Third parties and intermediaries pose the most significant bribery risks to companies, and these risks are escalating as businesses expand into new markets and delegate more operations to external entities. Consequently, it becomes crucial for companies to regularly test their anti-bribery programs in this ever-changing and complex landscape. Such tests are necessary to instill confidence that these programs are capable of effectively countering the risks associated with third parties.

Extensive Scope of Third-Party Bribery Risk

It is crucial to acknowledge that bribery risks can be associated with various third-party relationships. Companies might mistakenly believe that certain third parties are exempt from bribery legislation. While the focus is often on preventing bribery initiated by or arising from the tax controls of third parties, another significant source of risk originates from within the company.

Typically, companies tend to focus their attention on managing anti-bribery risks related to their associates. However, the reality is that most cases involving bribery originate within the company and are channeled through third parties. These third parties can include consultants, agents, and joint venture partners.

“A company must send a clear message to its employees and third parties that it operates a zero-tolerance policy to bribery, fraud, and corruption.”

Neil Swift

Proactive Measures to Counter Third-Party Risks

• Detailed Compliance Program: A robust compliance program is a mandatory requirement and the primary line of defense against risks linked to third parties. In the context of India, an effective compliance program should incorporate protocols for conducting thorough due diligence on third parties. Customizing third-party-related forms and questionnaires is crucial based on the specific nature of the services rendered and the potential exposure to violations that the company may face.
• Identification of third parties: In order to establish robust measures for countering bribery, it is imperative for the company to possess a comprehensive understanding of its third-party network. This necessitates the identification and registration of all third parties, coupled with the collection, analysis, and storage of pertinent information. Such information should encompass ownership details, operational practices, integrity, and anti-corruption standards, as well as any notable bribery and corruption risks.
• Tailored Trainings and Communication: It is essential to customize communications and training programs to cater to the specific needs and risks associated with third-party relationship managers and employees. This ensures that the level of training is commensurate with the risk exposure. Moreover, third parties should be equipped with the means to access confidential advice and speak-up channels, enabling them to report any potential issues without fear of reprisal. Such reports should be diligently followed up and thoroughly investigated. Furthermore, it is imperative for company personnel involved in third-party interactions to be trained in recognizing “red flags” that may indicate potential bribery risks. By imparting this awareness, companies can enhance their ability to identify and address suspicious activities promptly.
• Appropriate Level of Pre-Engagement Due Diligence: During the due diligence process, it is essential to incorporate various elements to ensure its effectiveness. These may include third-party verification, obtaining representations, warranties, and certifications assuring compliance with laws, regulations, and company policies. Moreover, it is crucial to ensure that services are clearly defined and described and that the payments made are reasonable for the type of service rendered.
• Risk Assessment: Employ a systematic risk assessment process to identify, segment, mitigate, and monitor risks and risk factors associated with various types of third parties. Utilize this valuable information to establish the criteria used in due diligence and to design or enhance the overall anti-bribery program. For third parties deemed higher risk, employ additional measures such as leveraging public information databases and local language media sources, conducting public record searches at government institutions, or discreetly seeking insights from experienced former law enforcement agents. It is worth noting that in India, public databases may offer limited financial information for proprietary concerns or partnerships.
• Stricter Contracts: It is crucial to proactively communicate the contractual anti-bribery terms right from the outset of the appointment/selection process, to effectively address bribery risks. The company should seek a contractual commitment from the third party, ensuring their compliance with anti-bribery and corruption laws and the establishment of their own internal controls to prevent and detect any breaches of this commitment. For instance, some companies may incorporate additional provisions in high-risk intermediaries engaging with government entities. These provisions could include stringent record-keeping requirements for meetings with officials, as well as for gifts and hospitality offered in such contexts.
• Rigorous Monitoring Procedures: Implementing rigorous monitoring procedures is a strong deterrent for third parties and employees who may consider engaging in bribery. It also serves as a mechanism to uncover suspicions or incidents of bribery. In order to ensure compliance, high-risk third parties should be obligated to provide an annual self-certification attesting to their adherence to the anti-bribery program. Additionally, periodic due diligence should be conducted for existing third parties to maintain ongoing vigilance. For high-risk parties and cases where significant concerns regarding bribery exist, it is crucial to exercise contractual audit rights.

Wrapping up

The bribery risks that come with third parties and intermediaries constitute a significant cause for concern among companies, particularly as they venture into new markets. The strategies employed to mitigate these risks in India hold immense significance. They equip companies with essential tools and frameworks to navigate the intricate business landscape, safeguard their operations against bribery and corruption risks, and uphold a robust ethical culture. By embracing these strategies, companies can protect their reputation and play a vital role in fostering a more transparent and accountable business environment in India.

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