Supply Chain Disruptions Bring Compliance Risks to the Forefront
Date: April 30, 2020
The spread of COVID-19 has disrupted global supply chains in nearly every industry. Many companies have scrambled to find alternative sources of supply, while other companies have entered new industries and have begun to manufacture masks, personal protective equipment, and even medical ventilators. In addition to the manufacturing and business challenges caused by COVID-19, bringing on new and untested supply chain partners brings with it significant compliance risks that should not be ignored.
The U.S. Foreign Corrupt Practices Act (FCPA) and the U.K. Bribery Act (2010) each require that companies take steps to ensure that suppliers and other third parties with which they do business are not making corrupt payments on their behalf. Typically, these issues can be prevented by conducting due diligence on these suppliers, business partners and other third parties; however, this process often takes weeks or even months. During supply shortages and disruptions caused by the new coronavirus, it may be tempting for companies to override controls or internal processes for those suppliers that are promising delivery of much-needed goods. Last week, however, two high-ranking officials from the Justice Department made clear that the United States will continue to enforce the anti-corruption laws, notwithstanding the supply challenges caused by the pandemic. Companies, therefore, must assume that they will be held to the same expectations when vetting new suppliers and sourcing new goods.
Although the same anti-corruption rules continue to apply, U.S. and most foreign laws require a company to utilize a risk-based compliance program for vetting suppliers and other third parties. When bringing on new suppliers during the pandemic, this means that companies should have a plan that is designed to assess supplier risk in the current environment. This may differ from, or be an accelerated version of, a company’s ordinary risk assessment or diligence process, but it is important that the company have a documented plan that is designed to assess risk for its own circumstances and business. In developing its COVID‑19 compliance plan, companies should consider:
- Is there a systematic and consistent procedure and rules for bringing on a new supplier?
- How was the supplier identified by the company?
- How does the supplier source its goods?
- What is the business case for each new supplier?
- What is the scope of due diligence that has been performed on the proposed supplier?
- Are there any red flags associated with the supplier?
Thompson Hine’s attorneys have significant experience in advising clients on the implementation of compliance programs and in conducting investigations and due diligence on potential third-party business partners. Utilizing a flat-fee or other alternative fee arrangement, we can assist your company in an expedited review of potential new suppliers and in developing a defensible COVID-19 compliance program that protects your company from the business, regulatory, and legal risks associated with supply chain disruptions in the pandemic.
FOR MORE INFORMATION
For more information, please contact:
Matthew D. Ridings
Certified Compliance and Ethics Professional
Thompson Hine’s multidisciplinary COVID-19 Task Force is monitoring the latest developments and guidance from public health officials and assessing the potential impacts on our clients and their businesses. The COVID-19 Task Force page on our website provides a centralized location for recent publications, webinars, articles and resources that you may find helpful.
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