Annex A. Ensuring anti-corruption and integrity in the privatisation process: A step-by-step guide

Step: Establishment of guiding principles

Main corruption risk: Undue influence or bribery leading to the wrong decision to privatise or the wrong asset identified for privatisation


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Identifying and articulating policy objectives (good practices in Chapter 2)

Opacity in the rationale for privatisation / Unclear, inaccessible or irrational objectives for divestment

Absence or manipulation of assessments used to inform the decision-making process (e.g. competition, value for money, allocation of funding).

Are objectives well justified and clear?

What tools were used to inform the decision-making process? Did they include a sound assessment of risks prone to the sector, including corruption risks?

Are there mechanisms to assess the accuracy and reliability of the decision-making process?

Establishing a transparent and credible institutional framework (good practices in Chapter 2)

No centralised ownership agency or function to steer the process

No safeguards to ensure integrity in the process

Are decisions made amongst a few or in an opaque way?

Are there adequate mechanisms and safeguards in place, including claims channels for complaints? How soon were external auditors involved in the process?

Step: Measures before divesting

Main corruption risk: Manipulation or abuse of the methods undertaken prior to divestment that grant immediate benefit or facilitate the future diversion of rents by corrupt actors.


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Appropriately staging the privatisation process (good practices in Chapter 3)

Unclear or irrational decisions about how much of the enterprise is to be sold and in which stages (taking note of cases where partial privatisation leaves company vulnerable to government interference and where risk and benefits are not fully transferred to private sector)

Unclear or irrational decisions about the timing of sales

Were decisions about staging privatisation well informed?

Does the process seem rushed?

Pre-privatisation industry restructuring (Chapter 3)

Sped-up timeframe combined with lacking structural separation (e.g. selloff of monopoly without a sound regulatory framework)

Restructuring of the company and market may have benefitted a particular actor or group

Low regulatory capacity and weak enforcement

Will bidders be offered a monopolistic position in the post-privatisation market?

Were adequate competition, or anti-trust regulations and effective enforcement mechanisms in place? Or, if not, was there sufficient time for them to be developed?

Pre-privatisation company restructuring (Chapter 3)

No or little due diligence on the asset selected for privatisation (e.g. ignorance to sanctions or previous infractions); or failed due diligence test

Signs of basic governance weaknesses within the SOE (e.g. issues at board level, non-transparent appointment processes of board members or executive management)

Questions about the accuracy and validity of company documents and accounts (e.g. unreliable internal audit or audits that point to irregularities)

Previous company history with sanctions or irregularities or history of business with sanctioned entities

Evidence that company managers or employees take advantage of the restructuring process to strip assets

Is there full disclosure of the potential risks (including corruption risks) posed for the buyer?

Are practices of financial and non-financial disclosure, and accounting up to international standards?

Is there an integrated system of internal control and risk management? Autonomous and capacitated internal audit?

Did employees and management of the company act in a way that supports the integrity of the process?

Were any privileged allocations given to employees or managers announced publicly in advance?

Deciding on appropriate method of sale (good practices in Chapter 3)

Selected transaction mode is more inherently opaque than others (e.g. management buyouts versus IPOs, respectively)

Process timelines are sped up (e.g. to avoid checks and balances; no time for development of specialised regulation for monopolies)

Were other methods of sale evaluated? What criteria did the seller use to decide on the appropriate method of sale?

Is there sufficient time afforded for the capacity-building needed?

Step: Organising the process of privatisation

Main corruption risk: Collusion, bid-rigging and/or bribery affecting the pricing and criteria of sale, and/or the awarding of the sale to an inappropriate buyer


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Best practices for drawing upon external advice (good practices in Chapter 4)

No conflict of interest management in utilising external advisors

Apparent or real conflicts of interest of external advisors

Were the good practices outlined in 4.2 used in the selection and work of external advisors?

Was there a thorough assessment of the need for contractors and was the process competitive?

Determining company valuation and establishing sound pricing methods (good practices in Chapter 4)

Falsified/doctored sale criteria (e.g. cost, or requirements for quality and deliverables)

Contractual terms misaligned with previous objectives (e.g. possible tailoring of criteria for specific bidders)

Have risks and liabilities been calculated in the sale price?

Was the sale price based on sound assumptions, arrived at independently of the buyer and company? Was it a used as a guide for the vendor in appraising bids?

Were there price hikes or reductions following the initial pricing?

Determining potential buyers and handing bids (good practices in Chapter 4)

Lack of justification if/where non-competitive procedures are used in bidding

Selection criteria is not objectively defined and not established in advance (e.g. seemingly tailored to a specific bidder)

Signs of bid-rigging or collusion in the bidding process

Lack of due diligence regarding the buyer (e.g. undeclared conflicts of interest or infractions, unreasonable business plan)

To what extent did the state draw attention to promote the opportunity for purchase?

Was there more than one bid? Are the evaluators of bids familiar with the bidders?

Is there any evidence that would-be bidders were bribed or blackmailed to avoid participating?

Has proper due diligence been carried out on the buyer? If another company or group, is the ultimate beneficial owner known?

Were there specific criteria to select a preferred bidder, and were they used in the selection of the winning bidder?

Did the winning bidder meet specification requirements and have a reasonable business plan (especially in the case of assets that are in the process of liquidation or are distressed)?

Step: Steps to be taken post-privatisation

Main corruption risk: Evading accountability of the privatisation process and stifling oversight in the subsequent allocation of proceeds and delivery of contractual terms


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Accountability and transparency in handling privatisation proceeds (good practices in Chapter 5)

No rules in privatisation legislation on method of payment expected from the investor (e.g. leaving room for ambiguity or confusion in payment scheme)

Use of proceeds not determined in the legal decision triggering the selloff.

Absence of accounting records that can be verified by external assessment

Do public accounts adequately reflect the sale proceeds, residual assets or remaining liabilities?

Are processes in place to assess the immediate and/or eventual spending of the proceeds received by the state (particularly if diverted to public policy goals)?

Systematically conducting post-privatisation evaluation (good practices in Chapter 5)

Inexistent or inadequate evaluation on the compliance with contractual terms or performance (e.g. potential that evaluators are not independent and ignore non-compliance or underperformance)

Is post-privatisation evaluation conducted? Are there any potential conflicts of interests on the part of the evaluators?

Have any irregularities been detected and, if so, addressed by the appropriate authorities?

Subjecting the transaction to an ex-post audit process (good practices in Chapter 5)

Inexistent or inadequate internal audit (e.g. potential that auditors are forced or paid to ignore signs of influence)

Were there any allegations of improper practices during the process? Were they investigated?

Was the transaction subject to independent, external audit? If so, were external auditors selected in a transparent and credible way?

Was the audit comprehensive, including audit of the transaction itself and disbursement of funds?

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