The value of due diligence and publicising compliance efforts

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When meeting a potential new business partner, quite often commercial urgency or excitement at having established a relationship with a high profile company can overtake more sober and practical thoughts of undertaking due diligence, which can often seem like a time-consuming and inconvenient necessity. You and your company will almost certainly not want to be surprised by news that your new joint venture partner’s subsidiary was previously debarred, or that there are clouds hanging over ‘that’ project, which you later learn was an open secret among all its employees…

Should a skeleton prove to have been lurking in the closet, of course it is not enough for the other party to say ‘but you never asked’. However, with an increasingly low threshold to establish administrative and even criminal responsibility following sanctionable practices such as fraud and corruption, the responsibility is essentially on you to show that you conducted all reasonable inquiries before forging a new business relationship. It is important to ask the right questions when conducting due diligence on contract partners, be they individuals or corporate entities, or you could risk reputational damage by association at the very least.

There are many methods of conducting due diligence inquiries into new business partners, but a good place to start is through open source intelligence. It need not be very costly and can often provide insight into a company beyond the official face that it projects to the public. Depending on how a relationship has come about, you may even ask mutual business acquaintances for a second opinion or if there is ‘anything you should know’.

It is becoming increasingly difficult to hide on the internet. Even if web pages are deleted or altered, traces can remain and be picked up by search engines, although this is becoming more complex with the advent of the ‘right to be forgotten’ now emerging in Europe. The proliferation of data via the internet can be a mixed blessing in business: while it can be more difficult for a company to make a clean start after a scandal when items are cached for years after the event, potential business partners are often glad of being provided with the full story behind the glossy corporate image so that the right questions may be asked as to how a company has improved its internal procedures to avoid repetition of such an event in the future. This can go towards establishing how a company reacts following negative experiences and applies lessons learned to adopt a more positive approach moving forward.

An increasingly globalised market means that there is a greater likelihood of trading with partners based overseas. For this reason, the website has effectively become the shop window of international commerce. It is therefore of paramount importance that there is as much information as possible about your company’s anti-corruption policy, integrity compliance program and whistle-blowing mechanisms, as a lack of such information can constitute a red flag in the mind of a prospective business partner, shareholder or other investor. A surprising number of large multinational companies do not feature the name of their compliance officer, or even make reference to having one, which raises the question in the mind of both consumers and potential trading partners as to whether or not one exists. Even where a compliance officer is featured, very often a website will not show a direct means of communicating with them, making it harder for third parties to raise matters of concern that they may have witnessed, such as a rogue employee offering or soliciting a payment. Websites that do not feature sufficient information about a company’s compliance strategy risk selling the company short and undermining confidence in its integrity efforts, thus losing valuable trade potential.

Jazz Omari is a direct-access qualified barrister at Bretton Woods Law. If your company could benefit from an integrity compliance health check, bespoke debarment avoidance training for employees or wishes to conduct an internal anti-corruption investigation, get in touch

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