FCPA Compliance and Ethics Blog

November 11, 2013

Honor Our Veterans and Compliance in the Supply Chain

Today is National Remembrance Day for Veterans who served their country and across the world. In the US we call it Veterans Day. In the UK, it is called Remembrance Day. Whatever it is called, it is designed so that we may never forget the sacrifices that the men and women made so that we can live in a free society. So today, I ask you to personally thank a veteran, buy them a cup of coffee or simply reflect on those who made the ultimate sacrifice to allow us all to go forward into the 21st Century.

My father is a veteran of both World War II and the Korean Conflict. I saw him this weekend and at 87 he is still kicking along, reading, studying and thinking about the relevant issues of the day. He gave to me a copy of the Fall 2013 issue of the University of Illinois, College of Law, Comparative Labor Law & Policy Journal which had an article, entitled “Toward Joint Liability in Global Supply Chains: Addressing the Root Causes of Labor Violations In International Subcontracting Networks”, by authors Mark Anner, Jennifer Bair and Jeremy Blasi. So to honor my father’s continuing interest in anti-corruption compliance, today I will write about this article and how it informs anti-corruption compliance in the Supply Chain.

The authors starting point is that of the Rana Plaza building collapse in Bangladesh, which killed at least 1129 workers, which has led to a “significant departure from the extant model of labor compliance that has developed over the past two decades”. The previous model of labor compliance had assumed that labor issues were a “factory-level problem and the only entity that needs to be regulated is the contractor factory.” This was enforced by companies adopting codes of conduct and then monitoring their suppliers for compliance. However, after the Rana Plaza tragedy, certain western corporations adopted the Bangladesh Accord, which anticipates joint responsibility for labor issues between both vendors and the purchasers of their goods and services. Further, the Bangladesh Accord is not merely like the prior general statements of intent but brings binding, contractually enforceable duties.

While the focus of the article was on labor issues such as pay, safety and retaliation for raising such concerns, the article did point to some interesting ideas which could be applied to this issue as it relates to anti-corruption compliance under laws such as the Foreign Corrupt Practices Act (FCPA) or UK Bribery Act. Obviously both laws require a specified protocol for the hiring of third parties which represent companies. These concepts and techniques are now being used for third parties who develop relationships with companies through the supply chain. Companies such as freight forwarders, visa processors and customs brokers have foreign governmental touch points which clearly mandate a through due diligence process under the FCPA and Bribery Act. However, many companies may not recognize their potential exposure for companies which supply them but engage in bribery and corruption to fulfill their contracts.

Using the authors discussion of the regulatory scheme for compliance of labor and safety issues for suppliers under the Bangladesh Accord I have adapted them for anti-corruption compliance. The intention is to create stable, long term relationships and also to promote a stable core of suppliers who are FCPA or Bribery Act compliant in anti-corruption and anti-bribery. These points can incentive suppliers to not only become more compliant in anti-corruption and anti-bribery programs but also reward them for doing business with other like-minded sub-suppliers and sub-contractors. They include:

  • Requiring suppliers to designate all sub-suppliers and sub-contractors that they will use.
  • Restrict the subset of sub-suppliers and sub-contractors to those who have been certified, through a recognized Non-governmental organization (NGO) or company, in anti-corruption.
  • Prohibit retaliation against supplier employees who report, in good faith, allegations of bribery and corruption.
  • Require a supplier to register the number of sub-suppliers and sub-contractors that it intends to use for a company.

For US, and other western companies, I think that there are some lessons which might be drawn from the authors’ piece in connection with their compliance programs around the Supply Chain.

Know Your Suppliers

When it comes to anti-corruption compliance in the Supply Chain, many companies either fail to embrace this concept or, worse yet, do not understand how this concept is interwoven into an overall compliance program. Indeed, one of the perceived banes of compliance is that a company is responsible for the actions of its suppliers. Nevertheless, if companies understand that suppliers are a critical component of an overall compliance program it becomes much easier to understand how such a model can and should be used as a guidepost for the Supply Chain and compliance.

The Compliance Oversight Committee

The Oversight Committee is a key component of any best practices compliance program. Not only should it be used for reviewing and managing traditional high risk areas such as third party business representatives in the sales chain; a company can create such committees for other high risk issues particular to a company. Witness the Johnson & Johnson (J&J) Deferred Prosecution Agreement (DPA) and its “Enhanced Compliance Obligations”. In this J&J agreed to establish “a “Sensitive Issue Triage Committee” to review and respond to any such [Foreign Corrupt Practices Act] FCPA issues as may arise.” This is precisely the type of rigor which should be included in a best practices compliance program. Compliance Committees can serve to escalate compliance issues before they become violations of the FCPA or UK Bribery Act and are becoming a part of a best practices compliance program. If a company decides to disband such a committee it must clearly perform rigorous audits or place such safeguards in place to send a message to both vendors in the Supply Chain and employees that compliance is still held in the highest regard by the company.

Risk Assessments – Don’t Let Growth Overwhelm Your Compliance Program

The Department of Justice (DOJ) continually reminds us of the need for risk assessments. One of the areas often overlooked in risk assessments is growth. Growth and indeed explosive growth can be pursued or occur while not fully assessing or even appreciating the risks involved. This could mean that there were many new vendors in the Supply Chain that did not receive the rigorous due diligence and training in anti-corruption and anti-bribery compliance. A company can also hire huge numbers of new contract employees who do not receive the same anti-corruption training as previously hired employees. These can lead to organizational incentives that become skewered towards growth and not compliance.

If a company wants to move forward with an aggressive growth model, it should assess the compliance risks of doing so. Through a risk assessment, it might be determined that compliance might suffer through the increased use of new vendors. For the compliance practitioner, these risks might also be that new vendors in the Supply Chain need full and complete compliance training, that contract employees need the same compliance training as full-time employees; additionally new vendors need rigorous screening through a robust due diligence process to not only identify Red Flags regarding corruption but to help educate them that your company takes compliance very seriously.

So today I honor my father and all Veterans everywhere. And thanks to my father for continuing to be interested enough to read articles which help inform my knowledge of anti-corruption compliance.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

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