Bangladesh Factory Audits – Preempting Corruption Risks and Compliance Violations

Editor’s Note: This guest paper was co-authored by Manu Gopeendran, Senior Product Marketing Manager, MetricStream and Keri Dawson - Vice President of Industry Solutions and Advisory Services, MetricStream

Top retailers, apparel manufacturers, and brand-led businesses were recently in the spotlight for failing to do enough to prevent a series of fatal accidents and fires in supplier garment factories across Bangladesh. Since then, three separate agreements/groups have been formed to improve safety standards in Bangladesh’s garment industry. They include the Accord on Fire and Building Safety in Bangladesh; the Alliance for Bangladesh Worker Safety; and the Tripartite National Plan of Action on Fire Safety for the Ready-Made Garment (RMG) Sector in Bangladesh.

While these initiatives are commendable, there is a larger issue that must be considered – the risk of corruption which could impact the reliability and credibility of factory safety inspections and certifications. The fact that Bangladesh was ranked among the more corrupt countries by Transparency International is a cause for concern. What if a retailer’s supplier factory in Bangladesh fails to adhere to the minimum safety standards, but bribes auditors to pass an inspection and get a favorable verdict? In such an instance, the retailer, based thousands of miles away, faces the risk of being charged under laws such as the Foreign Corrupt Practices Act (FCPA), the UK Bribery Act, or EU anti-corruption laws.

This is where the Chief Compliance Officer (CCO) plays a key role. Their efforts to mitigate the risk of corruption and non-compliance with laws such as the FCPA can make all the difference to the effectiveness of the garment factory safety audits in Bangladesh, and the end objective of protecting human health and safety.

Towards Safer Garment Factories

The Accord on Fire and Building Safety in Bangladesh has signed on over 100 apparel corporations from 19 countries, as well as two global trade unions, and numerous Bangladeshi unions. The group has set up building and fire safety inspection and training programs, and is inspecting 1,613 factories.

Meanwhile, the Alliance for Bangladesh Worker Safety—a group of mainly 26 North American retailers—is expected to inspect approximately 700 factories. Fire safety, structural, and electrical inspections have already been completed in 222 Alliance factories. In addition, individual members are offering factories access to over $100 million in affordable capital to facilitate safety remediation.

Alongside, the Bangladesh Government-led National Tripartite Committee has kick-started garment factory inspections to check building and fire safety measures in production units. Thirty expert panels, led by Bangladesh University of Engineering and Technology (BUET), have scheduled inspections of about 2,000 garment factories, which are not being audited by the Accord or the Alliance.

Essentially, there are three different groups independently monitoring building and fire safety in Bangladeshi factories. Moreover, some retailers are conducting their own separate supplier audits. This could give rise to a complex operational environment where supplier factories, already reeling under the pressure of high production targets, have to face numerous, continuous, and often overlapping inspections from different groups.

The larger issue, however, is that of accountability. If no one takes ownership of the entire safety initiative across all three groups as well as other involved parties, who should be held responsible if, for instance, a factory erupts in a fire?

Similarly, who should be responsible for mitigating the risk of corruption in factory safety inspections? In mid-2013, seven inspectors in Bangladesh were suspended after having reportedly renewed licenses without even checking safety conditions in the Rana Plaza building that collapsed on April 24, 2013 in Dhaka, killing more than 1,000 people. Could the incident have been prevented if anti-corruption measures had been more strictly enforced?

According to Transparency International’s Corruption Perception Index (CPI), Bangladesh is ranked 136 (out of 177 countries) with a score of 27 (out of 100). The CPI scores are based on how corrupt a country’s public sector is perceived to be. The lower the score, the more corrupt the country.

For retailers who procure goods from Bangladesh factories, the consequences of corruption are high. Bribery of safety inspectors and government officials amounts to an FCPA violation which can result in long-winding regulatory investigations, legal expenses, and penalties. Therefore, it is critical that retailers and their CCOs focus on creating and implementing a streamlined and reliable FCPA compliance program across their entire supply chain hierarchy. Ideally, this compliance program should extend beyond bribery prevention, to include Corporate Social Responsibility (CSR) and social compliance since these areas are also focused on the health, safety, and well-being of factory employees.

Building a Sound FCPA Supplier Compliance Program

Here are a few key steps on how retailers, brands, and their CCO scan mitigate the risk of corruption and FCPA compliance violations in factory safety inspections:

Know your supplier

Keep track of all suppliers, as well as sub-suppliers and sub-contractors. Ensure that these entities are certified for anti-corruption before they sign a contract.
Implement a stringent supplier onboarding process

Take the time to collect and verify the accuracy of supplier information such as their production capacity and sub-contractor details. This information is critical in detecting possible areas of concern and corruption risks early on. If the information appears to be suspicious or inaccurate, leverage a third-party auditor to verify the details, or identify alternate suppliers. Encourage new suppliers / factories to get audited and certified based on the new unified standards.

Create a risk-centered supplier compliance program

Identify and understand the prevalent compliance and corruption risks in the supplier’s country. Conduct due diligence, and implement effective risk mitigation controls. Also, establish a strict compliance clause in supplier contracts.

Oversee/ track supplier activities

Establish central as well as regional teams to keep a strict watch over third-party dealings. Empower top-level committees to look into high-risk suppliers, and assess and review their activities.
Conduct regular compliance audits

Ensure focused and regular third-party audits to determine if suppliers are adhering to anti-corruption agreements. Scrutinize any suspicious interactions with government officials, and proactively investigate loopholes and threats.

Improve the “culture of sourcing”

If an alternative supplier has to be found during an emergency, don’t rush the onboarding process. Ensure that sufficient time is taken to investigate the new supplier, and collect and verify their details. Otherwise, problems could arise later.

Organize consistent compliance training programs for suppliers

Update and tailor training material to suit the Bangladesh culture and language requirements. Ensure that suppliers understand the importance of anti-bribery laws and the consequences of non-compliance. Establish mechanisms for feedback and forums to answer supplier questions.

Replace a policing attitude with dialogue and collaboration

Remember that factory workers are often under enormous pressure to sustain their meager income. They may therefore end up compromising on compliance obligations and turning a blind eye to irregularities. So replace punitive measures with open communication and dialogue. Appoint whistleblowers to voice employee concerns and incidents of non-compliance.

Conclusion

The road to establishing ethical and compliant supply chains is far from easy. In the Bangladesh context, retailers would do well set the stage for change by working with suppliers to improve factory conditions and employee wages, while also pushing for governmental reforms that will reduce the risk of corruption and bribery across the garment industry. Together, retailers, suppliers, government officials, and local and international trade bodies can strike back at corruption with confidence, and do away with tough bottlenecks on the way to compliance.

Organizations should ensure that their factory safety monitoring and improvement programs are coordinated with other legal and regulatory compliance obligations to avoid duplication of efforts, and to maximize the efficiencies of existing compliance and internal investigation efforts associated with the FCPA and other anti-corruption statutes.

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