Dow Jones anti-corruption report highlights importance of due diligence
January 01, 1970
A recently published Dow Jones anti-corruption report has highlighted some of the key themes driving corporate thinking on compliance and due diligence amongst companies worldwide. The report highlights a more proactive approach to anti-corruption but there is still progress to be made in specific areas.
330 global companies respond to key anti-corruption issues
The Dow Jones anti-corruption report, published in April 2016, offers a snapshot of the practices and opinions of more than 300 companies operating around the globe. The report is important because, despite the limited number of companies interviewed, the geographic spread is wide – offering a unique global perspective.
The report paints a somewhat mixed picture of companies' compliance efforts. Whilst a higher number of corporations than ever have anti-corruption programmes in force, some of the responses suggest that these programmes may be misdirected or tokenistic.
Corporates taking anti-corruption agenda seriously
More than 90% of the companies had an anti-corruption programme in place, whilst almost 60% had run a programme for longer than six years. 65% of those surveyed had also delayed or stopped working with a third-party over corruption concerns, highlighting increased awareness of global efforts to stem criminal activity in business.
Legislation also appears to have had a significant impact. The UK Bribery Act, alongside the US Foreign Corrupt Practices Act (FCPA) were cited by more than half of all respondents as having a major impact on corporate policies and procedures. Furthermore, whilst some companies commented directly that new legislation seemed to add bureaucracy, more than 80% recognise that anti-corruption legislation helps improve corporate reputation.
Discovery rather than planning driving due diligence
When asked about specific country risk, the compliance professionals surveyed cited Iran, China, Russia, Iraq and Ukraine as countries that cause most concern, with Iran top of the list. It is notable that this country, which has experienced a lifting of sanctions this year, is still perceived more risky than somewhere like North Korea.
One of the more disappointing aspects of the report was companies' reliance on ad hoc judgements to inform the decision to apply anti-corruption processes. 72% of respondents reviewed third parties either annually or on an ad hoc basis, whilst only 27% of respondents monitor business partners quarterly or more often.
Government sanctions were the most cited reason for an ad hoc review, followed by negative media coverage or reputational issues. This could suggest an environment where corporations are still waiting for a reason for conduct a review rather than being proactive.
Cost drives compliance
Cost and staff time involved were both cited as primary reasons for companies not to carry out, or to carry out limited, due diligence, whilst 60% of respondents noted difficulty in evaluating information credibility as a factor that hindered their confidence in the results of due diligence. Despite this more than 90% of companies were using some form of technology as part of a due diligence programme. The most popular technology was access to sanctions and watch lists, which was used by more than 70% of the companies surveyed. Only a relatively small number of corporates has specialised anti-corruption software, perhaps suggesting a knowledge gap in how technology can help support a due diligence programme.
Technology to support due diligence
The most effective application of technology will be to save both staff time and cost. Technology's role is to ensure that day-to-day processes are carried out with a minimum of staff input, but at the same time any potential issue are quickly escalated for human intervention. This proactive role goes beyond access to simple watch lists or sanctions information and enables compliance professionals to create a process by which a number of factors (including the above but also news sources and public information on corporates) can be monitored by technology to flag risk.
For example it is sensible due diligence to monitor the media for references to suppliers or other third parties and this activity can be largely automated by technology. The most effective due diligence process will ensure that these searches are automated to take place regularly so that new information is flagged quickly.
This leaves compliance professionals with more bandwidth to focus on critical investigations and a more thorough level of due diligence, safe in the knowledge that they will not miss critical triggers.
Overall the Dow Jones report shows positive progress in a number of areas. The regularity of third party monitoring is one area where further progress could be made quickly and at a relatively low cost through the adoption of technology.