ISO 26000: Fair Operating Practices

Operatingresponsibly
The JT Group fosters
a fair and inclusive
culture, detailing
responsible behaviors
expected of its employees
and partners in Codesof Conduct.

28 | JT Group - CSR Report 2013 | Fair Operating Practices

Operating responsibly across the global value chain
The JT Group works with
its internal and externalbusiness partners andgovernmental authorities
to prevent corruption
and similar unethicalactivities, thereby helping
to contribute to a more
responsible global market
place.

The JT Group connects to a global market
place where ethics, fairness and transparency
in business are increasingly central to the way
companies are expected to operate.
Achieving and maintaining high standardsof ethical business conduct is something theJT Group takes very seriously. Employees
across all Group entities must be aware ofand adhere to the relevant Code of Conduct
for their business. All commercial partners
must also recognize the values embodied inthese business standards and act accordingly
at all times. Failure to do so results in serious
consequences, including the termination of apartner’s commercial relationship with the JTGroup.

agencies and customs authorities. It also
works closely with retailers and consumers
to prevent the proliferation of illicit tobacco
products. To that end, the JT Group has
participated in global product awarenesscampaigns to inform retailers and consumers
about these issues. It also has a numberof robust compliance programs in place tomonitor its commercial partners.

Another important area that falls within thearea of Fair Operating Practices is the fightagainst illicit trade in the tobacco supply
chain. Here, the JT Group cooperates withgovernment actors such as law enforcement

Fair Operating Practices | JT Group - CSR Report 2013 | 29

Creating the highest standards of behavior
and must consider how they interact locally withcommunities, and globally impact society.

30 | JT Group - CSR Report 2013 | Fair Operating Practices

To ensure that customers are fully aware of its
ethics and standards of behavior, JTI has put inplace the ‘Know Your Customer’ (KYC) program.
The Company also partners with Deloitte, who
independently monitors information on operations
provided by our customers.

2008*

2009106179{The second area concerns business ethics, whichis essentially what society expects from JTI. Today,
businesses are at the heart of societies’ concerns

As well as its own employees, JTI’s Code ofConduct and Supplier Standards apply to business
partners, and compliance with the appropriate
publication is enshrined within JTI’s business
contracts. It is made clear that JTI only partners
with businesses that fully comply with its Code ofConduct, making it a fundamental element of any
business relationship.

62189{For JTI, translating this objective into reality
basically falls into two areas: the first is that
the Company is fully compliant with the JTI/
EU Cooperation Agreement signed in 2007. Thisis a far-reaching cooperation agreement thatcovers how JTI does business internally, and withexternal business partners. Additionally, outsideof Europe, the Company has similar agreements
and/or Memoranda of Understanding in effect.
These various commitments help to demonstrate
a fair and transparent approach to commercialoperations.

Employees act as volunteer ‘Contact Persons’ ineach of JTI’s offices and factories, performing
an essential service to the Company: listening
to employees and reporting any misconduct
to Corporate Compliance. The RCM process isentirely confidential, and reporting employees
are guaranteed confidentiality (if desired) andprotection from retaliation. Reports found to be‘in scope’ of the RCM are fully investigated. If
misconduct is subsequently proven, accused
employees can face disciplinary sanctions,
including the termination of their employmentcontracts.

54{

The role of Compliance within the JT Group is
to ensure the highest standards of corporate
governance, which can only be achieved withstrong, visible actions.

Ultimately, how JTI acts and regulates itself
internally is the key to good governance. JTI’s
Reporting Concerns Mechanism (RCM) is just one
example of how, across the Company, employees
are committed to upholding the Code of Conduct.

Evolution in the number ofcases since 2008

{Bruno Duguay, JTI Chief Compliance Officer andAnti-Illicit Trade Vice President

In all of these areas, JTI has created standards,
which necessarily evolve over time, reflecting
a proactive nature and reactive capabilities.
For example, in 2010, the British Government
published the UK Bribery Act, which is arguably
the most stringent legislation on bribery that existsin the world today. Nevertheless, JTI has requiredcompliance with the fundamental structures of theUK Bribery Act across the entire Company on aglobal scale, setting the bar high.

Reporting Concerns Mechanism(RCM) statistics{JTI’s Code of Conduct addresses wide-ranging
issues covering around 30 different topics. Theseinclude directives on health and safety, bribery,
child labor, anti-money laundering and the reportingof misconduct within the Company.

Independent verification is invaluable, and JTI’s
Code of Conduct itself is evaluated by Corpedia: aglobal leader in Governance, Risk and Compliance.
Corpedia benchmarks compliance programs byusing a database of over 1,500 Codes of Conduct.
It provides JTI with an opinion on the thoroughness
and effectiveness of its Code of Conduct incomparison to other organizations, providing
the Company with insights from an outsider’s
perspective.

2010

2011

2012

*As the Company has grown organically andthrough acquisitions, so has awareness of the RCM,
accounting for the rise in numbers since 2008.

Corrective actions taken by JTI
following incidences of misconduct• Policies and procedures reviewed• Control mechanisms revised or introduced• Communication and training provided• Employee disciplinary actions

Taking a zero tolerance
approach to corruptionby, in relation to anti-corruption. One specificsection covers Gifts, Hospitality and Entertainment(GHE). While GHE is a common global businesspractice, JTI employs a GHE software applicationthat employees use to record exchanges that fallwithin the GHE category.

Solveig Holy-Ruefenacht, JTI Corporate Compliance
Vice President

As the JT Group does business in over 120
countries, within each market place therelationships with external suppliers, customersand partner organizations number in the thousandsfor each entity. As a result, the risk of corruption
is an inevitable reality. The Group operates a zerotolerance policy regarding all aspects of corruption
and has extremely strict and thorough guidelines inplace to communicate on this issue.
Solveig Holy-Ruefenacht, JTI Corporate Compliance
Vice President, provides an overview of the global
context in which JTI operates: “There is now inplace a global agenda for governments to address
corruption. We welcome such legislation, because
corruption prohibits sustainability and economic
growth. This new commitment to fight corruption
at state level supports our efforts.”
JTI’s Code of Conduct clearly sets out the measuresthat each employee should be aware of and abide

As Holy-Ruefenacht explains: “As a rule, employees
cannot receive a gift valued at USD 250 or above
without registering it in the GHE online application.
However, in certain countries, it is commercial
practice to offer expensive gifts. In these instances,
our policy is not designed to simply override
cultural norms, but instead it ensures that any suchgift exchanges are made properly, responsibly,proportionally, and at all times in line with local
legislations. Consequently, when a gift cannot bereturned for cultural reasons, it is registered andmay be donated to charity.”

Combating illicit tradewith a digital solution
The illicit trade in tobacco products is a major
global concern for the JT Group and other
legitimate tobacco companies, as well as togovernmental authorities responsible for regulating
tobacco sales.
Illicit trade falls into three categories: Contraband- the unlawful movement of tobacco productsfrom one tax jurisdiction to another without thepayment of applicable taxes, or other breaches ofthe law; Counterfeit - the illegal manufacturingof a trademark without the owner’s consent, withapplicable taxes rarely, if ever, paid; and, Illicit
Whites – marketed on price and typically produced
legally, but intended for smuggling into countries
where there is no prior legal market for them.
To help combat illicit trade, JTI became a founding
member of the Digital Coding & Tracking
Association (DCTA). The DCTA’s mission is toencourage authorities to adopt a proven digitalsolution for tax verification, authentication, and‘Track & Trace’. Based in Switzerland, the DCTA
was founded by the four largest international
tobacco companies. It engages with governments
and international organizations to help set global
standards that address the illicit trade in tobacco
products.
Brendan LeMoult, JTI’s Anti-Illicit Trade Vice
President, states: “The DCTA’s global solution
is embodied in a group of technologicaldevelopments, collectively referred to as‘Codentify’. Codentify looks to replace commonlyused paper tax stamps, which are easy toCarton code verification

counterfeit and have proven to be ineffective infighting illicit trade. Codentify generates a unique,human-readable, 12-digit alpha-numeric codethat is printed directly onto packaging during
the manufacturing process. Codentify has three
key functions which cover digital tax verification,
product authentication, and Track & Trace.”
LeMoult sums up how the DCTA initiative will
strengthen the resolve to fight criminal activity,
in relation to JTI’s products: “JTI takes a multidisciplined approach to fighting illicit trade. The
DCTA is another strong step in this process, and it
will help tobacco companies secure their products,
while ensuring that governments collect therevenue that is currently being lost to illicit trade.”

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