Project Anti-Corruption System Standards

PS 6: Funder anti-corruption commitments

(Note:  Please refer to the Frequently Asked Questions (FAQs) at the end of this PACS Standard for further guidance on this Standard.)

This PACS Standard makes the following recommendations in relation to funder anti-corruption commitments. 

  1. The project owner and each project funder (equity investor, bank or guarantor) should exchange anti-corruption contractual commitments in relation to the project.  Where any party is a joint venture, then the joint venture members should each join in the anti-corruption commitments.
  2. These commitments should be given when the funding agreement is signed, and should continue to apply for the duration of each party’s involvement in the project.
  3. These commitments may be provided as a separate anti-corruption agreement, or may form part of the funding agreement.
  4. If a project funder fails to provide these commitments, then it should be disqualified from participation in the project.
  5. If a project owner fails to provide these commitments, then the project funder should not fund the project.
  6. The anti-corruption commitments in clauses 7 to 16 below should be given by each party in relation to the project:
  7. Honesty and fairness
    • It has acted, and will continue to act, at all times honestly and fairly.
  8. Bribery and improper advantage
    • It has not offered or given, and will not offer or give, directly or indirectly, any bribe or other improper benefit or advantage to any individual or organisation.
    • It has not demanded or accepted, and will not demand or accept, directly or indirectly, any bribe or other improper benefit or advantage for itself or any individual or organisation.
    • It has not made, and will not make, directly or indirectly, any payment except to the extent that such payment is legitimate funding or compensation for legitimate services.
    • It has not received, and will not receive, directly or indirectly, any payment except to the extent that such payment is legitimate funding or compensation for legitimate services.
  9. False information
    • It has not provided to any party, and will not provide to any party, any written or oral information which it knows or suspects to be false, inaccurate or misleading, or where it is reckless as to whether the information is false, inaccurate or misleading.
    • It has not dishonestly withheld from any party, and will not dishonestly withhold from any party, any written or oral information.
  10. Acquiescence
    • It has not authorised or acquiesced in, and will not authorise or acquiesce in, any corruption.
  11. Conflict of interest
    • Neither it nor any of its principal shareholders, senior officers or senior managers has any existing undisclosed actual or potential conflict of interest.  It will disclose any future actual or potential conflict of interest.
  12. Supervision
    • It has carried out proper due diligence on its officers responsible for negotiating and administering project funding and is reasonably satisfied that none of them will act corruptly.
    • It has provided and will continue to provide proper supervision of its officers responsible for negotiating the funding, and will properly supervise those officers responsible for administering the funding.
  13. Performance bonus
    • It does not operate a performance bonus system which may encourage corruption by funding officers or encourage them to be reckless to corruption. It will disclose to the other party full details of any performance bonus payable in relation to the funding for the project.
  14. Advisers
    • It has taken reasonable steps to ensure that any persons advising it in relation to the funding are persons of integrity who are independent of the project and have no conflict of interest.
  15. Anti-corruption measures
    • It has taken all reasonable steps to ensure that there has been and will be no corruption in relation to the project funding.
    • It will comply with the anti-corruption measures which apply to the project.
  16. Penalties for corruption
    • It will introduce and enforce contractual penalties for corruption in relation to its business partners and its officers and employees.
    • It is aware that corruption may result in criminal liability for both organisations and individuals and that the penalties for such liability may be severe and may include imprisonment for individuals and fines for organisations.
  17. This Standard may be implemented on its own.  It is, however, recommended that it is implemented in conjunction with all other PACS Standards, as far as appropriate.

Frequently Asked Questions

FAQ (1):  Why should the funder and project owner (borrower) give contractual anti-corruption commitments to each other?

Significant corruption can occur in project funding.  The relevant officials of the funder may be actively involved in this corruption if, for example, they are bribed to agree funding for a corrupt project.  Alternatively, they may be encouraged to be reckless to this corruption if, for example, their performance bonus is dependent on the number of loans provided.  Similarly, project owner officials may be actively involved in corruption in project funding.  They may, for example, bribe the funder’s official to approve the loan for a corrupt project or on corrupt terms.  It is, therefore, necessary for both the project owner and the funder to give express anti-corruption commitments.  These will serve a number of purposes:

  • They will focus the parties’ minds on the question of corruption;
  • They will be legally enforceable;
  • Parties will, therefore, take them more seriously.

FAQ (2):  Why have detailed anti-corruption commitments?

This PACS Standard recommends detailed anti-corruption commitments for the following reasons:

First, sub-clauses 7 to 11 above are designed to give the parties guidance as to the types of activities that are prohibited and also to help them understand that corruption can occur in a number of ways and affect a wide range of activities.  For example, individuals may not be aware that the following could give rise to criminal liability:

  • deliberately or recklessly providing false information;
  • paying performance bonuses which encourage corruption.

Second, clauses 12 to 15 (first bullet) above are designed to ensure that each party has taken proper precautions in relation to the funding arrangements.

Third, the second bullet in clause 15 above is designed to ensure that each party is contractually obliged to comply with the anti-corruption measures which apply to the project.

Fourth, clause 16 above is designed to highlight the serious penalties for involvement in corruption.  It refers to contractual penalties which can be enforced by the parties, and to the criminal penalties that will apply.

It is of course possible to reduce the number of anti-corruption commitments given.  However, this will also reduce their effectiveness.

FAQ (3):  Who should give the anti-corruption commitments?

The anti-corruption commitments should be exchanged between the project owner (who is assumed to be the borrower/recipient of funds) and each project funder.

FAQ (4):  When should the anti-corruption commitments be given?

These commitments should be provided no later than when the funding agreement is signed.

FAQ (5):  How long should these anti-corruption commitments apply?

These commitments should cover the full extent of the party’s involvement in the project, so should continue until loan repayment has been completed.

FAQ (6):  How will parties be made to comply with these commitments?

There will be no certainty that parties will comply with these commitments.  There is always the risk that these commitments will be used simply to give the impression that anti-corruption measures are being taken.

However, the parties may be encouraged to comply in the following ways:

  • Parties will be made aware that there is a significant risk of criminal prosecution for their organisation if they become involved in corrupt activity. (See clause 16 above).
  • Giving these commitments gives the other party the contractual right to take legal action in the event of any breach.
  • If an independent assessor is appointed on the project, part of his scope of work will be to monitor whether parties are complying with their anti-corruption obligations. (See clause 10 of PS 1 Independent Assessment.)  Parties will be aware that this will significantly increase the risk of detection of corruption and so will make them more willing to comply with their commitments.
  • Parties may wish to act ethically and so may find it helpful that mechanisms are being set up on the project to try to ensure that all parties act ethically.
  • If parties are required to raise awareness of the risks of corruption amongst their officers and employees (see PS 8 Raising Awareness), this will help to deter officers and employees from involvement in corruption, and encourage them to comply with the commitments.

FAQ (7):  What is a “principal shareholder”?  (See clause 11 above)

The decision of what would constitute a “principal shareholding” in a company for the purposes of the anti-corruption commitments is a decision for the project owner and/or funder in agreeing the commitments.  The commitment should be in relation to any shareholder who could have a significant interest in the outcome of the funding or project.  It is suggested that any individual or entity which owns or controls more than 10% of the shares or voting rights in a company is a principal shareholder. 

FAQ (8):  What is a “senior manager” and a “senior officer”?  (See clause 11 above)

“Senior manager” means a person with supervisory responsibility in respect of the funding or project, including, for example, a person with responsibility for contract, project, financial, procurement, commercial or technical management.

“Senior officer” means:

  • In relation to a company: the chairman, chief executive, and directors.
  • In relation to a government department: its minister(s) and heads of department.

FAQ (9):  Why do these contractual commitments refer to criminal penalties? (See clause 11 above)

A contract between two parties cannot generally impose criminal penalties.  However, reference to criminal penalties is used to draw the parties’ attention to the fact that there are severe criminal penalties for corruption under the general law.  This will help to focus the parties’ minds on the issue of corruption and to deter them from involvement in corruption.

Updated on 10th April 2020