Beam Suntory Inc has agreed to pay $8 million to settle allegations by the US Securities and Exchange Commission (SEC) that it violated the Foreign Corrupt Practices Act (FCPA). The SEC alleged that, from 2006 to 2012, Beam’s Indian subsidiary used third party sales promoters and distributors to make illicit payments to government employees in India. These payments would allegedly help Beam to get licenses and prominent placements on shelves. In one instance, senior managers reportedly agreed to pay an Indian official $18,000 to get approval for a new product.
Companies in the food and drink sector face an elevated risk of bribery and corruption. With their long and complex supply chains, it can be difficult to document each link in the chain and to demonstrate that it complies with regulations and meets consumers’ expectations of quality. Moreover, products are often sourced from countries in parts of the world where corruption is more entrenched, so third parties can be tempted to make illicit payments to secure contracts.
But bribery is not the only risk facing food and drink companies. The industry has problems with forced labor. A 2016 report by the campaign group Know the Chain found examples of forced labor in the supply chains of some of the world’s biggest food and drink retailers. Forced labor has been uncovered in poultry production in Thailand. Given that the EU is Thailand’s biggest export market for poultry, European companies must do extra checks on their Thai suppliers. Forced labor has even been uncovered in countries where corruption risk is lower, including strawberry picking in Germany.
Food safety is also a major risk facing the food and drink industry. Last week, eggs produced by a German company had to be recalled from Aldi and Lidl because of salmonella risk. In 2013, the UK supermarket Tesco suffered significant reputational damage after its own brand of spaghetti Bolognese was found to contain up to 60% horsemeat. Its supplier Comigel processed the meat in a factory in France. Recalls not only means a company loses money on the recalled products, but it can lose the long-term trust of its consumers, who may no longer believe that company can
provide their family with food that is safe. So, companies must make sure their supply chain meets regulatory standards and increasingly demanding consumer expectations on food safety.
The Beam settlement is a reminder that FCPA enforcement is very much here to stay and remains a major regulatory driver for U.S. companies and firms with offices registered in the U.S. Midway through 2018, there are currently 130 active FCPA investigations in 49 countries and 55 industries. FCPA enforcement actions in the second quarter of 2018 led to nearly $1 billion being paid to settle allegations. The Act expects that businesses should conduct reasonable due diligence background investigations on third parties and determine that they are not involved in corruption.
While the FCPA remains strong, regulation elsewhere is getting stronger. Recent laws which affect the food and drink industry include the U.S. Food and Drug Administration’s Food Safety Modernization Act and its rules on sanitary transportation and foreign supplier verification programs. In addition, the California Transparency in Supply Chains Act and the Modern Slavery Act in the UK address the issue of forced labor anywhere in an organisation’s supply chain.
Due diligence is essential to meet supplier verification expectations. Companies should assess prospective suppliers against criteria such as quality, safety, cost, and timeliness. In addition, ongoing monitoring within a PESTLE framework enables companies to identify emerging threats based on their specific risk considerations. Do you have the transparency needed to spot third-party risks before they become a headache?
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