How Due Diligence Can Reduce Third Party Corruption

Due Diligence Investigation Advantages

It is a common practice for businesses to implement internal policies and established a positive and goal-oriented team in order to safeguard their practices from corruption. However, one loophole that still exists and is often overlooked is the outside factors, such as those people, who have a different ideology than that of businesses. This can also be understood as the unethical practices of the 3rd parties that can negatively impact the company’s existence and credibility in the industry. In line with this, UK introduced the Bribery Act 2010 in July 2011 with the aim of combating frauds and corruption related to 3rd parties. One odd concern with this act is that it holds the principal organization fully accountable for the corruption. This has been condemned by Neil Swift, who works for Peters & Peters Solicitors. He cites that even if the main organization is not involved, still they could be held liable for it.

International Corruption Data

Transparency International published The Corruption Perceptions Index (CPI) 2015. Herein, all the countries are rated on the scale of 0 to 100, maximum rating meaning that the country is very clean in terms of corruption.

Highlights:

  • On the rating scale, 53% of G20 Countries acquired less than 50 points.
  • EU and Western Europe scored an average lower than 50 points
  • Denmark scored 91 points
  • UK scored 81 points
  • India scored 38 points
  • China scored 37 points
  • North Korea and Somalia scored 8 points

The publication must be considered by businesses, who desire to expand overseas. Less CPI score does not means that business in those countries should be altogether avoided, it just tells that one should take extra measures while expanding their businesses.

Businesses Should Improve Diligence on Third Parties

By now, it should be clear to you that there is no such foolproof method that guarantee that the third parties would comply with your business-related procedures for corruption and anti-bribery. However, it is important to implement due diligence irrespective to the reputation of third party. Here, we will mention some good practices for the same:

1. Risk Assessment to Find Amount of Due Diligence

Here, note down the possible points (make a checklist) that can make the third party risky. For instance, their ranking by CPI (personally owned or open to communication with government entities), their commercial terms etc.

This checklist can help you in the identification of potential risk areas. So, whenever you decided to make a deal with that third party, make sure to consider it.

2. Questionnaire on anti-corruption guidelines

As a business organization, you should prepare a questionnaire for third parties asking whether they have drafted a policy in concern with bribes or not. In addition, you may include questions that relate to the types of reporting systems they follow.

In case, you are not satisfied with their answers (satisfaction can be related to inconsistency, absence of details or indirect replies), you can just pull out of the deal.

3. Provide Suitable Training to the third party

If you have made the decision to undergo a business contract with a third party, then first thing you should do is to give them training on policies related to anti-bribery and corruption. This will make you both on the same level on this aspect. In addition, the importance of training is increased manifolds as every country has a different set of attitudes and laws concerning the corruption. Therefore, it is important to be at par all those guidelines while doing business overseas.

4. Vetting and Auditing

You should take enough time in accumulating information and verifying the reliability & credibility of the third party, as a part of your due diligence process. Some decisive constraints to consider in vetting and auditing process are:

  • Reputation
  • Public records resources
  • Payment of contract
  • Financial background
  • Competency of the third party
  • Beneficial Ownership

Once you are in contract with the overseas business, then you should NOT rest on ones laurels else you might end up in a difficult situation. There are always risks related to third party, even after the contract is finalized. You can develop a framework, wherein you should keep an eye on the performance of the third party via inspections/reviews, site visits, and consistent contact.

Bill Trueman and Kevin Smith are eminent due diligence experts who provide their consultancy services to card issuers, banks, corporates and business organizations globally; and help in comprehensive appraisal of a business/organization before undertaking by a prospective buyer to evaluate its commercial potential. They are chief executives of RiskSkill, & UKFraud and full time member of AIRFA which is a worldwide known independent organization of risk and fraud advisors.