When most people think about bribery and corruption, they think about problems within government agencies. Public corruption is certainly a problem that affects us all, but there’s also a lot of corruption in the private sector. As the recent scandal with FIFA demonstrated, whenever deals worth billions of dollars are on the table, less reputable people will spend millions to improperly influence the decision process. An international study found that while U.S. companies themselves avoid bribery and corruption, third-parties acting on behalf of the company in other countries aren’t monitored enough.
KPMG, an audit, tax and advisory firm surveyed more than 650 international professionals about how they monitor and mitigate anti-bribery corruption (ABC) risk. According to the report, many companies are performing due diligence when bringing third parties aboard, but the majority of U.S. businesses aren’t monitoring these parties afterward. Despite 73 percent of companies surveyed indicating they have a formal risk-based third party vetting process, only 45 percent have right to audit clauses in their third party contracts. And only about one in four (23%) of those survey say they actually do audit the contracts of third parties.
“The good news is that as ABC compliance programs continue to mature, companies are being more proactive in their third party due diligence efforts,” said Phillip Ostwalt, partner and Global Investigations Network Leader at KPMG LLP. “However, companies are not consistently following through to evaluate their own ABC risks or those presented by their third parties. This failure is particularly significant given regulatory focus on ensuring that compliance programs are equipped to mitigate such risks.”
The issue of bribery in international trade is a bigger than many people realize. In America, laws and regulation makes bribery and corruption in business less prevalent than it is in other parts of the world. U.S. business owners seeking to secure deals in other countries often clash with local cultures that tolerate, and sometimes expect, bribery from foreign entities seeking to do business.
Some have even argued that forcing American business owners to abide by U.S. laws in countries where none of their competitors do puts them at a disadvantage in situations like these. This breeds conditions where the third parties that work for U.S. companies may be tempted to engage in corruption and bribery without telling their U.S. partners. Auditing the contracts signed by third-parties they work with abroad helps business owners see if there are issues with the processes used to secure deals.
The issue is growing in importance for business owners because regulators are focusing more attention on third-party corruption. According to the Foreign Bribery Report of the intergovernmental Organisation for Economic Co-operation and Development (OECD) released in 2014, more than three quarters of the 427 corruption cases analyzed involved third parties.
Though bribery may be tolerated in other places, U.S. business owners still face legal action here in the States. Threat of enforcement through the U.S. Foreign Corrupt Practices Act (FCPA), is causing suppliers and partners of U.S. companies to develop ABC compliance programs of their own. Nearly four out of five (79%) respondents listed outside of the U.S. or UK have developed formal anti-bribery programs.
KPMG offers software and services that let’s business owners monitor contracts from third-parties with data analysis. Analyzing the data from volumes of contracts make irregularities easier to spot. And since many international companies have so many contracts happening at the same time, data-based monitoring may be the best way to keep tabs on all of it. Doing so can also help absolve the company of liability if any issues are discovered later. A proactive data analysis would help prove the company did all in its power to prevent violations.
“Regulators are examining whether companies have the means to identify the data, how they are auditing the data and how they are using it to detect potential violations,” said Marc Miller, partner and Advisory Risk Consulting Life Sciences leader at KPMG LLP. “In order to properly analyze data for potential violations, an organization must thoroughly understand what their inherent risks are and how to flag data to identify abnormal activity. The technology exists to execute this analysis, but companies are not taking advantage of it.”
Regardless of how they choose to do it, it’s important for businesses with international partners to create some program to monitor the activities being done in their name. This applies to businesses, nonprofits and government agencies. Establishing clear monitoring protocols can catch violations and prevent them from happening by letting third-parties know that contracts and activities will be audited.
For more information that international businesses can use, read this article on a recent study of international consumer confidence.