Managing compliance in high risk industries and countries
27 Mar 2014 12:00 am by Mark Dunn
Risk management and legal compliance are serious issues for all businesses. A tightening of regulation - and the fear of negative publicity as a consequence of perceived unethical conduct - has placed such issues into sharp focus. Nowhere is this risk more acute than in the oil, gas and extractives markets.
Out of the 9 Foreign Corrupt Practices Act corporate actions by the US government last year, three involved the extractive sector:
And hot off the press from the PwC 2014 Global Economic Crime Survey, after state owned companies, energy/utilities and mining carries the biggest perceived risk of corruption. Every company involved in this market, from diamond extraction to the use of mined coltan in mobile phones, walks a tightrope of regulatory and public perception issues. These challenges were placed into sharp focus at the fifth annual anti-corruption and compliance event for the oil, gas and extractives industries. One of the key subjects was the issue of managing third party due diligence, risk management and investigations when operating in high risk jurisdictions.
Managing third party due diligence, risk management and investigations
This is an important issue for this industry. The extractive sector continues to be prominent in parts of the world that are at high risk of conflict and the value attached to oil, gas and precious metals means that the risk of money laundering or corruption can be significant. Furthermore a reliance on ever more complex chains of agents, and other third parties, heightens the risks of financial crime. The challenge for companies operating in highly regulated markets is how to ensure they mitigate such risks both within their corporate structure and across their higher risk third party suppliers and partners.
At the event a panel of experts from the industry discussed this subject in detail, providing insight into how companies can help protect their business and ensure third parties adhere to their compliance policies. One of the issues that provided a challenge was how to prevent the due diligence process from being seen as invasive. A risk-based approach is always considered as a good starting point. However this is not always easy to implement as typically it is in those countries and sectors deemed the highest risk where due diligence is considered most invasive.
A couple of practical suggestions were provided by the panel for when due diligence takes place and how. The earlier in the business process due diligence features - and the more it involves the third party's wider business operations - the more effective it is likely to be. One panellist suggested that obtaining a supplier declaration early, in addition to a contract, was a helpful measure as was ensuring an annual review so that the third party was regularly reminded of its obligations. Another panellist commented that carrying out due diligence before the contractual phase and obtaining a third party code of conduct linked to the contract could provide reassurance.
One final thought – The DOJ and SEC issue Parker Drilling with a deferred prosecution agreement and a fine of $11.7 million for violating the FCPA anti-bribery provisions. Interestingly, Parker Drilling was able to earn a positive resolution to its FCPA case by implementing extraordinary remediation to its compliance program. "The Company has already significantly enhanced and is committed to continue to enhance its compliance program and internal controls" (DOJ). The message is clear from the regulators – due diligence must be core to any ABC process. "Comprehensive due diligence demonstrates a genuine commitment to uncovering and preventing FCPA violations." (Source: A Resource Guide to the U.S. Foreign Corrupt Practices Act)
3 ways to apply this information:
1) Contact LexisNexis today for your free trial of our flagship risk management solutions. Lexis Nexis provides cost-efficient due diligence reporting solutions for you to access and analyse individual, company, industry, regulatory, and legal information.
2) Read our whitepaper on 'The Hidden World of Beneficial Ownership' for insights into the reality of complex ownership trails, associated legislation, and how to improve your due diligence processes.
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