As COVID-19 working and travel restrictions begin to ease, now is a good time to revisit corporate compliance programs to ensure that they are still well-tailored and risk-appropriate for the way that business will be conducted going forward.
While there are many potential areas that may require attention in light of the changes and challenges that we have all seen during the pandemic (and now may be a good time to conduct a risk assessment to determine those areas), there are two in particular to consider.
The first is the return of corporate hospitality activities and their attendant compliance programs, which must tailor themselves to new ways of working and promoting companies’ products and services.
The second is ESG compliance of international supply chains, which has gained everyone’s attention, including legislators and regulators, over the last two years.
Gifts & Hospitality Compliance
After a considerable hiatus, we are slowly seeing an uptick in corporate hospitality, meals, entertainment, and related business expenses. As these activities resume, companies should re-assess the potential bribery risks they present if they are not handled, controlled, and documented properly. This might be a good time to consider re-issuing or refreshing staff training on these topics or checking in with sales and marketing teams to understand how their promotional activities and related spend have been affected by the pandemic.
As many workplaces have changed fundamentally, companies should ask themselves whether their current gifts, hospitality, and entertainment compliance programs remain effective.
- Focus on gift giving. During the pandemic, many companies have seen an increase in gift giving compared to in-person entertainment and hospitality. That trend may continue given how many businesses have expanded their remote working practices. While gift-giving can be a legitimate and compliant promotional activity, care must be taken to ensure that there is always a clear business and promotional justification for the gift, particularly since gifts are now less likely to be given as part of an in-person event or meeting.
- Appropriately oversee virtual events. Is the compliance program well-suited to handle remote or virtual events? It may be more difficult with virtual events to ensure the correct balance between the business and educational aspects of the event, as well as any sponsorship spend or entertainment aspects. It is also more difficult to verify remote attendees, their identities, and potential risk profiles (such as government officials or attendees who may be located in sanctioned countries).
- Consider risks of smaller in-person events. Events occurring in person are likely to be smaller than they might have been before the pandemic. It is nevertheless still important to ensure that the events and hospitality contain strong business and promotional content. This includes ensuring that there are always company personnel present at events rather than simply paying for meals, hospitality, or entertainment for clients and others.
- Maintain oversight of third parties. Does the company still have sufficient visibility over any third-party gift- giving or hospitality that the company may be funding or reimbursing? COVID-19 travel restrictions may prevent visiting distributors and other sales channel partners in person and thereby reduce the visibility of their promotional activities. This may require taking a different approach to oversight, such as conducting remote audits and maintaining regular virtual touch-points.
Supply Chain Compliance
The pandemic has also posed numerous challenges to supply chains worldwide. For example, when factories shut down during the height of the pandemic, companies met with significant production delays and shortages in goods and raw materials that are still being felt today. To help mitigate this, some companies quickly turned to new and alternative suppliers that remained open for business.
While looking outside of usual and well-established places of manufacturing or sourcing may be an easy fix in times of emergency, such shifts in the supply chain can create new or unanticipated compliance challenges and legal risks. This includes sourcing from new suppliers in regions of the world where labor and other human rights abuses are common; sourcing from new suppliers that are subject to sanctions or named on restricted party lists; and sourcing from new suppliers that have not been fully vetted and screened for the typical compliance “red flags,” including those related to anti-bribery and corruption.
In light of these risks, companies should consider taking the following steps:
- Use existing partners to the extent possible. In the event that factory and other business closures happen again (either due to a public health emergency like COVID-19 or some other global emergency), companies should consider if there are other manufacturers already in their supply chain that can temporarily satisfy production or sourcing needs (and plan for that possibility in advance). By building flexible and resilient supply chains, companies are able to work with existing partners that have already been screened and vetted for compliance risks.
- Properly vet new suppliers. Alternatively, if circumstances require companies to look outside of their existing supply chain and quickly turn to new suppliers, companies should at a minimum consider the level of corruption in the country and/or industry in which the supplier is located; whether the supplier is a sanctioned party, deals with sanctioned parties or other entities in sanctioned countries, or has been prohibited form engagement under export control or sanctions laws; whether the supplier has any personal relationships or business dealings with government entities or public officials; and whether the supplier has been the subject of any recent complaints or investigations related to labor abuses and other forms of misconduct.
The COVID-19 pandemic is happening at a time when corporations are becoming increasingly focused on their compliance with emerging Environmental, Social and Governance (ESG) issues. This corporate focus on ESG stems from two trends.
First, consumers and investors care more about ESG issues today than they did in years’ past, and they are using their purchasing and investment power to demand that corporations commit to ESG compliance and best practices.
Second, there are new and emerging legal regimes that require corporations to disclose their ESG efforts, such as the steps they have taken to reduce their carbon emissions or to eliminate forced labor from their supply chains. Such regimes have already shown their willingness to penalize corporations for their involvement in business ventures that benefit from the use of forced labor, as well as those that make false or misleading statements about the sustainability of their products or how their products were sourced. Now, more than ever, ESG programs need to be transparent and quantifiable.
About the Experts
Geoff Martin is a partner with Baker McKenzie. He is based in Washington, DC, where he works in Baker McKenzie’s Litigation and Government Enforcement practice group. Mr. Martin advises clients on corporate ethics and compliance issues including, anti-bribery and corruption, fraud, financial crime, anti-money laundering, and trade sanctions in connection with federal investigations. Read more here.
Aleesha Fowler is an associate with Baker McKenzie. She is based in Washington, DC, where she represents domestic and international corporate clients on compliance matters. Aleesha focuses her practice on white collar criminal defense, corporate compliance, and complex civil litigation that often arises from parallel regulatory investigations. She advises individuals and multinational companies on issues related to anti-corruption and fraud, and routinely assists companies in implementing compliance programs that align with regulatory standards. Read more here.