Kerst Compliance

Christmas may be the season of goodwill, but companies must beware that it also brings a heightened risk of financial crime. These risks include bribery to secure more sales in the busy Christmas period, bribery masked as hospitality, and unethical sourcing of goods.

Retail frenzy

The Christmas period is the most important time of the year for retailers. Given that a company's performance in December has a big effect on their annual revenue, the temptation to commit financial crime is higher. Executives feeling this pressure may pay a bribe to secure a sale or a contract ahead of their competitors. So it is vital that companies put in place proper compliance procedures to prevent and detect financial crime.

Whether it is the latest 'must-have' toy for a child's Christmas stocking, or discounted smartphones in the New Year sales, certain goods are in high demand this month. So retail companies should warn staff working on the front line against the temptation of reserving high-demand goods for certain customers in exchange for a bribe, or buying goods themselves and reselling them for more money. This was such a problem in Hong Kong in the first quarter of 2016 that the Hong Kong Independent Commission Against Corruption issued a guide to train retail employees about these dangers.

The giving season

The winter season is associated with gift giving, whether for Christmas, Chinese New Year, or Diwali. Executives often take clients and suppliers out for a meal or buy them a gift. But while the law in many countries allows companies to provide hospitality to give information on their services, or to promote good relations between company and client, it is usually illegal to use hospitality as a bribe.

Bill Pollard, Deloitte Advisory partner, said in an interview last year that this can be the most stressful time of year for compliance officers. 'We are entering into a traditional gift-giving season around the globe where Western and Eastern cultures are engaging in behaviours where the requests for approvals related to gifts go up significantly,' he says. So companies must ensure they are up to date on the anti-bribery legislation governing all jurisdictions in which they operate. They must pay particular attention to third parties with links to government officials and politically-exposed persons.

Ethical sourcing checks

In the rush to source and produce sufficient stocks of goods to sell to Christmas shoppers, companies should not neglect to carry out proper due diligence checks on their suppliers. Firms should make sure they know where their goods come from and implement a risk-based approach to due diligence, where they apply extra scrutiny to third parties in countries or sectors which carry a higher risk of bribery.

Companies should investigate the condition and treatment of people working for their suppliers to produce goods. For example, major clothing retailers across Europe suffered damage to their reputations after a building in Bangladesh which housed some of their suppliers' factories collapsed in 2013, causing the tragic deaths of 1,135 people. UK clothing retailer Primark, German discount store KiK, Dutch retailer C&A and Polish firm Cropp were among the firms facing a media and social media campaign calling on them to pay into a compensation scheme for workers in the building. Primark says it has paid $14 million following the disaster. This pressure came not only from consumers, but also investors. The Interfaith Center on Corporate Responsibility, a coalition of 275 institutional investors seeking social change, also called for clothing brands to do more for victims of the disaster. These investors had more than $4 trillion of assets under management, so there was a strong financial incentive for companies to comply.

It would be unfair to suggest these clothing firms could have predicted the Rana Plaza disaster, but the case shows the importance of carrying out an extra level of due diligence on suppliers in higher risk markets such as Bangladesh.

What can your company do?

- Implement a thorough, risk-based approach to due diligence with higher levels of scrutiny on third parties operating in countries or industries with higher risk of bribery and corruption
- Stay alert to government sanctions, watch lists and lists of politically-exposed persons to mitigate the risk of conducting business with unethical third parties.
- Use in-depth industry and country risk analysis reports to evaluate potential risks of bribery, forced labour, and other areas of financial crime
- Review litigation histories and track negative news to improve awareness of a third party's potential to cause reputational damage from bribery and corruption