Global supply chain risks in the middle of a pandemic

Topics: Corporate Legal, Criminal Enforcement, Financial Crime, Financial Fraud & Anti-Money Laundering, Global Market, Government, Legal Executive Events, Risk Management, Supply Chains, Thomson Reuters, Webinars

supply chain

The recent COVID-19 crisis has shone an amplified spotlight on global supply chain risk. The modern supply chain already is a complex web of manufacturers, business partners, suppliers, and other third parties — add in a global pandemic, and that risk heightens as firms look for guidance on managing and anticipating illicit behavior at every link within the chain.

During a recent webinar, The Parted Veil: Combating Bribery, Corruption & Third-Party Risk in the Global Supply Chain, New Responses to Disruption, Digitization and Risk, hosted by Thomson Reuters, panelists offered their insight on the risks related to anti-bribery and corruption, enforcement actions, and the overall impact of the COVID-19 virus.

Bribery & corruption

Corruption risk within the supply chain has been a growing concern during the COVID-19 pandemic, specifically, such risk involving government and commercial bribery. The Foreign Corrupt Practices Act (FCPA) prohibits those corporations doing business in foreign countries from paying bribes to foreign officials, among other things. In countries where government corruption is more commonplace, this can present a challenge. Exposure risks such as payments to government officials (either direct or indirect) as well as providing any other improper benefit to a government official (such as hiring family members of the official or donating to a charity with knowledge that the donation proceeds will be diverted) can trigger an FCPA violation.

Panelist Brock Bossona partner at Cahill Gordon & Reindel, explained that any government touchpoint in the supply chain is a potential risk, depending on the circumstances. “Companies can face liability, certainly reputational damage, even when it is a third-party factory, logistics provider, or a workforce provider that engages in corrupt conduct on the company’s behalf,” Bosson said.

The panel agreed that in the vast majority of FCPA enforcement actions, cases involve improper payments made by third parties. Panelist Jonathan R. Todd, a partner at Benesch, Friedlander, Coplan & Aronoff, emphasized how crucial it is for companies to know who they are doing business with and stressed a risk-based approach.

Fraud & compliance programs

The COVID-19 crisis has created several compliance challenges, especially as companies deal with implementing new health and safety procedures in their manufacturing and distribution operations, such as providing high-demand personal protective equipment (PPE) to employees. The pandemic has led to labor shortages in some areas and pressure on existing third-party vendor relationships, requiring the rapid on-boarding of third parties in the supply and distribution channels, which has strained the due diligence processes of many companies.

“The very immediate risk that in-house law departments will face is production and delivery risk,” Todd said. “It is a classic supply chain problem: where can I get supply and labor? It is the task of those on the compliance and legal side to understand how to do so lawfully and protect ourselves through contracting.”

Companies also need to safeguard against forced labor, child labor, and unsafe conditions in their supply chains, especially during the pandemic with vulnerable populations desperately in search of work and economic opportunity. Panelists said that companies need to pay special attention to social responsibility and responsible sourcing best practices to ensure that their global supply chain operations are aligned with the company’s values. Both Bosson and Todd noted that corporations need to be extra vigilant when drafting vendor supplier contracts, and ideally those contracts should include social responsibility standards, in addition to typical representations about compliance with the company’s code of conduct.

“We’ve seen responsible sourcing problems in subcontract relationships,” Todd said. “These are not company employees in many cases that are in unsafe or unacceptable conditions. They are one or two orders down in the supply chain. And so, it’s very important for companies to have robust processes in place to look at an appropriate depth into their supply chains.”

On the fraud side, Todd said clients now call him weekly to say they’ve been offered a “hot deal” for a valuable commodity, usually with several layers of parties in between the buyer and seller; or, perhaps a company wants to onboard a new supplier immediately, maybe into a foreign market. This is where Todd said he has seen the rise of conversion fraud schemes and non-conforming, counterfeit products.

“The number one piece of advice is to take your time and follow the contingency plans you have set in place,” Todd advised. “Some folks are concerned with bottom lines and hitting metrics — and that’s good from a business perspective, but bad from a compliance perspective.”

Incident response planning

Bosson said he believes that it is helpful for companies to have a written protocol for handling allegations of significant policy non-compliance, government bribery, commercial bribery, mistreatment of workers, and more. “You should have a written and well-communicated protocol for those issues to be escalated up to the appropriate levels in the company so the right actions can be taken,” Bosson noted.

This protocol should contain a procedure for conducting investigations, including designation of who will set investigative objectives, determine which resources will be used to conduct the investigation, and decide whether the investigation is sufficiently complete.

Finally, the findings of the investigations should be fed back into the company’s regular cycle of continuous compliance improvement and monitoring as soon as possible so that risks that are identified in investigations can be mitigated quickly.


You can listen to the recent webinar, The Parted Veil: Combating Bribery, Corruption & Third-Party Risk in the Global Supply Chain, New Responses to Disruption, Digitization and Risk, moderated by Gina Jurva of Thomson Reuters, here.