Advertisement

Blog

Companies Curb Corruption Risk by Training Supply Chain Partners

Corruption is sometimes portrayed as an unavoidable problem, or a cost of doing business, especially when working with partners in distant developing economies. But a handful of new corporate programs aim to improve compliance in global supply chains through specific anti-corruption training of third parties. Enforcement trends suggest that other companies would be well advised to follow suit.

In the fiercely competitive global economy few companies are wholly self-contained. Across industries, firms have partners to provide specialized knowledge, less-costly labor, market access, resources, or products. It can be challenging to keep track of what all these partners are doing day-to-day, particularly when there are dozens, or hundreds, of them operating in various nations.

With respect to corruption, many companies — even those with well-developed anti-corruption programs internally — have little idea how their partners are doing compliance-wise. And surprisingly few have clearly communicated anti-graft requirements and expectations to these partners.

The risk from corruption in the supply chain is mounting
Sixty percent of US Foreign Corrupt Practices Act (FCPA) cases in 2012 and 2013 involved bribes paid by third parties, according to the head of the Securities and Exchange Commission (SEC) enforcement division, as reported in the January 2014 FCPA Digest by Shearman and Sterling.

In earlier years, that proportion has been even higher.

The legal landscape is also getting more complex. The FCPA is now just one of many anti-corruption laws. Dozens of other nations have proposed or passed new legislation to prohibit bribery, among them the UK Bribery Act which is arguably more stringent than the FCPA.

Most companies try to mitigate the risk of corruption by business partners in some way, very often by conducting due diligence prior to entering into a contract, and using contract provisions that allow for termination of the agreement in the event of corruption. A small number regularly monitor third parties to verify their compliance with anti-corruption rules — fewer than 20% of 383 companies that responded to the Dow Jones Risk & Compliance 2014 Anti-Corruption Survey.

Training business partners in anti-corruption practices is also still uncommon. The Dow Jones Survey also found that 65% did not provide any such training to business partners or otherwise require them to train their own employees.

A survey conducted by Kroll/Compliance Week found 47% of 300 large, multinational companies did not train business partners on anti-bribery and corruption efforts. What is striking is that 50% of these respondents said that they expected their companies' bribery and corruption risks to increase in the coming 12 to 18 months.

But it stands to reason that anti-corruption programs will not be effective unless they are clearly communicated to and understood by all who are expected to follow them.

A small but growing set of companies are putting in place more proactive anti-corruption programs for third parties. Efforts by Swedish technology giant Ericsson, Microsoft and Cisco in the United States and global engineering and construction company Fluor suggest a variety of ways to conduct these capacity building programs.

Microsoft requires annual anti-corruption training for employees of partners who “resell, distribute, market or otherwise dispose of Microsoft products.” Partner organizations can tailor their own training on anti-corruption laws to meet Microsoft's requirements. Otherwise, the partner's employees can take an online training course provided by Microsoft at no cost.

Fluor has spearheaded a number of international anti-corruption training and awareness initiatives. In partnership with the American Society of Civil Engineers (ASCE) it developed ETHICANA, a training video that dramatizes the devastating effects of corruption in engineering and construction projects. The film and accompanying training materials geared for corporate and university instruction is available in 28 languages.

The case for training has become more compelling as enforcement authorities have started considering these programs as a factor in corruption cases. When a company is under investigation for corruption by its business partners, according to a resource guide by the US Department of Justice (DOJ) and Securities and Exchange Commission (SEC) — the agencies that enforce the anti-corruption law — “will evaluate whether [a company] has taken steps to ensure that relevant policies and procedures have been communicated throughout the organization, including through periodic training and certification for all directors, officers, relevant employees, and, where appropriate, agents and business partners.”

Indeed, anti-corruption training at least for high risk third parties, is now routinely included in FCPA settlement agreements among compliance “best practices.” Requiring settling companies to train agents and business partners “where necessary and appropriate” traces to the Panalpina case, settled in 2010, in which the Swiss logistics company admitted to paying $27 million in bribes to government officials on behalf of oil industry companies.

The UK Bribery Act Guidance reflects a similar trend, noting that in the context of ensuring that a company has “adequate procedures” in place to prevent bribery, “it may be appropriate to require associated persons [which can include agents] to undergo training.”

Companies cite many reasons for not wishing to conduct anti-corruption training with critical third parties. The perception that such a program will be too costly is at the top of the list, though this issue can be overcome through use of technology and online resources, as some of the pioneering companies are demonstrating.

On occasion, business partners may be reluctant to accept training, so it may be best to require it as a condition of doing business.

The reality is that the balance is tipping. There is greater risk in ignoring the actions of third parties — and keeping at a distance — than in pulling them close and imparting anti-corruption practices, loud and clear. And in the long run, it is the healthier path for the companies involved, and for the interconnected global economy.

1 comment on “Companies Curb Corruption Risk by Training Supply Chain Partners

  1. prabhakar_deosthali
    December 17, 2014

    Corruption has been the root cause in creating parallel economy in many a countries.  This parallel economy at times becomes so powerful as to be able to change the governments.

    Many a underworld activities also get funded through such parallel economy.

     

    Hence it is the duty of each business to enusre that its partners are not party to such illegal activities.

     

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.