6 Questions With … Sandeep Bhide

The world economy has become more complicated than ever. And with increasingly pressure on governments to crack down on corruption, businesses are facing increased heat.

A growing number of nations are implementing anti-bribery and corruption (ABAC) laws that are making the supply chain more complex than ever.

Sandeep Bhide, vice president of product management for ProcessUnity, answered our 6 Questions on ABAC laws, and strategies companies can utilize to manage this new environment.

SCMR: Can you explain anti-bribery and corruption laws in general and how effective they are in preventing corruption?

BHIDE: Companies want to expand market share, revenue and remain competitive. They use third parties—agents, consultants, brokers, liaisons, subcontractor, distributors, regional/channel partners, etc.—to further their business goals. ABAC (sometimes also referred to as ABC) laws are the legal frameworks established by various governments to combat unethical practices such as kickbacks, bribery, and other forms of corrupt practices in the public and private business sectors. The desired goal of the laws is to prevent such practices so that business can be conducted in a fair manner with high integrity and appropriate transparency.

Whether such laws are effective is not an easy question to answer. It’s complicated because it depends on such factors as enforcement actions by governments, degree of compliance with the laws by corporations (and individuals), general awareness in the public that corrupt practices cause harm, and, in today’s increasingly connected world, the need for reliance on international cooperation between countries. Furthermore, corruptions can be ingrained in some cultures and industries (with a “that’s how it has always worked here” mindset). That being said, ABAC laws have made significant strides in preventing corruption in terms of more and more countries instituting such laws, international agreements such as the OECD anti-bribery convention, whistleblower protections, global transparency initiatives (e.g. Corruption Perceptions Index from Transparency International), enforcement actions by governments (both criminal and civil/monetary), new technologies and data analytics to identify and prevent/mitigate corruption, greater corporate and public sensitivity and awareness. 

SCMR: What are the major domestic laws that U.S. companies should be aware of?

BHIDE: In the United States, the two primary enforcement institutions are the Justice Department (criminal prosecutions) and the Securities and Exchange Commission (civil prosecutions). The underlying legal frameworks they rely upon is summarized below in chronological order of when each law was enacted:

• 1977: Foreign Corrupt Practices Act (FCPA). The FCPA was enacted in 1977 and is the most well-known U.S. law that prohibits U.S. companies and individuals from bribing foreign officials to obtain or retain business. It also requires companies to maintain accurate books and records and internal controls.
• 1984: Federal Bribery Statute (U.S. Code Title 18, Section 201). The law prohibits the bribery of public officials in domestic contexts. The overall structure of Title 18, which deals with crimes and criminal procedure, was codified in 1948 as part of the general revision of the United States Code. However, many of the statutes within Title 18, including Section 201, were based on laws that existed prior to 1948. U.S. Code Title 18, Section 666: This federal law prohibits theft, bribery, and embezzlement in connection with programs receiving federal funds.
• 1988: U.S. Code Title 41, Sections 2101-2107 (The Procurement Integrity Act). This act regulates ethical conduct in government procurement processes, including prohibiting offering or accepting bribes or gratuities related to government contracts.
• 2002: Sarbanes-Oxley Act (SOX). The Sarbanes-Oxley Act was designed to improve the accuracy and reliability of corporate disclosures and requires companies to maintain internal controls over financial reporting.
• 2010: Dodd-Frank Wall Street Reform and Consumer Protection Act. This law contains whistleblower protections, encouraging individuals to report securities violations, including corruption and fraud, to the SEC.

SCMR: What is the Federal Extortion Prevention Act and how does it apply to supply chain businesses?

BHIDE: This law (FEPA) flips the FCPA script and is attempting to combat extortion by foreign officials. It establishes a federal criminal offense involving bribery by foreign officials. Specifically, it amends title 18 U.S.C. and makes it a crime for foreign officials to demand or accept anything of value personally or for another person or a nongovernmental entity to influence the performance of an official act or otherwise confer an improper advantage.

It explicitly grants extraterritorial jurisdiction over the offense. A violation is subject to criminal penalties—a fine, a prison term of up to 15 years, or both. Finally, it establishes a Victims of Kleptocracy Fund in the Treasury and directs fines and penalties for violations to be deposited into the fund for anti-corruption initiatives.

This law is not limited to supply chain businesses but can still have a significant impact on their operations because of the following reasons:

• Increased scrutiny: Supply chain businesses often rely on a network of third parties, including agents, distributors, and local partners, to operate overseas. FEPA raises the stakes for these relationships. Companies will need to conduct more thorough due diligence on potential third parties to ensure they are not acting as conduits for bribery by foreign officials.
• Need for “demand” side corruption detection: FEPA emphasizes the importance of robust anti-corruption compliance programs. Supply chain businesses should review and potentially update their programs to address the "demand side" of bribery. This might involve including training for employees on identifying red flags associated with extortion attempts by foreign officials and implementing procedures for reporting such incidents.
• Extortion risk: While FEPA aims to deter extortion, it's possible that foreign officials might become more emboldened to solicit bribes, knowing that companies are more cautious about offering them (due to FCPA). Supply chain businesses need to be prepared to identify and respond to potential extortion attempts effectively.

SCMR: Are there any significant international laws to be aware of?

BHIDE: Many countries have ABAC laws. Based on my reading there are at least 50 countries across North America, LATAM, Europe, Middle East & Asia-Pacific. There are several significant international anti-bribery and anti-corruption (ABAC) laws and agreements that businesses, especially multinational corporations, should be aware of:

• OECD Anti-Bribery Convention (1997): The Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, administered by the Organization for Economic Cooperation and Development (OECD), requires member countries to criminalize the bribery of foreign public officials. Signatory countries must implement laws and enforcement mechanisms to prevent bribery in international business.
• Canadian Corruption of Foreign Public Officials Act (CFPOA) (1999): This Canadian law criminalizes the bribery of foreign public officials in international business transactions and has extraterritorial reach, covering acts committed outside of Canada.
• United Nations Convention against Corruption (UNCAC) (2005): UNCAC is a comprehensive international treaty aimed at combating corruption. It includes provisions on criminalizing corruption offenses, promoting international cooperation, and recovering stolen assets. UNCAC is widely adopted and implemented by many countries around the world.
• UK Bribery Act (2010): This is one of the most comprehensive anti-bribery laws globally. It prohibits bribery in both the public and private sectors and has broad extraterritorial reach, covering activities carried out anywhere in the world that involve UK citizens, residents, or companies. It also includes a strict liability offense for failing to prevent bribery by associated persons (such as employees or agents).
• Brazilian Clean Company Act (2013): This law imposes strict penalties on legal entities for engaging in acts of corruption. It covers both domestic and foreign acts of corruption, including bribery and related offenses.
• French Sapin II Law (2016): This French law requires companies of a certain size to implement robust anti-bribery compliance programs and risk assessments. It strengthens the legal framework around bribery and corruption in both the public and private sectors.

Among all these laws, the following have been particularly notable for their robust enforcement and penalties:

• U.S. FCPA (1977)
• UK Bribery Act (2010)
• Brazilian Clean Company Act (2013)

SCMR: A majority of countries appear to have some form of anti-bribery and corruption laws, although they can vary greatly in terms of strength and enforcement. How can global companies best manage what is a patchwork of laws around the world?

BHIDE:It can be a big challenge managing compliance with a patchwork of anti-bribery and anti-corruption laws across so many countries, each with its own legal framework and enforcement practices. First and foremost, establishing a strong culture of integrity and ethics within the organization is key to successfully navigating the challenge. To effectively manage this complexity and ensure compliance, companies should consider taking the following steps:

• Solicit legal expertise from legal experts who specialize in international ABAC laws to stay informed about changes in regulations and enforcement trends. Legal counsel can provide guidance on compliance strategies and potential risks.
• Establish a consistent, centralized compliance program powered by the right technology: with global oversight to ensure anti-bribery and anti-corruption compliance across all jurisdictions where the company operates.
• Adapt to localized policies and procedures to meet the specific requirements and regulations of each country in which the company conducts business. Local compliance officers who are familiar with the local laws, practices and culture are the best option.
• Conduct regular risk assessments to identify potential areas of bribery and corruption risk in different countries and business units. The focus should be on high-risk regions and activities to prioritize compliance efforts.
• Conduct third-party due diligence for vetting third parties, such as intermediaries, suppliers, partners, and agents, to ensure they comply with applicable ABAC laws and company policies.
• Monitoring and auditing. Use technology and data analytics to monitor transactions and activities for signs of suspicious behavior or potential violations. Conduct regular audits of business units and third parties to ensure compliance.
• Establish whistleblower protections with secure, confidential, and anonymous reporting channels for employees and third parties to report potential violations of ABAC laws or company policies.
• Provide regular training and awareness on ABAC laws and company policies to employees and third parties in each jurisdiction. Tailoring the training to local languages, cultures, and legal requirements is a big plus. Communicate the company's commitment to ethical conduct and zero tolerance for bribery and corruption to all stakeholders, including employees, customers, suppliers, and partners.
• Continuous improvement of the compliance program to reflect changes in laws, regulations, and industry best practices. Learn from peers, past experiences and enforcement actions to strengthen the program.

SCMR: When setting up monitoring, are there key data points that companies should look for that can help identify corruption?

BHIDE: There are key areas where an analytical focus is needed. Having the right management software systems in place is important to improve scale and consistency in the following areas:

• Third party management: In all cases screen them for political exposure, track record, past infringements, reputation, media etc. Conduct thorough due diligence including identifying changes in ownership, financial condition, legal status and management structure and practices to identify corruption risk, propensity and any conflicts of interest. Re-evaluate when there are changes in the business arrangement or changes to the contract including amendments or scope of work, location and responsibilities.

1. Upstream: track procurement activities to identify such things as sole-sourced contracts, over-invoicing or reliance on suppliers with known problems with their past dealings, reputation and track record.
2. Downstream: track payment and transactions, discounts and rebates with resellers, intermediaries and third parties interfacing with customers.

• Establish a protocol to analyze gifts, hospitality and expenses either by employees or involving employees. This should be done as a policy and managed through management software.
• Analyze whistleblower reports for any patterns or allegations of corruption.
• The due diligence itself needs to be “multi-tiered” depending on the riskiness of the relationship – surreptitious screening (using globally available syndicated content from data providers such as LSEG), third-party facing due diligence (using questionnaires and with their involvement), internal due diligence (conducted by tapping into additional resources within the enterprise and past experiences with the third party), enhanced due diligence with the help of investigative services that provide reports on companies and beneficial owners/officers.
• Stating the seriousness of ABAC compliance and ethical operations and training employees and third parties around those obligations.

SCMR. Thank you. 

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