17, 2011, the “Russian Energy Compliance Alliance” held its second meeting at the offices of Baker & McKenzie in Moscow. Participants included representatives of ABB, Alstom, ENEL/OGK-5, GE, Siemens, CFBE and Baker & McKenzie. They discussed how to apply global best practices to improve compliance in the Russian market for power generation technologies and services. Participants defined different “modules” for collective action. They agreed that the first module would be to work with members of their Russian partner chains, including customers and suppliers, to increase the level of voluntary compliance in the power industry.
Participants in the February 17 RECA meeting agreed that a second module would be to engage Russian government agencies and officials in an exchange of best practices for state tendering and procurement. The timing for this engagement is appropriate as Russian federal government agencies, including the Federal Anti-Monopoly Service and Ministry of Economic Development, are planning to introduce new laws and regulations to govern procurement. Under the UN Convention Against Corruption, both business and civil society organizations operating in Russia have the right to provide input and expertise on such issues.
The participants also discussed and agreed on a third module for collective action in the power generation industry, which is to increase business and civil society know-how regarding how international and Russian law enforcement authorities treaty commercial bribery cases. RECA is a useful, neutral forum to invite law enforcement officials to speak.
At the conclusion of the February 17 meeting, the parties discussed how the RECA initiative should continue according to a deliberate strategy to build confidence and trust among all participants and stakeholders.
In February 2011, the GE Foundation and Eurasia Foundation agreed to support the Russian Energy Compliance Alliance (RECA), a forum for collective action of business and civil society to improve compliance in the power generation industry. The Russian government recently initiated a $140 billion program to increase efficiency of Russia’s national energy grid by 40 percent by 2020. However, in his state of the union address in November 2010, Russian President Dmitry Medvedev stated that the Russian Federation loses over 1 trillion rubles ($35 billion) each year to leakage in state procurement. This leakage is detrimental to Russian businesses, consumers and other stakeholders and could undermine to 2020 objective.
The goal of RECA is to strengthen rule-of-law in the power sector and increase local capacity of business and civil society to prevent official corruption in the Russian Federation. RECA seeks to work with government agencies to improve conditions for market competition by and introducing a new layer of accountability in state procurement of energy technology and equipment.