Convention Secretariats fundraising strategies: investment fund concept proposal: report by the Convention Secretariat

MEETING OF THE PARTIES TO THE PROTOCOL TO ELIMINATE ILLICIT TRADE IN TOBACCO PRODUCTS FCTC/MOP/2/12 17 June 2021 Second session Geneva, Switzerland, 15–18 November 2021 Provisional agenda item 6.4 13 Convention Secretariats fundraising strategies: Investment Fund concept proposal Report by the Convention Secretariat Purpose of the document This report presents a proposal for the development of an Investment Fund as a voluntary financial mechanism to support the objectives of the Protocol to Eliminate Illicit Trade in Tobacco Products. The report follows a request by the Bureau of the Meeting of the Parties (MOP) to the Protocol and provides recommendations for the establishment of the Fund, based on proposed key policy, operational and governance arrangements, as well as a process for launching the Fund. Action by the Meeting of the Parties The MOP is invited to note this report, to provide further guidance and to consider adopting the draft decision in Annex 2 to launch the Fund. Contribute to the Sustainable Development Goals (SDGs): SDG 3; and Target 3.a. Link to the workplan and budget item: Administration, and other arrangements and activities: Activity 5.2.2. Additional financial implications if not included in the workplan and budget: None. Related document(s): FCTC/MOP/2/INF.DOC/2 Protocol Investment Fund: General Questions and Answers. FCTC/MOP/2/12 2 BACKGROUND 1. The Bureau elected by the First Session of the Meeting of the Parties (MOP1) to the Protocol to Eliminate Illicit Trade in Tobacco Products has emphasized the need for the Convention Secretariat, to explore fundraising options to support implementation of the Protocol. 2. In decision FCTC/COP8(5), the Convention Secretariat was requested by the Conference of the Parties (COP) of the WHO Framework Convention on Tobacco Control (WHO FCTC) to make recommendations for the establishment and operation of a WHO FCTC Investment Fund, and to report to the Ninth Session of the Conference of the Parties (COP9) in order for the COP to decide whether or not to launch the Fund. 3. The idea to launch an Investment Fund to support implementation of the Protocol was considered during the virtual third Joint Meeting of the Bureau of the COP and the Bureau of the Meeting of the Parties (MOP) in December 2020. One of the potential benefits to establish a Fund for the Protocol, similar to the one proposed for the WHO FCTC, would be to ease the financial burden of the creation of a global information-sharing focal point required by the Protocol. 4. Having considered a report prepared by the Convention Secretariat, containing a first draft proposal for an Investment Fund to support implementation of the Protocol, at its fourth meeting, the Bureau requested the Convention Secretariat to further elaborate on the proposal for the MOP. 5. The Convention Secretariat is introducing the proposal, as requested, for consideration and discussion by the MOP. THE FUND 6. The Fund would address MOP needs for sustainable and predictable funding in an effort to increase available resources to implement the Protocol, on a voluntary basis, in addition to existing Assessed Contributions (AC) and existing or future Extra-budgetary Contributions (EB). Substantial funds are required to develop and implement a global information sharing focal point in order to develop national tracking and tracing systems within low- and middle-income countries, and it is expected that other funding priorities as established by the MOP would need to be addressed as the Protocol is in its early implementation stage. 7. An investment fund specific to the Protocol would constitute a mechanism through which Parties to the Protocol and approved stakeholders, subject to specific policies and according to relevant MOP decisions in relation to the Fund, may voluntarily choose to place funds into such an investment fund for a fixed period, while forgoing a return on their investment during that period. 8. The Fund will be complementary to existing sources of funding. It will provide simplified and predictable funding for allocation to activities in the MOP workplan and budget. The Fund will not be intended to serve as a substitute to AC or to replace existing or future EB provided bilaterally by Parties or other entities. 9. The assets will be solicited from Parties, based on their voluntary participation, and from other appropriate investors in the form of interest-free loans for a predetermined (five-year) fixed term. The invested funds will not be available for distribution; only the interest revenue from the investment of those funds will be available. During the investment cycle, earned interest from the fund will be credited FCTC/MOP/2/12 3 through the World Health Organization (WHO) to support the implementation of Protocol activities as directed by the MOP, through existing financial arrangements with WHO and in accordance with WHO Hosting Terms for the Convention Secretariat. At the termination of the predetermined investment period, the original capital funds received from investors will be repaid from the Fund, subject to market fluctuations at the time of withdrawal as prescribed by the investment agreement between the Fund Trustee and the investor. 10. The Fund is proposed to be hosted by the World Bank as the Fund Trustee. The administrative costs of managing and reporting on the Fund by the World Bank will be paid from the earned interest and will be calculated and deducted before the revenue is released for use to support implementation of the Protocol. In the event of a period of financial loss, the administrative and management costs will be extracted from the capital and replenished once the Fund is earning interest revenue. 11. Recognizing that synergies may exist between the proposed WHO FCTC Investment Fund and the proposed Fund for the Protocol, both investments may be co-hosted at the World Bank. Sharing the same management framework would capitalize on operational and managerial efficiencies. 12. Investment strategies will be determined under direction from the MOP, in line with WHO Financial Rules and Regulations, and applicable financial policies of the World Bank, 13. The establishment and operation of the Fund will be guided by clear objectives, policies and governance and operational arrangements as directed by the MOP. 14. The World Bank as the Fund Trustee will report, through the Convention Secretariat, to the MOP at each regular session, and to the Bureau of the MOP intersessionally, on the status of the Investment Fund in order to enable the MOP to take informed decision in relation to the Fund and the allocation of earned interest. 15. The structure of the Fund would provide that: • The capital of the Fund will be projected at US$ 25 million with a projected annual net return of 4.5%,1 resulting in an estimated annual revenue stream of approximately US$ 1 million. • The invested funds will be placed into a long-term (five- to 10-year) investment cycle in which the interest earned will be available on an annual basis. • In years in which the return exceeds 4.5% (or the projected/approved rate), the excess earned interest would be reinvested as a supplemental funding source for use in years in which a return of 4.5% is not realized, thus providing a level of funding stability. • Placing resources into the Fund is not obligatory for Parties, respects the sovereign rights of the Parties, and will not prevent or detract from the Parties paying their AC nor from providing EB through bilateral grant agreements with the Convention Secretariat. • There will be active efforts to identify and approach potential investors for the Fund. 16. The Fund will be subject to the principles as prescribed in Article 5.3 of the WHO FCTC and its Guidelines for implementation, the WHO Framework of Engagement with Non-State Actors (FENSA), 1 This rate is based on the averaged current average rates of return in existing WHO investment funds. FCTC/MOP/2/12 4 and measures to protect the Fund against the influence and interference by the tobacco industry and other vested interests of economic and commercial actors whose main part of business is related to the implementation of the Protocol. CONSIDERATIONS 17. Building on the development of the proposal of the WHO FCTC Investment Fund, and benefiting from consultations with Parties to the Convention in that process, the Convention Secretariat has revised and aligned the policy, governance and operational arrangements with the needs of the Protocol, as described in Annex 1 and further developed in FCTC/MOP/2/INF.DOC/2. 18. Considering the importance of the governance role of the MOP for the Protocol Fund, the MOP may wish to consider establishing an Oversight Committee, including one Party from each region, to liaise with the Convention Secretariat on the monitoring and implementation of policy and operational arrangements of the Fund, through virtual meetings as required. The Oversight Committee would provide advice and recommendations to the MOP and its Bureau in relation to the Fund, as part of or in conjunction with the reports of the Convention Secretariat. ACTION BY THE MEETING OF THE PARTIES 19. The MOP is invited to note this report and to provide further guidance. The MOP may wish to decide to launch the Fund with the World Bank as its proposed Fund Trustee, subject to the development of operational arrangements outlined in the draft decision attached as Annex 2. FCTC/MOP/2/12 5 ANNEX 1 PROPOSED INVESTMENT FUND FOR THE PROTOCOL TO ELIMINATE ILLICIT TRADE IN TOBACCO PRODUCTS: POLICY, GOVERNANCE AND OPERATIONAL ARRANGEMENTS 1. The Bureau elected by the First Session of the Meeting of the Parties (MOP1) to the Protocol to Eliminate Illicit Trade in Tobacco Products has emphasized the need for the Convention Secretariat to explore fundraising options to support implementation of the Protocol. 2. In decision FCTC/COP8(5), the Convention Secretariat was requested by the Conference of the Parties (COP) to the WHO Framework Convention on Tobacco Control (WHO FCTC) to provide recommendations for the establishment and operation of a WHO FCTC Investment Fund, and report to the Ninth Session of the Conference of the Parties (COP9). 3. Considering it as a matter of interest to the Meeting of the Parties (MOP), the Bureau of the MOP requested the Convention Secretariat to develop a similar proposal for the consideration of the MOP on the establishment of an Investment Fund to support the implementation of the Protocol. Its policy, governance and operational arrangements would follow the model of the proposed WHO FCTC Investment Fund. 4. The Convention Secretariat is introducing the proposal, as requested for consideration by the MOP, either as a stand-alone Protocol Investment Fund or one that would operate with synergies to the proposed WHO FCTC Investment Fund. A. OBJECTIVES AND GUIDING PRINCIPLES OF THE FUND 5. Objective: To establish an Investment Fund (with projected initial capital of US$ 25 million and an estimated annual return of investment of US$ 1 million) to provide sustainable funding to the MOP to implement the Protocol in alignment with MOP adopted decisions, workplan and budget. 6. Guiding principles: Guided by the objective and guiding principles of the WHO FCTC, the Fund will operate in a transparent and accountable manner, according to best practices of the WHO Corporate Risk Management Policy,1 the WHO Accountability Framework,2 the WHO Framework of Engagement with Non-State Actors (FENSA)3 and the United Nations-supported Principles for Responsible Investment.4 Fund-specific principles include: • Preservation of capital: Policies will only allow the spending of earned revenue subject to the availability of funds. While every effort will be made to preserve the capital, there is an 1 https://www.who.int/about/finances-accountability/accountability/corporate-risk-management-policy.pdf?ua=1. 2 https://www.who.int/about/who_reform/managerial/accountability-framework.pdf. 3 https://apps.who.int/gb/ebwha/pdf_files/wha69/a69_r10-en.pdf. 4 https://www.unpri.org/. FCTC/MOP/2/12 Annex 1 6 acknowledged risk to the investor’s capital, subject to prevailing market conditions; therefore, no guarantees exist for the full return of their capital investment. • Transparency: Information about decision-making and activities at all levels will be accessible to the MOP. • Active and responsible management: The management of the Fund will be flexible to adapt to shifting market conditions and to MOP priorities and respective decisions. • Leveraging funds: The Fund will leverage financial investments in the form of interest-free loans from multiple sources, guided by Article 5.3 of the WHO FCTC and its Guidelines for implementation, FENSA, in compliance with WHO Financial Regulations and Rules, and measures to protect the Fund against the influence and interference by the tobacco industry and other vested interests of economic and commercial actors whose main part of business is related to the implementation of the Protocol. • Commitment to do no harm: The Fund shall adhere to Article 5.3 of the WHO FCTC and FENSA, while avoiding and, as necessary, mitigating and addressing other possible economic, social and environmental adverse impacts of investment decisions. • Gender-sensitive investing: The Fund will integrate gender-specific considerations by placing funds into investments that promote gender equality and create positive gender-sensitive social and financial outcomes. • Independent management of the Fund: Fund investors will not have influence over the investment policies, the allocation of revenues or any decisions of the MOP in relation to the Fund. B. GOVERNANCE AND INSTITUTIONAL ARRANGEMENTS FOR THE FUND, INCLUDING THE RELATIONSHIP TO THE MOP, THE MOP BUREAU AND THE CONVENTION SECRETARIAT 7. The Fund is designated to operate as a financial mechanism under Article 26 of the Convention. As per Article 33 of the Protocol, the financial rules of the COP shall apply to the MOP, unless the MOP decides otherwise. As per Article 36 of the Protocol, Parties recognize the important role that financial resources play in achieving the objective of the Protocol, and acknowledge the importance of Article 26 of the WHO FCTC in achieving the objectives of the Convention. As per Article 3 of the WHO FCTC, the objective of the Convention encompasses its protocols. 8. As such, it functions under the direction of the MOP and is supported by the current Rules of Procedure of the MOP. • The MOP will guide the Convention Secretariat in establishing the policy, governance and operational arrangements of the Fund, including all matters related to policies, structure and institutional measures. Additionally, the MOP will approve allocation of Fund’s revenue to activities in the MOP workplan and budget, subject to availability of funds. • The MOP Bureau will provide guidance to the Convention Secretariat on implementing the policy and operational arrangements of the Fund, and the allocation of revenue to the workplan Annex 1 FCTC/MOP/2/12 7 and budget as decided by the MOP. The Bureau will submit reports, recommendations and, as necessary, draft decisions in relation to the Fund for consideration of the MOP. • The Convention Secretariat will establish, implement and monitor all policy and operational arrangements of the Fund, under the guidance of the MOP and the Bureau, by liaising with the World Bank as the Fund Trustee to provide all necessary information for the MOP to carry out its governance responsibilities in relation to the Fund. The Convention Secretariat will report on the performance of the Fund to the MOP, to investors and to designated stakeholders. • An Oversight Committee comprised of one Party representative from each of the six regions will remain abreast of activities of the Fund on behalf of the MOP and will flag concerns and provide intersessional updates to the MOP and its Bureau, as appropriate. C. LEGAL STATUS OF THE FUND AND ITS RULES OF PROCEDURES 9. The Fund will not be a legal entity. It will be a financial mechanism as provided for under Article 26(5) of the WHO FCTC, as relevant to the Protocol, which will allow the MOP to channel financial resources to implement the approved Protocol workplan and budget, subject to availability of funds. The Fund will be an administrative arrangement between WHO, lending its administrative, fiduciary and legal capacity to the Convention Secretariat to support implementation of MOP decisions and the Fund Trustee. To that end, an agreement will be concluded between WHO and the World Bank, similar to existing arrangements between WHO and the World Bank. Fund procedures will adhere to World Bank operational guidelines and agreements with investors. 10. The proposal that the World Bank is the Fund Trustee has been developed in consultation with, and on the advice of, the WHO Department of Finance, recognizing: (a) the efficiencies in commingling the Fund with larger investments managed by the World Bank; (b) the World Bank’s experience with the management of third-party funds; and (c) reduced management and administrative costs. The legal framework will reflect the application of the WHO Financial Regulations and Financial Rules, as adopted by the MOP, and in line with Article 33.4 of the Protocol, and the relevant financial and good governance policies of the World Bank. D. RULES FOR AND FUNCTIONS OF THE FUND HOSTING AGENCY 11. The Fund will be hosted at the World Bank as the Fund Trustee and will abide by WHO rules, the World Bank financial and good governance rules, and by specific policies deriving from provisions of the WHO FCTC, such the Article 5.3, FENSA, decisions of the MOP, and measures to protect the Fund against the influence and interference by vested interests of economic and commercial actors whose main part of business is related to the implementation of the Protocol. The Fund Trustee will administer assets of the Fund in accordance with the applicable legal framework and decisions of the MOP. This will include: • managing trading activities in compliance with the Fund’s objectives, guiding principles and specific investment strategy; • conducting analyses on the financial risks of the portfolio according to the risk and tolerance levels established by the MOP; • maintaining financial records and preparing financial/investment statements; and FCTC/MOP/2/12 Annex 1 8 • reporting to the Convention Secretariat, as scheduled. E. DEFINITION OF EXPECTED ADMINISTRATIVE COSTS 12. The goal of the Fund is to preserve the capital through sound fiscal and investment policies with low administrative costs. It is estimated that the overall administrative expenses will be approximately 3.75% of the earned revenue. Based on an estimated annual Fund revenue of US$ 1 million, the projected annual administrative costs are US$ 65 000. 13. The breakdown of the administrative costs are as follows: • External costs of administering the Fund including the annual administrative and management fees of the World Bank as the Fund Trustee, projected at US$ 15 000. • The Convention Secretariats administrative cost for managing the Fund is estimated at US$ 50 000 to support short-term contracts for periodic independent third-party evaluations of the Fund’s financial performance, or other related activities as approved by the MOP. 14. Administrative costs associated with managing the Fund will be financed by the earned interest from the Fund. In the first year of the Fund, the earned revenue will be set aside as surplus to offset administrative costs in subsequent years that may have low or negative income from the Fund. In the event that the Fund does not generate income in the first year, fees will be paid from the capital of the Fund with immediate replenishment to the capital once the Fund is generating earning income. F. DESCRIPTION OF POSSIBLE OPERATIONAL MODALITIES 15. The Fund will be complementary to existing sources of funding for Protocol implementation related activities. The Fund will not be intended serve as a substitute to Assessed Contributions (AC) or to replace existing or future Extra-budgetary contributions (EB) provided bilaterally by Parties or other entities. • Financial inputs: The Fund will build on unique sources of funding capital in collaboration with the World Bank. The Fund may receive voluntary financial inputs in the form of time- bound interest-free loans at the discretion of participating Parties to the Protocol. It may also receive financial inputs from other public and private sources that meet the requirements of Article 5.3 of the WHO FCTC and principles of FENSA, as decided by the MOP, or, in the intersessional period between meeting of the MOP, by the Bureau following recommendations by the Oversight Committee. While the optimal value of the Fund is projected at US$ 25 million, it may be initiated in advance of reaching its goal value, with operations and financial outputs adjusted accordingly. • Fund management: The World Bank as the Fund Trustee will manage the investment funds on behalf of the MOP according to prescribed strategies for investment and fund procurement, complying with MOP decisions related to the Fund, and applying the provisions of Article 5.3 of the WHO FCTC and its Guidelines for implementation, FENSA, and measures to protect the Fund against the influence and interference by the tobacco industry and other vested interests of economic and commercial actors whose main part of business is related to the implementation of the Protocol. Annex 1 FCTC/MOP/2/12 9 • Fund allocation: Aligning with the biennial cycle of the MOP, revenue from the Fund will be dispensed by the World Bank to WHO for the implementation of the Protocol as directed by the MOP. Allocation priorities are set by the MOP according to the approved activities in its workplan and budget. The Fund is expected to provide sustainable and predictable funding to supplement existing and future AC and EB. • Fund oversight: The Convention Secretariat will monitor the Fund operations, which are managed by the World Bank as the Fund Trustee, to ensure that the Fund operates in accordance with decisions and direction of the MOP. The Convention Secretariat will ensure that the MOP receives sufficient information (including from the Fund Trustee) to make informed decisions, under the guidance of the Bureau, following recommendations of the Oversight Committee. G. ENSURING COHERENCE WITH ARTICLE 5.3 OF THE CONVENTION, AND PROTECTION AGAINST VESTED INTERESTS OF ECONOMIC AND COMMERCIAL ACTORS WHOSE MAIN PART OF BUSINESS IS RELATED TO THE IMPLEMENTATION OF THE PROTOCOL 16. The Fund’s operational and financial policies will explicitly include an expectation of compliance with Article 5.3 of WHO FCTC to protect it against commercial and other vested interests of the tobacco industry or those who work to further its interests. The Convention Secretariat will establish a schedule to monitor that the administration of the Fund is compliant with these provisions, and report to the MOP and its Bureau on the Fund’s compliance with the provisions. Furthermore, the provisions of FENSA, and MOP decisions in relation to protection against the influence and interference by vested interests of economic and commercial actors whose main part of business is related to the implementation of the Protocol shall also be applicable. 17. The World Bank as the Fund Trustee has long been committed to tobacco control and has had an explicit global policy on tobacco since the 1990s, guided by a mandatory operational policy that precludes investing in tobacco production, processing or marketing. Incorporating the principles of Article 5.3 of the WHO FCTC will ensure alignment with the World Bank investment strategies. 18. Non-Party investors to the Fund will be assessed by the World Bank as the Fund Trustee to ensure that their investment does not conflict with Article 5.3 of the WHO FCTC or FENSA and will ensure protection against vested interests of economic and commercial actors whose main part of business is related to the implementation of the Protocol. If approved, they will be recommended by the World Bank to the Convention Secretariat. After review by the Convention Secretariat, potential non-Party funders would be approved by the MOP, or, as decided by the MOP, by the Bureau following recommendation by the Oversight Committee. Prior to providing funds, investors will sign an agreement that includes compliance with Article 5.3 of the WHO FCTC and safeguard measures specific to the implementation of the Protocol. H. RULES FOR FINANCIAL REPORTING AND FOR CONFLICT RESOLUTION Financial reporting 19. Financial reports shall be submitted in accordance with provisions contained in the WHO Financial Regulations and Financial Rules, and the Fund’s reporting schedule as decided by the MOP. Drawing on reports from the World Bank as the Fund Trustee, the Convention Secretariat will report on FCTC/MOP/2/12 Annex 1 10 the Fund’s activity to the Bureau and to the Oversight Committee, as well as to the MOP, to provide information required for implementation and further planning of the MOP workplan and budget. 20. Financial statements will include: • investments made; • net revenues of the Fund; • risk assessment and analysis; and • management and maintenance fees incurred. 21. Additionally, scheduled reporting will include: • compliance with applicable financial rules and policies, including Article 5.3 of the WHO FCTC and FENSA and measures of protection against vested interests of economic and commercial actors whose main part of business is related to the implementation of the Protocol; • inherent risks and any changes to risks or the level of risk; • prevailing market trends, investment diversification and projections on the Fund’s performance; and • review of the Fund’s financial performance relative to other World Bank-managed funds. 22. The Convention Secretariat will provide periodic reports to Fund investors on its financial performance and the resulting policy and programme activities supported by the Fund. Conflict resolution 23. The Fund’s administrative, fiduciary and legal framework, as well as operational arrangements, aim to prevent and mitigate potential disputes by Parties and/or investors. Furthermore, the Fund will be managed and invested in accordance with the Fund’s investment strategy, risk assessment and direction as established by the MOP. 24. For disputes between Parties concerning the interpretation or application of the Protocol and the WHO FCTC, including the establishment and implementation of the Fund in accordance with Article 26.5 of the WHO FCTC, Article 27 of the WHO FCTC on the Settlement of Disputes applies in accordance with Article 37 of the Protocol. Common disputes between Parties concerning the use of funds are minimized by recognizing that the use of the funds is decided by the MOP in its adoption of the workplan and budget. 25. Any differences of opinion about the management of the Fund by the World Bank will be addressed according to the agreement between WHO and the World Bank in relation to the Fund arrangements, which will include standard contract language used by WHO for the settlement of potential disputes: Any dispute relating to the interpretation or application of the Agreement shall, unless amicably settled, be subject to conciliation. In the event of failure of the latter, the dispute shall be settled Annex 1 FCTC/MOP/2/12 11 by arbitration. The arbitration shall be conducted in accordance with the modalities to be agreed upon by the parties or, in the absence of agreement, with the rules of arbitration of the International Chamber of Commerce (or the United Nations’ Commission on International Trade Law Arbitration Rules (the “UNCITRAL Arbitration Rules”). 26. Disputes brought by investors will be addressed by the World Bank in accordance with standard language used by the World Bank in agreements with all investors. This includes disclaimers that invested funds can increase or decrease in value based on market performance and that information on past performance is not necessarily a prediction of future performance. I. MONITORING AND EVALUATION 27. The implementation of activities in the MOP workplan and budget that are supported by the Fund will be monitored by the MOP and its Bureau on the basis of regular reports by the Convention Secretariat. The reports will include analysis of impact, efficiency and effectiveness of the operations of the Fund. 28. The Convention Secretariat will contract periodic independent, third-party evaluations in relation to the functioning of the Fund, funded from the Fund’s revenue and subject to the availability of funds. The evaluations will review the Fund’s financial performance, including the use of funds in alignment with the Protocol workplan and budget, to provide an objective estimate of its effectiveness and efficiency to support implementation of the Protocol. The independent evaluations will be provided to the Bureau and to the Oversight Committee, and they will be reported to sessions of the MOP to inform decision-making and identify lessons learnt. 29. The frequency and types of evaluation will be dictated by the needs of the MOP. J. APPLICABLE FIDUCIARY STANDARDS AND ACCOUNTABILITY MECHANISMS 30. Fiduciary standards of the Fund investment mechanism are assured by having the World Bank serve as the Fund Trustee due to its comparative strengths in financial and risk management. The World Bank as the Fund Trustee will administer the Fund and manage the placement and stewardship of the Fund in the marketplace, with a fiduciary duty to act both legally and ethically in the best interest of WHO, and supporting the objectives of the WHO FCTC and the Protocol in line with MOP decisions, the objectives and guiding principles of the Protocol, and specifically Article 5.3 of the WHO FCTC. Considering that WHO lends its administrative, fiduciary and legal frameworks to the Convention Secretariat, the WHO Regulations and Rules equally apply as relevant, and as agreed with by the World Bank. 31. In relation to allocation and use of revenue, MOP decisions apply. The Fund will provide financial resources to respond to priorities identified and approved by the MOP, in a process that is transparent to all Parties. 32. The Convention Secretariat will monitor the development and implementation of best practices and fiduciary standards of the Fund, in consultation with WHO and based on the expertise and reports by the World Bank as the Fund Trustee, and report to the MOP and its Bureau, as well as the Oversight Committee, as relevant. FCTC/MOP/2/12 Annex 1 12 K. MECHANISMS FOR WITHDRAWAL FROM OR THE TERMINATION OF THE INVESTMENT FUND Withdrawal of investor funds 33. The Fund will be built on loans from multiple investors to reduce the impact of an investor who wishes to withdraw funds early. Rates and penalties for withdrawal of funds will form part of the agreement between the World Bank as the Fund Trustee and investors in an effort to discourage investors from withdrawing funds in advance of the timelines established in the agreement. 34. At any time after two years from the date on which an investor enters into agreement with the World Bank as the Fund Trustee, the investor may request early withdrawal from the Fund by giving written notice of not less than six months to the Fund Trustee. The Fund Trustee will duly and promptly inform the Convention Secretariat. Any such withdrawal will be subject to penalties as prescribed by the Fund Trustee in accordance with the agreement between the World Bank as the Fund Trustee and the investor. 35. The original capital received from the investor will be repaid from the Fund, subject to market fluctuation at the time of withdrawal as prescribed by the agreement between the World Bank as the Fund Trustee and the investor. Termination of the Fund 36. As the Fund is a financial mechanism provided for under Article 26(5) of the WHO FCTC, as applicable to the Protocol, the MOP may decide to terminate the Fund and its associated financial activities, following a recommendation by the Bureau, or as it considers appropriate. 37. Reference to the prerogative of the MOP to terminate the Fund will be included in the agreement between WHO and the World Bank in relation to the Fund and in the respective agreement between the World Bank and the investors. 38. The World Bank will terminate the Fund, if and as decided by the MOP. The initial amount provided by investors will be returned to them, subject to the terms of agreement. Any surplus funds will be provided through the WHO for allocation to implementation of WHO FCTC, in accordance with decisions of the MOP. L. LEGAL, FINANCIAL, GOVERNANCE OR ANY OTHER POTENTIAL SAFEGUARDS FOR THE MOP, INCLUDING MATTERS ON LIABILITY 39. The design of the Fund aims to provide a source of sustainable and predictable revenue while reducing the risk of liabilities resulting from unintended consequences and/or performance shortcomings of the Fund. On launching the Fund, and at the direction of the MOP, the Convention Secretariat will embed comprehensive risk management strategies, operational policies, and strategic investment policies into the design and operation of the Fund, to be further developed in consultation with WHO and the World Bank. 40. The Convention Secretariat will monitor, under the guidance of the Bureau and following recommendations by the Oversight Committee, the implementation of the policy and operational arrangements of the Fund and its related compliance with the objective, guiding principles and Annex 1 FCTC/MOP/2/12 13 applicable frameworks of the Fund to guard it against potential legal, financial and governance issues. The MOP will benefit from regular reporting on the implementation of ongoing risk assessment and sound investment management strategies, as approved for the Fund, and the application of the following safeguards: (i) Allocation of revenue from the Fund will be based on the actual interest earned and provided to the WHO FCTC, not on projected or anticipated future earned revenue. (ii) For the initial year and during years of high-earning interest, surplus revenue will be reserved to offset years of negative or low returns on investment or to cover any unanticipated expenses. (iii) The experience of the World Bank as the Fund Trustee provides the MOP with a global analysis of economic growth and political instability as it relates to any major risks to the Fund investment strategy. (iv) Finally, the administrative, fiduciary and legal frameworks applicable to the Fund will be applicable, in accordance with MOP decisions and with respect to arrangements concluded between WHO and the World Bank, preserving the application of WHO Regulations and Rules as applicable to the Convention Secretariat and adopted by the MOP. FCTC/MOP/2/12 14 ANNEX 2 DRAFT DECISION: INVESTMENT FUND FOR IMPLEMENTATION OF THE PROTOCOL TO ELIMINATE ILLICIT TRADE IN TOBACCO PRODUCTS The Meeting of the Parties (MOP): Recalling the objective of the Protocol to Eliminate Illicit Trade in Tobacco Products, Articles 4.1(f) (General obligations) and 36 (Financial resources) of the Protocol, as well as Articles 5.6 (General obligations) and 26 (Financial resources) of the WHO Framework Convention on Tobacco Control (WHO FCTC); Recognizing the importance of financial resources to support the implementation of the Protocol, including the establishment of a global information-sharing focal point, in accordance with Article 8 (Tracking and tracing); Welcoming the report of the Convention Secretariat contained in document FCTC/MOP/2/12, in response to the request by the Bureau of the MOP to explore funding opportunities in line with the proposal for the establishment and operation of a WHO FCTC Investment Fund, as requested in decision FCTC/COP8(5) by the Conference of the Parties to the WHO FCTC, 1. DECIDES: (a) to launch an Investment Fund to support implementation of the Protocol as per the policy, governance and operational arrangements contained in Annex 1 of document FCTC/MOP/2/12; (b) to designate the World Bank as the Trustee to the Protocol Investment Fund; 2. REQUESTS the Convention Secretariat: (a) to make the necessary arrangements to launch the Fund in an expedient manner; (b) to work with the World Health Organization (WHO) to establish the necessary legal and administrative arrangements between the WHO and the World Bank to serve as Trustee to the Fund; (c) to make the necessary arrangements, in consultation with WHO and the World Bank as the Fund Trustee for the finalization and implementation of specific policies, as relevant, to operationalize the Fund, including but not limited to financial policies, rules of investment, institutional arrangements, risk management provisions, and administrative and logistical support to the Fund; (d) to facilitate the establishment of an Oversight Committee, comprised of one Party from each WHO region, to provide support to the MOP and its Bureau in the governance of the Fund; Annex 2 FCTC/MOP/2/12 15 (e) to work towards securing investors for the Fund, in accordance with Article 5.3 of the Convention and its Guidelines for implementation, WHO Framework of Engagement with Non- State Actors, measures to protect the Fund against the influence and interference by the tobacco industry and other vested interests of economic and commercial actors whose main part of business is related to the implementation of the Protocol; (f) to submit a report to the Third Session, and subsequent regular sessions, of the MOP, on the operations of the Protocol Investment Fund. = = =