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Section 230: Inducements, including gifts and hospitality

Introduction

230.1           Members are required to comply with the rules and fundamental principles and apply the conceptual framework set out in Section 200 to identify, evaluate and address threats.

230.2           For purposes of this interpretation, a customer or vendor of the member’s employer includes a representative of the customer or vendor.

230.3           When a member offers to, or accepts gifts or entertainment from, a customer or vendor of the member’s employer, self-interest, familiarity, or undue influence threats to the member’s compliance with the rules and fundamental principles, in particular the “Integrity and Objectivity Rule” and the Integrity and Objectivity principles, may exist.

Requirements and application material

General

230.4 A1      An inducement is an object, situation, or action that is used as a means to influence another individual’s behaviour, but not necessarily with the intent to improperly influence that individual’s behaviour. Inducements can range from minor acts of hospitality between business colleagues to acts that result in non-compliance with laws and regulations. An inducement can take many different forms, for example:

  • Gifts.
  • Hospitality.
  • Entertainment.
  • Political or charitable donations.
  • Appeals to friendship and loyalty.
  • Employment or other commercial opportunities.
  • Preferential treatment, rights or privileges.

Inducements prohibited by laws and regulations

R230.5         In many jurisdictions, there are laws and regulations, such as those related to bribery and corruption, that prohibit the offering or accepting of inducements in certain circumstances. A member shall obtain an understanding of relevant laws and regulations that may apply to the member’s employer or the customer or vendor, and comply with them when they encounter such circumstances.

Inducements not prohibited by laws and regulations

230.6 A1      The offering or accepting of inducements that is not prohibited by laws and regulations might still create threats to compliance with the “Integrity and Objectivity Rule” and the Integrity and Objectivity fundamental principles.

Inducements with intent to improperly influence behaviour

R230.7         A member shall not offer, or encourage others to offer, any inducement from a customer or vendor of the member’s employer that is made, or which the member considers a reasonable and informed third party would be likely to conclude is made, with the intent to improperly influence the behaviour of the recipient or of another individual, or that violates the policies of the member’s employer or the customer or vendor.

R230.8         A member shall not accept, or encourage others to accept, any inducement from a customer or vendor of the member’s employer that is made, or which the member considers a reasonable and informed third party would be likely to conclude is made, with the intent to improperly influence the behaviour of the recipient or of another individual, or that violates the policies of the member’s employer or the customer or vendor.

230.9 A1      An inducement is considered as improperly influencing an individual’s behaviour if it causes the individual to act in an unethical manner. Such improper influence can be directed either towards the recipient or towards another individual who has some relationship with the recipient. The rules and fundamental principles are appropriate frames of reference for a member in considering what constitutes unethical behaviour on the part of the member and, if necessary by analogy, other individuals.

230.9 A2      A breach of the “Integrity and Objectivity Rule” and the “Integrity Principle” arises when a member offers or accepts, or encourages others to offer or accept, an inducement where the intent is to improperly influence the behaviour of the recipient or of another individual.

230.9 A3      The determination of whether there is actual or perceived intent to improperly influence behaviour requires the exercise of professional judgment. Relevant factor to consider might include:

  • The nature, frequency, value and cumulative effect of the inducement.
  • Timing of when the inducement is offered relative to any action or decision that it might influence.
  • Whether the inducement is a customary or cultural practice in the circumstances, for example, offering a gift on the occasion of a religious holiday or wedding.
  • Whether the inducement is an ancillary part of a professional activity, for example, offering or accepting lunch in connection with a business meeting.
  • Whether the offer of the inducement is limited to an individual recipient or available to a broader group. The broader group might be internal or external to the employing organisation, such as other customers or vendors.
  • The roles and positions of the individuals offering or being offered the inducement.
  • Whether the member knows, or has reason to believe, that accepting the inducement would breach the policies and procedures of the counterparty’s employing organisation.
  • The degree of transparency with which the inducement is offered.
  • Whether the inducement was required or requested by the recipient.
  • The known previous behaviour or reputation of the offeror.

Consideration of further actions

230.10 A1    If a member becomes aware of an inducement offered with actual or perceived intent to improperly influence behaviour, threats to compliance with the “Integrity and Objectivity Rule” and the “Integrity Principle” might still be created even if the requirements in paragraphs R230.7 and R230.8 are met.

230.10 A2    Examples of actions that might be safeguards to address such threats include:

  • Informing senior management or those charged with governance of the employing organisation of the member or the offeror regarding the offer.
  • Amending or terminating the business relationship with the offeror.

Inducements with no intent to improperly influence behaviour

230.11 A1    The requirements and application material set out in the conceptual framework apply when a member has concluded there is no actual or perceived intent to improperly influence the behaviour of the recipient or of another individual.

230.11 A2    If such an inducement is trivial and inconsequential, any threats created will be at an acceptable level.

230.11 A3    Examples of circumstances where offering or accepting such an inducement might create threats even if the member has concluded there is no actual or perceived intent to improperly influence behaviour include:

  • Self-interest threats
    • A member is offered part-time employment by a customer or vendor.
  • Familiarity threats
    • A member regularly takes a customer or vendor to sporting events.
  • Undue influence (Intimidation) threats
    • A member accepts hospitality, the nature of which could be perceived to be inappropriate were it to be publicly disclosed.

230.11 A4    Relevant factors in evaluating the level of such threats created by offering or accepting such an inducement include the same factors set out in paragraph 230.9 A3 for determining intent.

230.11 A5    Examples of actions that might eliminate threats created by offering or accepting such an inducement include:

  • Declining or not offering the inducement.
  • Transferring responsibility for any business-related decision involving the counterparty to another individual who has the member has no reason to believe would be, or would be perceived to be, improperly influenced in making the decision.

230.11 A6    Examples of actions that might be safeguards to address such threats created by offering or accepting such an inducement include:

  • Being transparent with senior management or those charged with governance of the employing organisation of the member or of the counterparty about offering or accepting an inducement.
  • Registering the inducement in a log maintained by the employing organisation of the member or the counterparty.
  • Having an appropriate reviewer, who is not otherwise involved in undertaking the professional activity, review any work performed or decisions made by the member with respect to the individual or organisation from which the member accepted the inducement.
  • Donating the inducement to charity after receipt and appropriately disclosing the donation, for example, to those charged with governance or the individual who offered the inducement.
  • Reimbursing the cost of the inducement, such as hospitality, received.
  • As soon as possible, returning the inducement, such as a gift, after it was initially accepted.

Immediate or close family relatives

R230.12       A member shall remain alert to potential threats to the member’s compliance with the rules and fundamental principles, in particular the “Integrity and Objectivity Rule” and the Integrity and Objectivity Principles, created by the offering of an inducement:

(a)   By an immediate or close family relative of the member to a counterparty with whom the member has a professional relationship; or

(b)   To an immediate or close family relative of the member by a counterparty with whom the member has a professional relationship.

230.12 A1    For example, self-interest threats are created when an inducement is made in an attempt to unduly influence actions or decisions, encourage illegal or unethical behaviour, or obtain confidential information, and undue influence (intimidation) threats are created if such an inducement is offered or accepted and it is followed by threats to make that offer public and damage the reputation of either the member or an immediate or close family relative to the member.

R230.13       Where the member becomes aware of an inducement being offered to or made by an immediate or close family relative and concludes there is intent to improperly influence the behaviour of the member or of the counterparty, or considers a reasonable and informed third party would be likely to conclude such intent exists, the member shall advise the immediate or close family relative not to offer or accept the inducement.

230.13 A1    The factors set out in paragraph 230.9 A3 are relevant in determining whether there is actual or perceived intent to improperly influence the behaviour of the member or of the counterparty. Another factor that is relevant is the nature or closeness of the relationship, between:

(a)   The member and the immediate or close family relative;

(b)   The immediate or close family relative and the counterparty; and

(c)   The member and the counterparty.

For example, the offer of employment, outside of the normal recruitment process, to the spouse of the member by a counterparty with whom the member is negotiating a significant contract might indicate such intent.

230.13 A2    The application material in paragraph 230.10 A2 is also relevant in addressing threats that might be created when there is actual or perceived intent to improperly influence the behaviour of the member or of the counterparty even if the immediate or close family relative has followed the advice given pursuant to paragraph R230.13.

Application of the conceptual framework for members in business

230.14 A1    Where the member becomes aware of an inducement offered in the circumstances addressed in paragraph R230.12, threats to compliance with the rules and fundamental principles might be created where:

(a)   The immediate or close family relative offers or accepts the inducement contrary to the advice of the member pursuant to paragraph 230.13; or

(b)   The member does not have reason to believe an actual or perceived intent to improperly influence the behaviour of the member or of the counterparty exists.

230.14 A2    The application material in paragraphs 230.11 A1 to 230.11 A6 is relevant for the purposes of identifying, evaluating and addressing such threats. Factors that are relevant in evaluating the level of threats in these circumstances also include the nature and closeness of the relationships set out in paragraph 230.13 A1.

Other considerations

230.15 A1    [CIMA ONLY] If a member encounters or is made aware of inducements that might result in non-compliance or suspected non-compliance with laws and regulations by other individuals working for or under the direction of the employing organisation, the requirements and application material set out in Section 290 apply.

230.15 A2    If a member faces pressure to offer or accept inducements that might create threats to compliance with the rules and fundamental principles, the requirements and application material in Section 280 apply.