Red Flags for Risk Management: Implementing a proper framework for dealing with bribery and corruption risks is a key part of supply chain management today.
Legislations such as FCPA, UKBA and other anti corruption laws state that customers can, under certain circumstances, be held liable for the corrupt acts that their suppliers commit on their behalf, irrespective of whether or not the customer was aware of the supplier’s corrupt conduct.
Corruption risks in the supply chain can appear in the form of procurement fraud perpetrated by suppliers, often in league with the customer’s own employees, and suppliers who engage in corrupt practices involving governments and other public actors.
The direct costs of this corruption are considerable, but are often dwarfed by the indirect costs related to management time and resources dealing with legal liability and irreparable damage to a company’s reputation with financial and long-term stakeholder consequences.
A checklist of redflags is essential to have when screening suppliers for ABC risks. Red flags refer to circumstances suggesting a strong corruption risk that should be properly identified and mitigated through adequate safeguards.
The identification of a red flag does not mean that an organization cannot go ahead with the third-party business relationship.
However, no red flag should be left unaddressed or unresolved, and organizations should implement mitigating measures that reflect the level of seriousness of the red flag(s) identified.
Consider these 15 red flags when assessing corruption and bribery risks for your suppliers.
- Business appears to have a complex ownership structure that may seem unusual for its size and scale.
- The beneficial owners are not signatories in the transaction.
- The registered address of the business is associated with many other businesses indicating a shell address.
- The business seems to have changed hands multiple times over the last 10 years with new management coming in and old ones moving out abruptly.
- Disproportionate allocation of capital as Work In Progress / Intangible assets that seems to have been written off in the past balance sheets of the business.
- Adverse litigations with regulators, tax authorities, customers and suppliers. Incidents of economic default, bankruptcy and debt recovery applications are present.
- The owner, operator, connected companies, key shareholders or past directors are part of a watchlist such as denied party lists, trade sanctions etc.
- Whether any shareholder or partner of the third party is owned in whole or in part by a Politically Exposed Individual or Known Close Associates of PEPs.
- Adverse media instances of bribery, corruption, fraud, lobbying and other signals are present on the target or any of its connected entities.
- The third party appears to lack sufficient capability or staff qualifications to provide the services or goods for which it is being engaged.
- The third party wants to work without a contract (or with a vague contract).
- The third party is hesitant to make anti-corruption compliance certifications in an agreement.
- The total amount to be paid for goods and services appears to be unreasonably high or above the customary or arms-length amount.
- Unusual upfront or excessive payments have been requested by the third party.
- Indirect or unusual payment or billing procedures are being requested.
100+ enterprises rely on SignalX to conduct quick and detailed due diligence and risk assessment on trade partners before onboarding and on a regular basis. Run financial, litigation, compliance and reputational due diligence checks on suppliers and trade-partners in 48 hours. Identify at-risk entities and shield your supply chain from disruptions. Keep a pulse on your strategic suppliers and vendors on an ongoing basis. Identify developing distress through signals such as delays in tax filings and labor payments, new litigations / disputes with customers and suppliers, economic defaults and more. Talk to us today to know more.