Corruption risks for joint ventures

31 July 2020 13:33

Disruption of any kind brings increased risk. The COVID-19 pandemic is far more than a health crisis. Its impact on economies and society will echo for a considerable time to come. Right now, the primary focus worldwide is on health outcomes, but as the situation continues to unfold, we are seeing related effects and unforeseen consequences begin to surface.

The uncertain economic environment is forcing businesses to make decisions rapidly and with limited knowledge to try and mitigate the impact of the situation.  Many employees are under immense stress and pressure to continue meeting targets while working in unfamiliar circumstances. One of the potential results is that organisations and individuals, swayed by the uniqueness of the circumstances, act in ways that they would not normally, to get the job done.  

“Though the immediate concerns of the coronavirus relate to employee health and safety, the outbreak—and its business disruption—may increase the risk of bribery and corruption,” writes Rebecca Rohr, Vice-President of Anti-Corruption and Global Trade within the Ethics & Compliance Office of Hewlett Packard Enterprise.

Businesses need to be aware that adherence to rules and regulations—such as anti-bribery and corruption programmes—must remain rigorous despite a situation that, in many instances, appears to have torn up the rule book. While companies may be able to exert sufficient oversight in their own business, the issue applies to joint venture partners too.
Compliance teams should consider refreshing joint venture partner anti-bribery and corruption (ABC) compliance due diligence as a timely activity in the current environment.

Disruption is not a defence

Joint ventures may often be conducted at arms-length, but liability remains. If the joint venture partner acts unethically, its partner can be held liable. Disruption is not an excuse and the financial and reputational penalties can be severe.

In uncertain times such as these, regulatory authorities would argue that strengthening ongoing due diligence should be a priority. Rebecca Rohr further notes, “If law enforcement agencies or regulators discover bribery or corruption that follows the coronavirus outbreak, they most assuredly will not be accepting a coronavirus defence from companies.”

Drawing on data to deliver timely compliance risk insight

Compliance teams aiming to refresh their joint venture due diligence should consider data sources that can alert them to changes in partner status. One of the most valuable is media reports. Today’s 24/7 media cycle means the latest information quickly hits the wires—especially if there is a scandalous angle. Breaking news can provide instant real-time context to a partner’s activities and risk profile.

Activities such as negative news searches, or automated negative news alerts, can quickly indicate issues that are arising for joint venture partners. Monitoring general news about the organisation also demonstrates how it is coping with the overall situation, identifying whether there are new risks such as employee redundancies, supply chain problems or risk of insolvency that could negatively impact the performance of the joint venture.

Other key due diligence areas for joint ventures include:

  • Politically Exposed Person (PEP) searches: government and civil service postings may undergo quick turnover during crises and formerly low-risk partner personnel may change in status.
  • Key personnel background searches: new appointments at partner organisations may slip under the radar in turbulent times.  It is important that any new joiners are verified to ensure they don’t introduce new risk.
  • Identifying ABC risk and continuously monitoring for changes in status is important whenever a business embarks on a joint venture, but in periods of intense disruption, it is even more critical to protect the business by staying alert to evolving risk. Bringing data to bear and automating searches can do some of the heavy lifting to help compliance teams stay ahead of the curve in turbulent times.

Download our checklist for mitigating ABC risk in Joint Ventures to learn more about steps compliance teams can take to control risk.

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