In the age of specialization, many organizations turn to intermediaries to do business – especially as “feet on the ground” in foreign countries. They take the form of partners, suppliers, distributors, or agents, and large organizations can have 1,000s doing work on their behalf at any time.
But, what if they engage in corrupt or illegal business practices? In some places in the world, practices such as bribery, money laundering, bid-rigging, and price fixing are considered in the normal course of doing business. A global E&Y survey of Chief Compliance Officers found 39% of respondents reported that “bribery or corrupt practices occur frequently in their countries, and in emerging markets, a majority of respondents believe these practices are common.”
Another interesting fact comes from a study conducted by the Organisation for Economic Co-operation and Development (OECD), which found that 75% of bribery-related incidents involve payments made through intermediaries.
The reality is that if your intermediary is exposed engaging in one of these activities while working on your behalf, you can be at significant risk. Whether you are made aware of the activity or not.
The laws addressing anti-bribery and corruption violations include the Foreign Corrupt Practices Act (FCPA) of 1997, the UK Bribery Law of 2010, OCC 2013-29, and the HITECH Anti-Kickback Act of 2009 for healthcare. The agencies enforcing these laws include the DoJ, SEC, and UK Serious Fraud Office (SFO).
These agencies have been increasing their efforts investigate and prosecute offenders in recent years, resulting in significant fines and penalties for offenders. Just this week is the news of Rolls Royce being fined £671M for bribes to officials in China, India, Thailand, and other markets. Other notable prosecutions and penalties include:
- Olympus paying $623M for violations of the healthcare anti-kickback statute
- Siemens AG paying $450M fine for violating the FCPA
- Alcoa paying $175M in restitution, and a fine of $209M for paying bribes to government officials in Bahrain and Australia
- Marubeni Corporation paying a $88M fine for attempting to pay bribes to Indonesian officials
- Goodyear Tire paying $16M in fines for FCPA violations committed by two African subsidiaries
CEOs, Chief Compliance Officers (CCOs), Chief Operating Officers (COOs), and Procurement and Legal teams are taking a stronger look at Anti-Bribery and Corruption (ABC) programs, as a focused area of their vendor risk management initiatives. They realize the seriousness of these laws, and are starting to embrace programs and policies to reduce their risk, including:
- Consistent and frequent training programs for their employees and their intermediaries
- Vetting programs with stronger due diligence and research into current and potential intermediaries
- Legal protections within their contracts to reduce the risk in case of violations by their intermediaries
At Seal, we are engaging our customers and prospects more frequently on this last point – specifically how to ensure they can reduce risk with well-written ABC clauses in all of their vendor contracts. The ICC (International Chamber of Commerce) has posted a set of ABC clauses on their website to help organizations to protect themselves, and many organizations have various versions depending on the nature of their contracts. Strong ABC clauses can provide significant protections if an intermediary is found guilty of anti-bribery and corruption activities including:
- Reducing liability and increase contractual rights
- Providing a mechanism to revoke a contract if desired
- Helping organizations claim damages against the intermediary if needed
Organizations must make the effort to review their vendor contracts to determine if they all have ABC clauses, and if they are effective and enforceable. If they don’t, they must track them down and get them amended, which can be a daunting task, especially if they have 1,000s of contracts in different departments and geographies.
That’s where Seal comes in. We find contracts across the network and tell our customers what terms, provisions, and clauses they contain. In the case of ABC initiatives to manage vendor risk, Seal can assess ABC clauses and help organizations get their ABC house in order at a much faster pace and at a lower cost than tracking them down and reviewing them manually.
This topic is very important to us at Seal, and we are holding a webinar on the 26th which includes a demonstration of Seal software to discuss this topic in more detail. If you would like to learn more about how Seal helps organizations reduce vendor risk through proper ABC clauses, please click on this link and we’ll see you on the 26th!