There are many losers in the “game of corruption”
The evil arm of corruption doesn’t end with the guilty parties involved inside an organization. It can have a negative impact on investors too. A company can be paralyzed by anti-corruption investigations resulting in losses to their investors – share prices fall, fines are assessed, legal costs soar. Investment interests add up to billions so to protect investments, shareholders are pressing more and more for companies to implement strong anti-corruption compliance programs to address corruption and mitigate the legal, financial, and reputational harm this activity brings.
With the increasing frequency and expanding scope of enforcement globally, organizations need to devote plenty of attention to anti-corruption due-diligence of third-parties that they engage globally. Just because an existing attitude of ‘this is how we do things here’ exists, doesn’t mean that’s how business should be conducted between you and your third-party.
The risks stemming from bribes and corruption rank among the largest risks that organizations can face. Direct financial impact can be devastating when penalties reach into the hundreds of millions of dollars – not to mention the damage to brand and reputation. Violations of regulations such as the Foreign Corrupt Practices Act (FCPA) or the UK Bribery Act can mean substantial penalties, lengthy and damaging investigations, and customer and sales losses. This is no game.
You can’t always roll two sixes. Bribery and corruption will catch up with you
To stay ahead of potentially devastating corruption investigations and enforcement, it is likely that investors will continue to demand that companies adapt and report on their anti-corruption policies. Corruption can also signal other corporate crimes or policy weaknesses and vulnerabilities within an organization. If a company is turning a blind eye to bribery and corruption, what other activities are also hiding in plain sight? If there’s an internal culture that allows huge risks to be taken in an effort to make big money, does harassment and abuse also get swept under the rug? Discrimination? Retaliation? This doesn’t sit well with investors or regulators.
Corruption can devastate a company and its stakeholders. Stock prices drop, management is shown the front door, investors take significant losses due to a company’s actions. Some investors have filed class action law suites against firms for misleading them.
Organizations can protect themselves from risks of bribery and corruption. Investors will continue to push for greater financial transparency and disclosure of their clients’ activities to determine relevant corruption risks. They have pressed companies to implement stronger anti-corruption controls in the wake of recent bribery scandals.
So it’s important that companies take the time to implement the tools needed to mitigate risks. They can’t afford to ignore the unfortunate examples set by past cases. Companies need to stay ahead of potentially devastating corruption investigations and enforcement.
They also need to take the time to assess their third-parties. Third-party corruption charges can bring a company to its knees. The value of due diligence is immense. It provides “red flags” that a particular third-party may be a source of risk. It also helps to satisfy an effective anti-corruption compliance program from the perspective of enforcement agencies and investors. Additionally, effective due diligence may mitigate potential penalties.
The purpose of third-party due diligence against bribery and corruption is to determine whether your third-parties can be reasonably expected to comply with anti-corruption laws in the future after they are hired. By examining their experience, professional reputation, allegations of corrupt activity and the nature and frequency of contacts with potentially corrupt government officials, an assessment can be made and red flags can be identified. It’s an important tool in the anti-corruption arsenal that investors look for and demand!
Download a whitepaper on the role of due diligence in anti-corruption compliance.