Benchmarking Bribery and Corruption: "Vet it and forget it."

by Richard Bistrong, Anti-Bribery Consultant & Speaker
Contact

On my own "must read" stack has been sitting the "2014 Anti-Bribery and Corruption Benchmarking Report, Untangling the Web of Risk and Compliance," ("ABC Report") by Kroll and Compliance Week.  While I have read a multitude of bribery and corruption enforcement summaries, mostly published by law and audit firms, this was my first read of a compliance benchmarking report. Interestingly enough, upon completion, I thought about whether sharing my own experience and perspective with respect to the findings could actually add any value or relevancy to what is already an impressive and extensive report. 

Accordingly, a disclaimer: When I think about the experience and expertise of Kroll and Compliance Week, along with the resources deployed to publish this report, I call attention to my own viewpoint as intersecting but a small part of the overall scope of their collaborative effort. Hence, when I reflect on the report’s findings, it is solely in the context of my own experience with third party intermediaries, as a subset of third party vendors, and anti-bribery compliance as a subset of corporate compliance. In other words, my personal familiarity only overlaps some of the many issues covered in the Benchmarking Report.

As the ABC Report states in the introduction "we hope you find the information here useful and that it can serve as a guidepost for your efforts to understand how corporate compliance works best in your company," Thus, I hope that by sharing my own limited perspective, that I might also add some value to that same understanding. Ok, as this is a post about compliance not caveats, lets review:

The report sets out to:

•       To provide compliance officers a "comprehensive view of the ABC  risks they have.”

•       To identify “the resources they have to fight them.”

•       And to demonstrate "how those resources are implemented into compliance programs.”

Two findings (among others) which were mentioned in the executive summary and which I will also focus upon are:

•       The challenge that  "third parties continue to vex compliance officers."

•       The dynamic that  "monitoring anti-corruption efforts on a continuing basis is weak."

"Taming Third Parties" as "the bane of anti-corruption programs." 

As the report states "taming third-party risks continues to be a major weakness for anti-corruption programs, and the problem may well be getting worse." Furthermore, there are a number of foundational hazards in third party assessments and on-boarding procedures that may amplify those difficulties.  A few of those challenges which I see as prevalent both before and during  the on-boarding process are:

  • "It's not my law" syndrome. There is an attitude among some third parties whereby they do not consider themselves as signatories or responsible to anti-bribery laws and acts. Thus, such intermediaries will have an attitude of "the law does not apply to me," or worse, "it is legal here." Where that corrupt approach exists before a relationship is even formalized, there is great peril for all involved.  Those third parties which look at the vetting process with “corrupt intent” and which do not seriously undertake the legal obligations as put forth in investigatory and vetting processes, will simply do and say "whatever it takes" to get representation and corporate agreement finalized.   

In addition, where local data and in-country vetting resources which are in place may also be corrupt, surfacing the ill will of such third parties who talk a good game of “compliance” might be difficult, even with the best intentioned assessment protocols.  As Mr. Matteson Ellis states, in such areas, corruption “might be baked into the economic order.” *

  • Collusion with an internal sponsor.  When an internal business sponsor, e.g. country manager, sales manager, etc., recommends an intermediary for onboarding, be additionally mindful of incentives, and the relationship between the sponsor and the intermediary. As Scott Killingsworth explains  “it is not just difficult, but impossible, to be truly objective about a decision when we have a significant interest in the outcome.”** In my experience, where companies do not look into the motives behind such internal endorsements, companies would be well advised to listen to Mel Glapion, Managing Director, Kroll,  and think about “sharpening the saw, and improving the processes and measuring that information that’s coming back to you.” 

Indeed, when you have an internal sponsor who recommends a third party for on boarding, and who has a personal financial incentive for "short term success," the risk of collusion between the sponsor and the intermediary during the vetting process dramatically increases. When that occurs, detection of corruption is severely hampered. In some cases, the company sponsor might actually "coach" the third party through the assessment process in order to insure the successful vetting of the intermediary. Such coaching might include the sponsor assisting in the completion of third party self-assessment paperwork and exams,  sharing confidential information about investigatory protocols, and overall interference in the onboarding process.

Due diligence and the life of a relationship

While the report points to a positive trend in terms of companies that are conducting due diligence on third parties, the contributors focus on an element of caution in that "compliance officers were more confident in their ability to vet third parties at the start of a relationship, and less confident in monitoring third parties once that on boarding examination had passed." In fact, the report shows the troubling statistic that "the numbers marched downward for monitoring compliance after a relationship starts (43.3 percent), auditing compliance of third parties (33.2 percent) and training third parties on anti-bribery and corruption procedures (30 percent). “ That is a trend fraught with great liability. Why?

  • Impact of regime change.  As Mr. Glapion, states, "people give good, very positive political statements about what they're doing, but if you scratch a little bit harder, what you see is that the follow-through doesn't support it." Or, as stated in the title "vet it and forget it." While Mr. Glapion recommends a four-year review and audit cycle, I would add that in regions with low integrity reputations, and where there is a regime change, such an event should trigger an automatic re-vetting protocol.  

Governmental turnover in politically unstable countries can often result in a change in the relationship between third party representatives and government officials. As newly appointed public officials take their place in the Ministries and bureaucracies, prior corrupt relationships between intermediaries and their new “friends in power” now come to resurface. Such a change in regime can dramatically  increase  corruption risk, with the potential consequence that today's "clean" intermediary could become tomorrow's "corrupt" one, as this  renewed relationship now comes into play with respect to future business and transactions.

Mr. Ellis refers to the hazards of such  "touch points" with government officials and state-owned employees as where “the incentives to manipulate the process can be great.” Thus, bribery risk is not necessarily a constant in the life of a relationship with an intermediary.  In low integrity regions with “weak government institutions” (see Ellis), risk can change abruptly, with a well-vetted legitimate business relationship in the past turning into to corrupt one without warning, and worse, the corporation is left unaware of this newfound exposure.

For an entity which "vets and forgets" this is a dynamic which can occur when the assessment process is not repeated after regime change or at least on a regular interval, as the ABC Report recommends.  In my experience, the higher the risk, as measured by the regional or country corruption index, as well as the market  (in terms of exposure to public officials), the greater the need for repeat due-diligence reviews through either event triggers or articulated time intervals. Fact patterns are often not enough to serve as future indicators, as changes of regime or ruling party can have a significant impact on corruption risk.

As Mr. Glapion recommends, corporations would be well advised to incorporate a process which commands, lets "go and audit some of the companies that either we reviewed three years ago or have been third parties of ours for a long period of time." It is like those commercial disclaimers on well performing mutual funds as "past performance is not indicative of future trends." In addition, as the report indicates, there is no symmetry between bribe and consequence, and investment in compliance over the long term "pales in comparison to regulatory fines that can hit hundreds of millions should a bribery offense go undiscovered."

In conclusion, as the ABC Report states, “without that fundamental effort to figure out what risks a company faces, building an effective compliance program to address those risks becomes more difficult.” Hopefully, I added some value to that effort by focusing on the reality that some intermediaries don’t take anti-bribery and corruption laws seriously, that they might collude with internal sponsors to circumvent  vetting processes, and that regime change can have a significant impact upon where an intermediary might “sit” on the continuum of corruption. How to deal with these potential gaps I leave to the experts, and would naturally welcome  and invite comment.

* “Regional Flavor: Crosscutting Corruption Issues in Latin America” chapter eight: How to Pay A Bribe 2014 (Wrage, Alexandra Addison). Mr. Ellis is Special Counsel, Miller & Chevalier.

** Killingsworth’s complete paper, ‘C’ Is for Crucible: Behavioral Ethics, Culture, and the Board’s Role in C-Suite Compliance, is available as a free download at http://ssrn.com/abstract=2271840.  Scott Killingsworth is a Partner, Bryan Cave.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Richard Bistrong, Anti-Bribery Consultant & Speaker | Attorney Advertising

Written by:

Richard Bistrong,  Anti-Bribery Consultant & Speaker
Contact
more
less

Richard Bistrong, Anti-Bribery Consultant & Speaker on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!