KPMG’s latest global ABC 2015 report reveals companies find complying with anti-corruption regulation more challenging than ever. Swiss companies state that the variety of risks and impacts reached the next level. Let’s have a look at current developments which will lead to the ABC top challenges report 2015.
The regulatory risks around anti-bribery and corruption (ABC) for medium and large Swiss companies have significantly increased over recent years. National and international laws and regulations on ABC are getting tougher every day. However, the enforcement of these laws is also becoming more stringent, which poses an even bigger threat for companies. Many of these laws and regulations have been around for quite a while (US Foreign Corrupt Practices Act (FCPA), 1977; UK Bribery Act, 2010; and the extended Swiss criminal law on corruption, 2000 to 2006), but it took a considerable time before the consequences were observed in reality. Taking the FCPA as an example, 99% of all the fines (which can be significant, e.g. Siemens with USD 800m in 2008) were imposed only in the last 10 years. Another milestone, from a Swiss point of view, was the Alstom case. In late 2011, Alstom was fined CHF 2.5m by the Swiss authorities for negligence in implementing proper controls regarding the prevention of bribing foreign officials in various countries (furthermore, the company had to pay CHF 36m for profits in connection with the negligence).
Next level: Current discussions suggest introducing bribes to private persons in the Swiss Criminal Code
Based on these developments, we can observe an increasing trend in Swiss companies saying that they are challenged by the ABC topic, which is higher on their agenda compared to recent years. Not only does this affect their internal organization, processes and procedures but, more importantly, the supply chain and related third parties in many different forms.
Third-party risk does not just mean credit risk
As many Swiss companies have an increased international footprint, one of the main challenges related to ABC concerns third-party management (or in other words: assessing third-party risks from an ABC compliance point of view). While large multinational companies in particular generally already have a mature third-party management system in place, the view is different for medium-sized Swiss companies. For the latter, the focus has traditionally been on performing checks on the credit/financial risks of a third party; a formal risk based on the boarding process including more detailed due diligence (not only credit risk) was rarely implemented. However, given the current enforcement developments as well as the increased demands of clients to have at least reasonable policies and procedures on ABC, we are seeing a change in the mind-set of these companies as the topic of implementing a third-party management system gains more attention. An initial challenging task is to create a solid, comprehensive third-party register, including the identification of high-risk third parties. Companies also need to rank the level of the third-party risk (e.g. some companies are already having difficulties in identifying the nature of a third party, for instance in the case of missing commodity codes in the company’s ERP).
Due diligence over foreign third parties is tricky
Secondly, there is a difficulty in performing due diligence over foreign third parties. Because of cultural and language differences, as well as the availability of information in other countries, Swiss companies sometimes struggle to find relevant information on foreign third parties or identify relevant ABC red flags thereof. Performing a due diligence in South America or in Africa is different – it needs diverse knowledge of language as well as local habits, culture and regulations (such as data privacy) – which, in many instances, can only be obtained by local experts.
Applying right to audit clauses
There is also a high degree of discrepancy in applying right to audit clauses in contracts with third parties. A significant number of companies still have no clause at all in their contracts, while those that have implemented such clauses hardly never exercise the audit right. Again, the few that have implemented the right to audit clauses and execute them on a case-to-case basis are mostly large, publicly-traded multinational companies.
Key findings of KPMG’s Global ABC Survey 2015
KPMG conducted a worldwide online survey to find out the strengths and weaknesses of companies’ programs to combat bribery and corruption. In total, there were 659 responses and according to our experience, the challenges for Swiss companies are similar to the results of the global KPMG 2015 survey, which ranks the top ABC challenges as follows.
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