Compliance and Ethical Behavior Culture

Since 2016, the Company has been actively developing the Unified Compliance System on the basis of the norms of applicable laws, recommendations of regulatory authorities, the specific nature of the industry and best practices in this sphere.

These compliance areas are supervised by the relevant functional units, each of which implements its compliance program and risk minimization system. Coordination of implementation and operation of the Unified Compliance System is entrusted to the Department of Business Ethics and Compliance of MTS PJSC.

The systematic and progressive development of the unified compliance system continued. The risks of compliance programs are taken into account in the general risk management system of the Company. This makes it possible for the management and management bodies of the Company to gain a structured understanding of the existing compliance risks and to take these factors into account when making management decisions, which has positively affected the Company’s overall performance. In 2019, a scheduled work was carried out to reassess risks with a subsequent adaptation of compliance programs.

In 2019, much attention was paid to informing employees about the Unified Compliance System and compliance programs training. The Our MTS app for employee smartphones provided information about the UCS, compliance programs, the people in charge, and compliance program training. An interactive training course for the employees “Map of the Unified Compliance System (Compliance Castle)” was launched on a corporate training platform. There is a video about the Unified Compliance System uploaded at the corporate portal: “What UCS is and how it works. What does compliance mean to you?” featuring the participation of the President of MTS PJSC and senior executives of the Company – the curators of compliance programs.

Second Supervisory Audit of conformity of the Company’s Unified Compliance System with the standards ISO 37001:2016 and ISO 19600:2014

In 2018 the Company received the certificate of the Unified Compliance System’s compliance with international standards ISO 19600:2014 “Compliance Management Systems” and ISO 37001:2016 “Anti-Corruption Compliance Management Systems.”

In order to confirm the certificate of compliance of the Unified Compliance System with international standards during the second Supervisory Audit held from January 17 to January 24, 2020, an international team of auditors who are recognized world experts in the field of compliance conducted more than 50 interviews with employees of the Company, including an interview with the President of MTS PJSC and top management, managers and employees in the Corporate Center and regions of the Company; studied more than 80 internal documents and other evidence of ongoing development and effectiveness of operation of the Unified Compliance System and compliance programs included therein; and reviewed implementation of the recommendations for improving the Unified Compliance System obtained during the first Supervisory Audit of 2018.

Based on the results of the audit, the team of auditors noted the continued stable development of the Unified Compliance System in 2019. Compliance programs are positively perceived by business units, which has led to a deeper implementation of compliance programs in the Company’s business processes. The recommendations received as a result of the first Supervisory Audit in 2018 were successfully implemented by the Company for the most part, some actions are to be completed in 2020.

Compliance Committee

In 2016, the Company established the Compliance Committee under the President of MTS PJSC, which included the President, the managers in his direct subordination; the Director of the Business Ethics and Department of Compliance and Business Ethics, who is the Chairman of the Committee.

The Committee was established to make decisions on the issues of formation and implementation of compliance programs making the Unified Compliance System; the main tasks of the Committee are implementation of a policy in the field of compliance risk management and making proposals on the development priorities of MTS Group in this area.

In 2019, five Committee meetings were held where the following issues were considered, inter alia:

• setting compliance key performance indicators (KPIs) for employees who are functionally responsible for compliance programs, fulfill instructions of the Committee and are included in the working group under the Committee;
• allocation of necessary resources for compliance programs; and
• approval of an action plan to increase employee awareness of compliance program training and to strengthen the positioning of compliance programs as the Unified Compliance System.

Day of Ethics and Compliance

For the fifth year in a row, on October 23, 2019, the Company celebrated a corporate Day of Ethics and Compliance. Holding compliance training, master classes and competitions has become a positive tradition at MTS PJSC and at our subsidiaries both in Russia and abroad. All employees received a letter on a culture of fair practice from the Director for Business Ethics and Compliance.

The program of online meetings with employees included educational courses in the areas of the compliance system; a representative of the Ministry for Labor and Social Protection of the Russian Federation addressed to the employees.

Apart from general events implemented within the framework of development of the unified compliance system, each risk area (compliance program) also performed independent development.

Anti-Corruption (Anti-Corruption Compliance and Business Ethics)

MTS PJSC, as a public company, is aware of the need to develop a favorable business environment in the markets of its presence, and makes efforts to promote the best compliance practices, and always adheres to high standards of business ethics, transparency and the rule of law.

The anti-corruption compliance program in MTS PJSC establishes measures to control regulatory risks, to protect the Company from any manifestations of corruption (both within the Company and attempts to involve the Company in corrupt activity from the outside), to improve the corporate culture, introduce and develop in the Company the best corporate management practices, as well as standards of responsible and ethical behavior.

The company has formed its approach to building up the anti-corruption compliance program based on recommendations from regulatory authorities, relevant international organizations, and best practices in the development of corporate anti-corruption compliance programs in accordance with the principles set forth in the Company’s Annual Report for 2017.MTS PJSC Annual Report for 2017

In 2019, the Company implemented many projects and initiatives within the framework of development of the anti-corruption compliance program and strengthening of compliance culture:

• The regional presence of the compliance function has been significantly strengthened: new positions of compliance managers were introduced in Kazan, St. Petersburg, Moscow, Krasnodar, and Yekaterinburg.
• External consultants implemented projects for the independent assessment of corruption risks at seven subsidiaries. A similar project was launched at a subsidiary of NVision Group JSC with a deadline in 2020.
• Employees were trained in anti-corruption compliance:
  • full-time training in anti-corruption compliance was attended by more than 22 thousand employees of MTS Group Companies (including top management);
  • over 52 thousand employees of MTS PJSC and subsidiaries completed the updated electronic course “Compliance – observation of anti-corruption legislation”;
  • over 77.5 thousand employees of MTS PJSC and subsidiaries completed the updated electronic course “Code of Business Conduct and Ethics”;
  • a project has been implemented for full-time functional education of unit managers at the Corporate Center. Employees of 43 MTS PJSC branches were also trained;
  • 62 representatives of third parties completed full-time training on the principles and requirements of the Company in the field of anti-corruption compliance; and
  • 897 employees of commercial representatives of the Company completed e-traning “MTS Requirements on Legislative Compliance by Partners. Anti-corruption, CML/TF/MDWSF” for representatives of dealers on an external training platform.
• In addition to events with participation of top management that demonstrate involvement and support of top management in the field of compliance initiatives (“tone from the top”), the Company keeps actively developing the “tone in the middle” – demonstration of a personal example of good conduct by middle management. The regional development directors and the directors of the branches spoke to the employees on the subject of compliance in person and reminded them of the importance of compliance training and conducted activities in the regions.

• Internal communications actively covered compliance topics; in particular, the Company’s employees received updates on quarterly monitoring of the regulatory environment during the year, news were published about confirmation of the Company receiving a certificate of compliance with international standards ISO 19600:2014 and ISO 37001:2016; there were publications of announcements of training webinars, replies to questions, changes to the anti-corruption local regulatory acts of the Company. An “open dialogue” was held with the director for business ethics and compliance in the form of a webinar for employees on the importance of conforming with compliance and business ethics standards and a culture of compliance. A video message from the President of MTS PJSC to the employees on the Code of Business Conduct and Ethics, as well as his appeal dedicated to the International Anti-Corruption Day was published on the corporate portal. Throughout the year, articles and posts on the topic of compliance were published in the corporate magazine and in the Compliance Blog created at the corporate portal.
• The compliance representative program, designed to increase the involvement of business representatives in the operation of the anti-corruption compliance program, was further developed. As of the end of 2019, the program involved 19 volunteer employees from various business functions, who provided counseling and training for employees and actively participated in the projects of the Business Ethics and Department of Compliance and Business Ethics.
• Throughout the year, work was also in progress to improve internal compliance controls: 18 new controls were introduced, 21 controls were amended. In total, around 170 compliance controls were introduced to 80 local regulatory legal acts of the Company as of the end of 2019.

In order to distribute the best compliance practices and exchange experience during 2019, representatives of the Department for Business Ethics and Compliance took part in 19 external compliance events in Russia and abroad, including the fifth annual conference "Preventing Intra-Corporate Fraud and Assessing the Trustworthiness of Contractors," the fourth International Forum "Effective Compliance: International Practice and Standards," the annual C5 international conference on anti-corruption – the key event of the year for anti-corruption professionals.

Handling Conflicts of Interest

For the purposes of establishing a uniform and efficient system for the management of actual and potential conflicts of interest, as well as defining employee-conduct requirements whose observance makes it possible to minimize the risks of decision-making under the influence of personal interests and connections, there is a “Conflict-of-Interest Management” Policy effective in the Company, with an Annex “Disclosure of Information About Conflicts of Interest” and a clause on family relatives in government structures. Compliance with this policy is an obligation of any employee of the Company, irrespective of their official position. Employees holding management positions are obliged to show the example of law-abiding and ethical conduct and actively support execution of the Policy “Conflict of Interests Management.”

When being hired, all employees familiarize themselves with this Policy, fill in and sign the form “Disclosure of Information About the Conflict of Interests.” When a conflict of interests arises, each situation must be reviewed and settled.

At the end of 2019, the Company conducted an annual certification of compliance with the Code of Business Conduct and Ethics and Anti-Corruption Policy, which was attended by 509 managers of MTS PJSC.

Throughout 2019, information on 303 situations was audited and expert opinion was given in order to identify the presence of a conflict of interest. At the same time, 232 conflicts of interest were settled: 199 potential and 33 actual. In 14 cases of requests, declared conflicts of interest were found and settled earlier in 2017 and 2018.

System of Antimonopoly Risk Prevention (Antimonopoly Compliance)

Since 2015, the antimonopoly compliance of MTS PJSC has been successfully functioning and developing in the light of changes in antitrust laws and trends in the development of law enforcement practice. The Company is also continuously monitoring the antitrust laws, analyzes antitrust practices and risk-prevention experience at other companies, improving its control procedures and adapting training and informational materials for its personnel.

In 2019, the Company’s management was actively involved in the business processes and development of the antitrust risk prevention system. All mandatory procedures were implemented, which were necessary for the effective functioning of the program: the annual risk reassessment was completed, which found no substantial changes in the Company’s antitrust risk map, employee consulting was performed on a regular basis, the antitrust compliance manager participated in business processes that are significantly exposed to antitrust risks: pricing, execution of agreements, cooperation with communication operators and many more.

Employee training is an important element of the compliance system. In 2019, the training of employees on antitrust requirements continued, including introduction of remote training, which made it possible to expand training geography and involve more employees compared to previous periods. The Company regularly communicates information about antitrust requirements to employees, using various formats of such communication to achieve maximum effect. The ultimate goal of this work is not only to provide employees with theoretical and practical knowledge in the field of antitrust regulation, but also to develop “zero tolerance” to violations of antitrust laws within the Company. The MTS PJSC also operates the “Unified Hotline,” where employees and other persons may report a violation of antitrust compliance.

The antitrust risk prevention system is constantly optimizing in order to comply with the development of the MTS PJSC business strategy and with the changes in the regulatory environment. In 2020, there are plans to pay special attention to digital markets – due to both development of new Company’s business directions and modernization of the legal landscape (the expected adoption of acts governing digital markets).

Inside Compliance

MTS PJSC, being a company striving to maintain a high level of corporate governance, whose securities are being traded in Russia and the US, pays great attention to maintaining an effective system of insider compliance.

The person responsible for exercising control over compliance with the requirements of legislation on the use of insider information has been appointed in the Company: the Director of the Corporate Law Department.

The Company operates the system of measures, processes and procedures aimed at preventing breaches of legislation on the usage of insider information built with due account of best Russian and international practices.

In compliance with the requirements of the Russian legislation, the Company adopted the Policy “Compliance with Insider Information Legislation” and, in compliance with applicable US requirements, the Regulation “On Principles and Procedures Relating to the Prevention of Transactions Using MTS Insider Information.” These regulatory acts establish the procedure for usage of insider information, access procedures, regulate the procedure for maintaining the insider list, list of insider information, impose certain prohibitions and liability for insider transactions as well as define the procedure for submission of information upon requests from the Bank of Russia and the Moscow Stock Exchange.

In accordance with best practices, the Company set limits for all employees regarding the performance of operations involving MTS PJSC securities in so-called “closed” periods. Another “closed” period starts on the first day of every financial quarter and ends two business days after the publication of MTS PJSC financial results for the preceding financial quarter.

In order to ensure compliance with the requirements for “closed” periods, the system provides for quarterly reporting (twice per quarter) of employees and members of management bodies on their beginning and end. In addition, special calendar has been created in a special information system for members of the management bodies, which contains up-to-date information on the current “closed” or “open” period.

Since 2014, a full-time regular training program for all of the Company’s insider employees has been operating in the Company, covering their duties, the requirements and prohibitions of applicable legislation on the use of insider information, as well as the procedures for insider-information protection in place at MTS PJSC. In addition, when being hired, each employee reads Company’s regulatory documents aimed at preventing violations of insider laws.

The Company is aware of the severity of the sanctions which may be applied to any employee in case of a violation of insider legislation. Therefore, in order to prevent such negative consequences, in 2017, an interactive course was developed and launched for all company employees, dedicated to insider-law fundamentals.

Risks related to the violation of insider legislation are recorded in a specialized automated system and are reevaluated on a quarterly basis.

Russian regulation in the field of preventing insider trading has its own specifics. For example, the Company keeps a list of its insiders in this regard. It includes individuals and legal entities.

In order to maintain an effective inside compliance program, the Company audits program’s controls: annually – via employees involved in ensuring the functioning of the inside compliance program (verifying fulfillment of individual requirements of the inside compliance program); as necessary (taking into account the risk-based approach) – via the internal audit division headed by a person accountable to the Board of Directors.

In 2018 project was completed for audit of internal business processes and building of a formalized risk map in the field of inside compliance, and the main areas for the development and optimization of control procedures were identified. In 2019, we started to implement a number of measures to develop our insider compliance system, including bringing the system in line with the changed legislation.

Personal-Data Processing Organization

In 2019, the Company made every effort to improve approaches to the personal data processing in light of the ongoing transformation of business processes. In order to optimize work with foreign counterparties, a standard document has been approved that allows for the exchange of information with counterparties in the legal field.

In the acquired and newly organized subsidiaries, work is underway to build processes for organizing the personal data processing and implementation of regulatory documents.

Furthermore, the main elements of the compliance program kept developing in 2019. In particular, the Compliance Program participated in holding the 2019 Day of Ethics and Compliance at the CC and in the regions: some questions on the process of personal-data processing were prepared for the quiz, a memo for employees was published on the “Latest Personal-Data Issues.” Within the process of rising awareness of Company employees in the field of personal data processing, 3576 MTS PJSC employees completed the remote training course “Personal Data Processing in MTS PJSC” in accordance with requirements of the Federal Law No. 152.

Risks associated with violation of the legislation on personal data are taken into account in the Company’s risk management system and are reassessed quarterly.

Combatting the Legalization (Laundering) of Criminal Proceeds, the Financing of Terrorism and/or Financing of the Spread of Weapons of Mass Destruction (CML/TF/MDWSF)

The CML/TF/MDWSF program has been developed in accordance with applicable legislation, which is monitored on a regular basis.

As part of the compliance program’s activities implementation, the Department of Regional Security conducts a daily audit of the subscriber base to check whether some of the subscribers are included in the list of terrorists/extremists. When the Company’s subscribers conduct high risk operations, a check is carried out using the base of invalid passports and a list of terrorists/extremists.

The Company also carries out daily monitoring of the termination of communication-service contracts with repayment of the balance, as well as monitoring other suspicious subscriber transactions in accordance with Order No. 103 of the Federal Service for Financial Monitoring dated 05.08.2009 “On the Approval of Recommendations for Development Criteria for the Definition and Identifying Signs of Unusual Transactions.”

On an ongoing basis, events are held to inform regional leaders on the implementation of CML/TF/MDWSF legislation requirements.

In 2019, the Company:

• approved the new version of its Policy “Rules of Internal Control for the Purposes of Counteraction of the Legitimization (Laundering) of Proceeds of Crime and the Financing of Terrorism”;
• approved the list of positions of Company’s employees who must be trained in the field of CML/TF/MDWSF, via the order of MTS PJSC President. External training for 19 senior managers was organized;
• an effective section “Countering Money Laundering” was published on the Company’s internal website; and
• the process of checking candidates and current employees in the List of Terrorists/Extremists has been automated.

Health and Safety Management SystemDetailed information on the program is provided in the section “Our Employees.”

Personnel safety is the main component of corporate social responsibility of the Company.

When building “Health and Safety Management System” compliance program, the Company is guided by the applicable Russian and international legislation, as well as by local regulatory documents on labor protection.

The Company operates a two-tier system of H&S management, focused on creating a safe working environment, prevention of occupational injuries and personnel training of safe work rules.

As part of the compliance program, the following activities were carried out in 2019:

EnvironmentDetailed information on this area is disclosed in MTS PJSC Sustainability Report.

In its activities, MTS PJSC strives not only to have a minimal impact on the environment, but also to reduce this impact to the best of its ability. In achieving this objective, the Company is guided by environmental legislation and principles of responsible business conduct, and strives to improve the environmental culture of employees and partners and to implement services based on advanced technologies.

Within the framework of the “Environment” compliance program development in 2019, The Administrative Unit is defined as the functional unit in charge of ensuring environmental safety and protection at the facilities under the jurisdiction of the Technical Unit, provided that the Technical Unit submits the required information.

As of the end of 2019:

• compulsory periodic training for persons responsible for ecological safety and directors of branches was conducted;
• all branches completed in a timely manner the required reporting to the executive authorities: to the Federal Service for Supervision of Natural Resources and the Federal State Statistics Service;
• 27 facilities with negative environmental impacts were registered at 9 branches;
• a new system was introduced for the accumulation of paper waste in offices due to enactment of new waste handling requirements;
• inventory of administrative facilities was implemented with the purpose to inspect availability of environmental documents at all facilities as specified in the existing legislation of the Russian Federation; and
• experts in the field of environmental protection and safety analyzed all categories of products/works/services of the Company as specified in the “Procurement” Policy to determine their impact on environmental protection and safety.

Human Rights at the Workplace

MTS PJSC fully shares the universally recognized world-wide approach to the observance of human rights, and seeks to guarantee and protect human rights through the continuous improvement of the feedback system.

In 2019, the Company continued to develop the compliance program “Human Rights at the Workplace” in accordance with the recommendations received as part of the self-assessment of the Company’s activities for compliance with ISO 26000:2010 “Guidelines on Social Responsibility” and the results of the assessment of compliance risks at the business process level. The audit was conducted by an external consultant. In addition to the generated risk maps, recommendations were given to the program to improve the control environment. The results of the risk assessment are taken into account in the Company’s overall risk management system and are reviewed on a regular basis.

As of the end of 2019:

• an updated mandatory vendor’s questionnaire was introduced, containing questions about the observance of human rights;
• work continued in the area “inclusion and formation of a comfortable environment when interacting with people with disabilities,” namely:
  • an audit of several offices of the Company and showrooms of RTK JSC was carried out, including adjacent territories, for their accessibility for people with various forms of disabilities and other population groups with limited mobility (Moscow);
  • webinar “Understanding disabilities and proper communication with disabled people” was broadcast and recorded;
  • educational activities for people with disabilities, including hearing disabilities, were implemented: Theater for All “Beyond Silence,” festival of volunteer puppet theaters “Puppet FEST.”
• the “Human Rights at the Workplace” section was created at the internal corporate portal;
• as part of the 2019 Ethics and Compliance Day, a quiz was held on the topic of respect for human rights among employees;
• within the framework of the Human Rights Day, a webinar “Who is right, who is to blame? Know your rights!” was held for employees;
• activities for training on sustainable development were held:
  • open conference of MTS PJSC “Responsible business. Be better every day” with the participation of employees and top managers of the company, involved external experts in the field of sustainable development and vendors. A Sustainable Development Report of the MTS Group for 2018 was presented within the framework of the conference, and
  • practical conference of MTS PJSC “Sustainable development. Be better every day!” – An annual training event for MTS Group employees responsible for implementing social projects. Case studies and examples of creating corporate responsibility programs were reviewed, the topic of respect for human rights was mentioned.