New United Nations report calls for comprehensive due diligence processes to prevent corruption and bribery
22 March 2021 11:30
The absence of comprehensive governmental scrutiny in times of a global health crisis has significantly increased illicit financial flows (IFFs) which are responsible for worsening inequalities, fueling instability, undermining governance, and damaging public trust. That is the troubling conclusion of a new United Nations report, which warns that Covid-19 is increasing inequality and frustrating achievements towards the 2030 Agenda for Sustainable Development. Companies therefore need to improve their due diligence processes to support the fight against IFFs by identifying corrupt practices and helping to establish a compliance framework which complements the ongoing environmental, social and governance (ESG) trend.
COVID-19: A global bonanza for corruption and bribery
Early into the pandemic, cases of illicit procurement of essential goods and other corrupt practices occurred around the world, involving both public and private actors. According to Transparency International’s 2020 Corruption Perceptions Index (CPI), widespread corruption has undermined states’ capacities to respond to the resulting health and economic crisis. Their analysis of 180 countries found that:
- Essential services such as healthcare are among the most vulnerable towards corruption, leaving countries around the world ill-prepared to fight COVID-19 and protect their citizens.
- Public responses to the pandemic are substantially weakened by a lack of transparency and the clandestine allocation of resources.
- Corruption and human rights deficiencies often occur in tandem, in particular in the context of COVID-19.
The case for comprehensive financial integrity
In the same vein, the United Nations’ High-Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda published a report in February 2021, concerning the devastating impact COVID-19 has had on the Sustainable Development Goals. The report, titled Financial Integrity for Sustainable Development, urges governments to take stronger action against IFFs such as cross-border bribery and corruption and money laundering.
The report recommends the creation of a global pact for financial integrity for sustainable development. This pact would improve both multilateral and national governance in the field of anti-money laundering (AML) and anti-bribery and corruption (ABC) compliance.
This is further evidence of international cooperation to combat ABC and AML-related compliance risks, otherwise known as ‘mutual legal assistance’. While the report points to the response governments should give to the recent increase in IFFs, private entities are well advised to take these recommendations seriously as well.
Sustainably combatting corruption and bribery through an enhanced due diligence approach
At a time when governments around the world are increasingly scrutinizing ABC and AML compliance, companies which fail to engage in sustainable practices face greater regulatory and reputational risks:
- There is heightened regulatory risk for companies who are found to have money laundering or corruption in their supply chain.
- There is growing reputational risk for these companies because the implications of the UN report are that they will be seen as responsible for rising global inequality in a world reeling from COVID-19.
The report highlights the need for companies to enhance their due diligence management and monitor ongoing regulatory trends, including increased attention towards ultimate beneficial ownership (UBO) data which is a substantial part of mitigating AML and ABC risks.
Globally, the UN report is only the tip of the iceberg. More and more countries are amending legislation to combat IFFs and strengthen supply chain regulations in the field of human rights and the environment . Alongside this push towards better regulatory scrutiny, investors and consumers are doubling down their efforts to hold companies accountable for their ESG actions. Companies that fail to implement an effective due diligence and compliance process face ever-growing legal, financial, reputational and strategic risks.
What should companies do in the face of these challenges? Here are three ways to mitigate compliance risks:
- Implement a risk-based due diligence process to mitigate risks such as bribery or cross-border corruption in the supply chain. Enhanced due diligence should be carried out on higher-risk third parties.
- Make use of technology and data that delivers insights into potential risks across critical business partners, suppliers, and customers
- Demonstrate a commitment towards ESG principles and set high ethical expectations for third parties and employees.
Know more about our due diligence tools here!
- You can't find an answer to your problem on this website
- You would like to request training
- You would like a product demonstration
- You are having trouble logging in or have a technical problem