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Control corporate corruption by training supply chain partners

Posted: 05 Jan 2015 ?? ?Print Version ?Bookmark and Share

Keywords:Dow Jones? corruption? bribery? FCPA? SEC?

Amid the prevailing notion that corruption is inevitable, a number of companies have set in place specific corporate programs that improve compliance in global supply chains through anti-corruption training of third parties. To say that corruption risk is a problem is an understatement. A problem it is and solutions are being formulated to address this issue.

In the fiercely competitive global economy few companies are wholly self-contained. Across industries, firms have partners to provide specialised knowledge, less-costly labour, 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.

Rising incidence of corruption in the supply chain

Sixty per cent 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 that 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 per cent 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 per cent did not provide any such training to business partners or otherwise require them to train their own employees.

Lack of training breeds corruption

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

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