Expanding companies should assess risk from overseas operations

Many organizations are seeking to expand their operations overseas as part of their growth strategies. In Bahrain, as well as around the world, globalization has entered a new phase, posing greater challenges for anti-bribery and corruption (ABC) compliance than ever before. Two factors are creating new issues for companies, according to a recent report by KPMG International.

First, a growing number of governments around the world are tightening ABC regulations or introducing new ones as we see in Bahrain. In the light of Kingdom’s expanding corporate culture, the government has introduced Law Number 01/2013 to expand the Amiri Decree Number 15/1976, in order to address bribery and corruption across both the public and private sectors.  Second, as companies globalize their operations, they rely more heavily on third parties than before to do business in far-flung parts of the world, often in areas where there is a high risk of corruption. 

Jeyapriya Partiban, Risk Consulting Partner at KPMG in Bahrain said: “the government has worked hard to enforce strict laws on bribery and corruption. However, as the global report highlights, with GCC based organizations and businesses increasingly investing overseas, reliance on and managing risk with third parties can be a challenge and adequate controls and monitoring must be put in place.” 

The survey, conducted by KPMG International with respondents from around the world, shows that companies are rising to the challenge but that a great deal more needs to be done to create a sturdy ABC compliance structure. For full details, read the report Anti-bribery and corruption: Rising to the challenge in the age of globalization.

The main findings of the survey include:

• There is a sharp increase in the proportion of respondents who say they are highly challenged by the issue of ABC, compared with a survey KPMG conducted almost five years earlier.
• As companies continue to globalize, the way they manage third parties poses the greatest challenge around ABC programs, ranking first in terms of auditing third parties for compliance and third in conducting due diligence over them.
• Despite the difficulty of monitoring their business dealings with third parties, more than one third of the respondents do not formally identify high-risk third parties.
• Nearly two thirds of companies indicated that M&A is part of their growth strategy, however global business comes up short when considering ABC risks.
• Respondents complain they lack the resources to manage ABC risk, ranking fourth overall among the top challenges facing the survey’s respondents.
• A top-down risk assessment would help companies set priorities, but executives admit that an ABC risk assessment is one of their companies’ top challenges.
• Data analytics is an increasingly important and cost-effective tool to assess ABC controls. Yet only a quarter of respondents use data analysis to identify violations and of those that do so, less than half continuously monitor data to spot potential violations. A similar proportion of respondents (26 percent) couldn’t say either way.

“Despite greater efforts to build ABC frameworks, it’s clear that there are gaping holes in them,” says Petrus Marais, Global Leader of Forensic Services for KPMG. “The problem is particularly acute in the management of third parties who increasingly act as conduits for bribes, making it harder to track. Respondents to the survey admit it’s the biggest challenge in the field of ABC, but they are not doing enough to develop a culture of compliance both among their employees and their vendors and other business associates.”

About the survey

The survey targeted 659 respondents covering 64 countries, with 140 respondents based in Central & Eastern Europe (including Russia), 113 in Western European countries (excluding the UK), 105 from the Asia – Pacific region, 66 respondents in the U.S., 64 from the South American continent (31 in Mexico), 61 in South Africa and 41 in the UK. Industries were widely represented: banking comprised 20 percent, life sciences 12 percent, manufacturing 10 percent and energy & natural resources 8 percent. The survey was completed in October 2014.