Ten Things General Counsel Should Consider When Examining Anti-Bribery and Corruption Practices in Global Supply Chains

By Warrick Beaver, Managing Director for Customer & Third Party Risk at Thomson Reuters

 

Bribery and corruption, money laundering and slavery and human rights abuses are just among a few risks affecting global supply chains. In today's business environment organizations can be held responsible for both their internal conduct as well as that of the third parties they are associated with. A third party could be any person or organization that is connected to your organization's supply chain or is executing business on your organization's behalf such as a supplier, distributor, agent and/or partner. In addition there is an increasing trend for extra-territorial legislation where organizations are held accountable for actions of overseas partners which require increased oversight and understanding. From keeping up to date with changing regulations, to providing proof that due diligence and compliance programs are in place to the need of an immediate response and contingency plans -  the role of General Counsel is crucial in relation to anti-bribery and corruption (ABC) practices within the company and across global supply chains.

So what are top ten things General Counsels need to consider in relation to anti-bribery and corruption practices in global supply chains?

The regulatory environment is changing. Until recently third party risk has been mainly focused on reputational risk factors. But recent enforcement under legislation, such as Foreign Corrupt Practices Act (FCPA) and UK Bribery Act (UKBA), has started the shift from reputational to regulatory risk. More requirements are now being placed on organizations when it comes to ensuring supply chain integrity. Questions around how "deep" into supply chains businesses are actually looking is driving companies to be more transparent in demonstrating all the steps they are taking to mitigate and manage risk. In addition, guidelines such as the Organization for Economic Co-Operation and Development (OECD) Guidelines for Multi-National Enterprises and United Nations (UN) Guiding Principles on Business & Human Rights already expect companies to have a robust cross cutting approach to supply chain due diligence. The role of General Counsel in keeping abreast of domestic and international legislative changes is crucial for third party relationship management.

We are at a new era of transparency - "nowhere to run, nowhere to hide". Consumer perceptions are changing - transparency is expected and lack of transparency will not be tolerated, the media storm around the Panama Papers is an excellent example of that. Although there is legitimate use for offshore companies, foundations and trusts, organizations will be under more pressure by international regulators and public opinion to understand who they are really dealing with. Entering into a contract or business relationship with a company without full knowledge of beneficial ownership (past or present) could introduce a significant risk to an organization.

Knowing who you are doing business with is crucial to avoid exposure to reputational and regulatory risks. Increased scrutiny in the financial sector has created a far greater requirement for regulated entities to understand exactly who they are doing business with. With global multi-tier supply chains the process is much more complex and it is often the case that organizations don't have transparency beyond the first tier when in fact risk could lie in the deeper tiers of the supply chain. A study of senior UK supply chain managers and procurement professionals carried out by Chartered Institute of Procurement & Supply in May 2015, found that only 11% of businesses reported that they have relationships with suppliers at all stages in their supply chain. As General Counsel's role is expanding into enterprise risk management, it is important that they have control on information or business operations involving third parties.

 

Global corruption and bribery costs trillions of dollars every year - money that could be used to fight poverty, create jobs, and protect the environment, according to International Monetary Fund (IMF). Our analysis and research regarding this topic has revealed that corruption often correlates to other crimes such money laundering and slavery. Experience has shown that there is a chance that businesses that are willing to act in a corrupt or improper manner are also more willing to take more risks with health and safety, environmental protection, labor laws and personal freedoms. Therefore it is important for organization's to adopt a holistic approach to supply chain risk management rather than work in silos.

A robust anti-bribery and corruption policy is the starting point for any organization. Organizations that are proactive, well-equipped and knowledgeable can implement anti-corruption measures to strengthen their brands and conduct business with integrity. The policy should be effectively communicated both internally and externally (to suppliers, business partners and other third parties) and training provided to anyone working within a higher risk function. Implementing an effective ABC policy provides numerous benefits - from enabling a more efficient business environment to promoting a healthy and effective organizational culture. At the global level, these policies underpin government action to tackle corruption as businesses are more and more recognized in driving transparency.

It is important that an organization performs an adequate level of third party risk assessment relative to the level of risk you have determined is present. Standard inquiries include ultimate beneficial owners, anti-corruption compliance and risk management controls, incident management and reporting and conflicts of interest. Organisations should be aware of their material impacts and put the appropriate resources in place to address them. This should include standard policies and systematic processes.

Research has shown that a 'check-the-box' approach is not only inefficient but also ineffective. Each ABC compliance program should be tailored to an organization's specific needs, risks and challenges. If designed carefully, implemented earnestly and enforced fairly, a company's compliance program - no matter how large or small the organization - will allow the company, generally, to prevent violations, detect those that do occur, and remediate them promptly and appropriately. Leading companies are already harnessing data from deep within their supply chains to enable more robust risk management and resilient supply chains. It is the companies that monitor and truly understand the third parties they are doing business with that are able to quickly assess and mitigate risks. In addition these companies are also empowered to identify positive trends and replicate best practice.

The overall management of vendors who enter a contractual relationship with your company through the supply chain is something that requires several corporate disciplines. The integration of the management of that risk into the overall process of your organization is key to properly managing the risks. Compliance planning and integration with and visibility into supply chains are an important step in any best practice ABC compliance program. General Counsel can plan a significant role in connecting the silos within an organization by dealing with complex, significant matters that cut across legal and related areas.

Ongoing review and assessment of the contractual relationships is crucial - if new or greater risks arise and they have not been previously addressed, you may need to review your contract terms to address these concerns going forward. In addition to your standard anti-corruption compliance terms and conditions, you should consider Key Performance Indicator (KPIs), confidentiality terms and conditions and sub-contractor requirements. Ongoing monitoring of all third party relationships is essential because as relationships change so could the level of risk. Your organization should oversee and pro-actively monitor and review each third party relationship at a level commensurate with risk and ensure that issues are identified and appropriately escalated for remediation. The General Counsel plays an important role in improving access to remedy as outlined in the UN Guiding Principles on Business and Human Rights. It is important for companies to be aware of remediation guidelines and have grievance mechanism that can be used by individuals, workers and communities that are being negatively affected by certain business activities and operations.

 

Companies can make their supply chain a competitive differentiator. Transparent supply chain enables a company to react faster than its competitors. To survive in this changing world with changing regulation and a complex geopolitical environment companies need to be mission ready. General Counsel is a key player in creating high performance with integrity within the organization and driving transparency within supply chain.

Doing business with integrity and transparency is becoming increasingly expected and we foresee in the future that those companies who do so will be rewarded by their customers, suppliers, consumers, employees and investors. Siloed, fragmented data and separate systems with a lack of a holistic structure, standards, knowledge, people and programs could lead organizations to be vulnerable to third party risks. General Counsels have a crucial role in mitigating negative reputational and financial impacts before they occur and helping business to get ahead of the game. Organizations that are proactive, well-equipped, and knowledgeable and take action on compliance issues can strengthen their brand while doing business with integrity.

Thomson Reuters for Anti-Corruption (brochure)

Examining anti-bribery and anti-corruption practices in the supply chain (White paper)

Enforcement of anti-bribery & anti-corruption legislation globally (infographic)

How can a supply chain be your competitive advantage? (video)

About the Author Warrick Beaver is the Managing Director for Thomson Reuters Customer & Third Party Risk where he leads Thomson Reuters third party risk management propositions including World-Check. Customer & Third Party Risk is one of the fastest growing sectors in the Thomson Reuters Risk segment. Previously he was the global head of Human Resources for Thomson Reuters Risk business, a role he held since August 2013. Warrick has worked for over 20 years across a multitude of industries and geographies. At the executive or board level, either as director, manager or consultant, he has helped leadership teams manage and develop their business agendas across a variety of cultural, legislative and economic environments.