Punitive Bribery Fines, Shifting Sanctions & Tougher Legislation: Why 2021 is the Year to Grasp the Nettle on Due Diligence?
11 Feb 2021 11:00 am
- Sanctions & Watchlists
- Due Diligence
- PR & Marketing
- PEP Risk
- Anti Money Laundering
- Nexis Diligence™
- Nexis® Entity Insight
- Ultimate Beneficial Ownership
2020 was a record year for fines under the US Foreign Corrupt Practices Act, and the pace of change in the bribery and corruption landscape has not slowed at the end of the year and the start of 2021. The last two months have seen a raft of anti-bribery enforcement actions and changes to international sanctions regimes. Meanwhile, strengthened anti-bribery and money laundering legislation is being planned in several countries this year.
These constant changes make it harder for companies to stay on top of third-party bribery and corruption risk. But it is important that they do, or they face legal, financial, strategic, and reputational risks. Companies therefore need to find ways to strengthen their due diligence process and carry out ongoing monitoring of third parties.
Bribery sentences reflect rising regulatory risk
The start of the year has seen a steady stream of enforcement actions against companies and individuals allegedly involved in bribery across jurisdictions. Recent enforcement actions include:
- Lee Jae Yong, de facto head of Samsung, was sentenced to over two years in prison by South Korea’s high court over allegations of bribery and corruption.
- Diamond tycoon Beny Steinmetz has been sentenced to five years in prison by the Swiss authorities and convicted of paying bribes to gain lucrative mining rights in Guinea valued at billions of US dollars. He was accused of paying the wife of the former president of Guinea.
- J&F Investimentos was fined $155 million by the US Department of Justice and Securities and Exchange Commission in October 2020. The Brazilian investment company was accused of bribing high-level Brazilian officials in exchange for financing and approval of a corporate merger.
Shifting sanctions show need for ongoing monitoring
Companies also need to stay on top of changing sanctions to ensure they are not doing business with sanctioned entities or individuals. The inauguration of a new US administration has precipitated major changes to sanctions regimes between the US and the rest of the world. Recent changes include:
- In early January, the US government imposed sanctions on Yemen's Houthi rebels, designating them a “foreign terrorist organisation”. Two weeks later, the new US administration announced that those sanctions would be suspended.
- China’s foreign ministry announced sanctions against 28 former officials in the outgoing US administration.
- The European Union added Syria’s foreign affairs minister, Faisal Mekdad, to their sanctions list. 289 individuals and 70 entities in Syria are subject to travel bans and asset freezes from the EU over their treatment of the Syrian civilian population.
By establishing an automated monitoring process, companies can stay alert to changes in status for critical business partners, suppliers or other third parties - whether its an addition to a sanctions list or signs of financial instability.
Evolving legislation complicates risk monitoring processes
Companies operating internationally must ensure they comply with anti-bribery and corruption legislation, which also does not stand still. Major legislative developments could happen in 2021. For example:
- A proposed reform to laws addressing financial crime to help investigators locate the proceeds from foreign bribery, drug trafficking and terrorist financing. This would require beneficial ownership disclosures by shell companies, with severe penalties and jail sentences for failing to do so. This information would be stored in a database accessible to law enforcement officials.
- A report from a leading think tank to the European Commission has proposed an EU-wide anti-bribery and corruption policy modelled on France's Sapin II law. This law would make it possible for EU states to investigate corruption linked to their country even if it crosses borders.
The key sources for an effective due diligence
Companies face expanding compliance obligations; increased expectations regarding ethical conduct, ESG and corporate social responsibility; as well as disruption to business as usual for the foreseeable future. This means the regulatory, reputational, financial, and strategic risk an organisation faces continue to evolve. Companies need an effective and efficient third-party due diligence and ongoing monitoring process to mitigate these risks.
Companies should monitor sources include:
- Licensed news and web news sources from around the world, including adverse news.
- Ultimate Beneficial Ownership data on businesses operating worldwide, including shareholder identity on persons or entities with beneficial, director or indirect ownership of a company.
- Financial data on corporate entities and their financial stability.
- Data on PEPs, sanctions and watchlists.
- Further company information, including data on State Owned Enterprises.
Technology-assisted due diligence
Carrying out ongoing monitoring of these sources in a manual way is incredibly costly and time-intensive. Companies can make efficiency savings and improve the relevance of results by using due diligence technology that provide
- Enriched datasets to accelerate the time between a search on a third party and the discovery of relevant insights.
- Pre- and post-search filters so results can be sorted by relevance, date, subject/industry and more.
- Automatic alerts which send notifications when new, relevant information is published on a company.
- The functionality to quickly build reports on third parties to support enhanced due diligence or provide an audit trail.
Are there gaps in your due diligence and risk monitoring process that need to be addressed?
Learn how Nexis Solutions supports evolving due diligence needs in our overview of 2020 Nexis Diligence™ enhancements
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