For the first time in almost six years, the US Department of Justice (DoJ) issued its first Foreign Corrupt Practices Act (FCPA) advisory, offering new insight into the law enforcement organization’s interpretation and application of the country’s anti bribery law. The DoJ’s advisory, alongside an update to the joint DoJ/SEC FCPA resource guide, reaffirms the priority still assigned to enforcement of cases. It offers a good opportunity to review current regulatory enforcement trends as well as overall management of third-party ABAC risk and due diligence.
Here are the current regulatory challenges as well as three key ABAC trends to be aware of.
The Regulator’s Viewpoint
It has been a year like no other, with the pandemic having an unprecedented effect on businesses across the globe. Firms have adapted to weather the storm, but those transitions are likely to have created heightened ABAC risks that may have significant future implications. We wrote earlier in the year about compliance trends we have been seeing since the pandemic. For some this has led to weakened compliance practices and for other businesses, a disrupted supply chain may lead to compromised risk procedures and higher risk third-party vendors.
While some regulators have said they will consider the impact of the pandemic on enforcement, we are waiting for a clearer picture of what lies ahead. If recent FCPA enforcement actions, such as the record-breaking Goldman Sachs resolution, are anything to go by, it’s likely that we will see the trend for strong, cross-border enforcement continue. If that is the case, then businesses must prepare to close the gaps in their third-party screening programs and learn from other key third-party risk scandals.
Three ABAC Trends to Be Aware Of
China
Unsurprisingly, China poses ABAC challenges for compliance teams, especially around hidden and emerging compliance, third-party, and supply chain risks. China continues to feature in many recent FCPA enforcement actions, including the recent Herbalife Nutrition offense that resulted in a $123 million penalty relating to improper payments to government officials. For other businesses there is the growing question around managing the supply chain shift away from China. As the decoupling process picks up momentum, the reduction of China-based capability could provoke labor militancy, such as strikes or disruption that requires a full understanding of local labor resources.
We recognized the ABAC due diligence challenges in China, and it was in direct response to clients’ needs that we opened our APAC office a little over a year ago. This team continues to grow as we further expand our APAC-focused investigative and due diligence capabilities to address emerging business risks.
Latin America
The COVID-19 pandemic has created the perfect environment for bribery and corruption to thrive, and nowhere has felt this more directly than Latin America. As a region it has long battled with corruption, which undermines growth and democracy. The pandemic will push back efforts to instigate systemic reforms even further, making ABAC compliance more challenging.
Businesses operating in the region must pay particular attention to critical geopolitical, enforcement, and legal developments that will affect their risk profiles in the coming months and years, especially in the region’s two largest economies, Brazil and Mexico. Navigating Brazilian corruption requires an understanding of the broader risk picture, particularly in relation to environmental issues and organized crime. Businesses must navigate information gaps in Brazil with detailed ABAC due diligence to obtain the full picture. While the challenges of doing business in Mexico are similar in relation to the threat of corruption, the recently ratified United States-Mexico Canada Agreement (USMCA) has created regulatory landmines that businesses must be aware of.
Managing Third-Party Risk with Limited Resources
Coronavirus has put already stretched compliance budgets under further pressure to do more with less. To mitigate the impact of COVID-19, compliance teams must utilize tools and techniques that drive efficiency and accelerate recovery. We wrote about the role of technology in due diligence earlier in the year, and how to weigh the benefits with the cost and implementation impacts. To maximize the opportunities posed by technology, understanding the limitations is vital and the best results are often achieved when combined with the power of human intelligence.
Choosing the right provider to support your ABAC compliance is another critical decision to make as complex, interconnected risks emerge faster than ever. At IntegrityRisk we pride ourselves on taking a responsive approach to risk management that goes beyond checking boxes and standardized solutions.
Whatever ABAC compliance challenges lie ahead, we will be with you every step of the way. Please reach out to learn more about how we can help.