How due diligence programmes can help cover against reputational damage, regulatory risks

Updated: Jul 30, 2017 09:40:08 AM UTC
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Running a business is not an easy task. Running businesses across multiple jurisdictions is an even bigger challenge.

Just a few months ago, a large IT services company incurred millions of dollars in regulatory fines related to certain questionable payments, and is currently under investigation overseas. Indian pharmaceutical companies, face similar challenge regularly with huge monetary penalties imposed by foreign regulators for lack of due-diligence of their supplier. Indian manufacturers also continue to face huge reputational damage along with hefty penalties for issues ranging from regulatory shortcomings to human rights to illegal logging.

Global growth for an organisation comes with its own perils. Necessary precautions can safeguard an organisation from unwanted events and regulatory risks. Best practices suggest building a strong risk intelligence network to avoid such scenarios.

Multiple risks, but one solution

Multiple regulations such as UK’s modern slavery act, Anti-Money Laundering (AML) requirements, Conflict Minerals Reporting requirements, the Foreign Corrupt Practices Act (FCPA), the UK Bribery Act, the Federal Trade Commission (FTC) Act, Office of the Comptroller of the Currency (OCC), and the Dodd-Frank Act have increased the focus on governance.

The US Bureau of International Labor Affairs (ILAB) publishes an annual list of goods and services prone to both child and forced labor per jurisdiction. In 2014, the report identified 138 products in 74 countries prone to modern-day slavery. Coffee, sugarcane and tobacco were identified as the most prominent products affected by both child and forced labor in terms of the number of countries where these issues were prevalent. The countries with the most industries affected include India, Bangladesh, the Philippines, Mexico, and Brazil.


To seek out the inadequacies and challenges firms face when trying to manage such risks, Thomson Reuters conducted an extensive survey to highlight the key issues. Our survey found that only 62% of organisations are conducting due diligence on their third parties. And just as ominously, 61% have no idea about the extent to which third parties are outsourcing their work.

With myriad laws and regulations, setting up a global compliance team for every single jurisdiction is a costly and, often, an incomplete solution. Ironically, the skill sets required to manage innumerable regulatory risks are also short in supply. Even if organisations are foolproof in some way, one needs to be doubly sure of the third-parties they take onboard as well.

Image: Thomson Reuters

Right risk intelligence at the right time can help save organisations millions of dollars. Not to mention the irreparable reputational damage can also be avoided, as the organisation goes about scaling up its business.

Actionable information is insurance Risk Intelligence is very much like insurance, providing cover to the organisation as long it is available to the decision makers at the right time.

Image: Thomson Reuters

Indian companies can use risk intelligence in multiple ways including but not limited to –
• For related third parties including suppliers
• Before mergers, acquisitions, or joint ventures
• When automated risk information screening reveals risk
• For verification of international investor or domestic investor
• When on-boarding high net worth or high profile clients
• As a key component of a comprehensive compliance program
• For screening distributors, supply chains, intermediaries, and multinational companies
• To enhance an existing compliance process, where risk assessment resources are stretched
• For Politically exposed persons, bribery, corruption, labor practice, and financial crime screening
• Where geopolitical risk information analysis flags a transaction or individual as linked to a high risk jurisdiction or country

Indian corporations can expand globally by reducing their regulatory risks, as long as there is adequate process and procedures in place for vetting activities under anti-bribery and corruption compliance programs, as well as, risks associated with forced and bonded labor in their supply chains. Once these risks are identified, corporations can apply heightened due diligence and monitoring to ensure sound compliance practices are followed by their employees and by their suppliers. These efforts will not only allow corporations to comply with modern regulatory requirement with transparency, but also support ethical practices, sustainability, and corporate social responsibility programs. Failure to prevent such risks can affect brand integrity and consumer confidence.

-By Anurag Jain, Head of Risk Business – South Asia, Thomson Reuters

The thoughts and opinions shared here are of the author.

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