We are currently facing a situation where the severe health threat caused by COVID-19 also has a profound impact on the global economy. The crisis will likely affect every single company and will change our strategies for working with clients, suppliers, agents and other third-party intermediaries and representatives. Successful response to the crisis will involve effective decision making, rapid mobilization of resources and ability to operate under extremely adverse circumstances. Continued uncertainty, higher credit costs and a slowdown in fundraising, as well as severely disrupted global supply chains are major challenges in their own right, but also create significant risks of corrupt behavior.
When companies operate in volatile and disruptive environment and as employees and management are pressed to return to business as usual or adjust to operating in the new normal, they may be more tempted to rely on unverified third parties or otherwise cut corners and restructure existing arrangements. In these challenging times, companies should pay increased attention to mitigation of bribery, corruption and money laundering risks and may want to review and critically access their existing risk assessment policies and third-party diligence programs. Managing third party-related risks becomes increasingly relevant as critical supply chains are being reconfigured and reliance on government grows. In order to maintain ongoing compliance during these unprecedented times, the companies may want to consider the following:
- When supply chains have been disrupted, companies may scramble to find new agents, intermediaries or suppliers and might be willing to expedite the process by onboarding new third parties without proper vetting. This may result in working with disreputable or even restricted or sanctioned entities, potentially causing long-term reputational and financial damage. Even in times of crisis, the companies should not disregard their third-party screening and vetting procedures. Proper diligence should be exercised with respect to any new third party before engagement. When conducting comprehensive background checks is not practicable, companies should be able to access the risks associated with a particular third party, such as risks posed by jurisdiction, government exposure or the nature of services to be performed, and apply risk-based approach to due diligence, which should be properly documented and followed by executing compliance covenants and ongoing monitoring.
- Also, with existing and familiar third parties that companies continue to do business with, caution and diligence should be exercised. In the last couple of months so many things have changed for all business entities, especially when it comes to financial stability, government involvement, managing supply chain and their respective third parties, that critical assessment of already onboarded entities and requests for additional information may be needed.
- COVID-19 crisis caused and will continue to cause tremendous market disruptions that may likely result in companies shifting their cash to different accounts, diverting or changing payment procedures or creating new entities to accept payments. With this in mind, businesses should be very cautious when making and receiving payments from relatively unfamiliar third parties and, even with trusted partners and customers, should ensure continuous operation of their existing anti-money laundering and sanctions programs.
It is advisable to issue reminder communications to staff and business partners, that even in the time of severe crisis, the company’s zero tolerance policy towards bribery and corruption and money laundering still applies and that employees should be even more diligent and cautious and report any suspicious behavior or non-compliance. If there are changes to the ways the company is normally operating, its employees should receive adequate training that will emphasize that compliance remains the key priority.