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Study: Companies Still Lag in Third-Party Due Diligence Efforts

Jaclyn Jaeger | February 11, 2014

Corruption and bribery risks posed by third-parties are expanding rapidly for global companies, and yet compliance and legal departments are still lagging on the due diligence they perform on their third parties.

That's according to the findings of a recent anti-corruption study by professional services firm AlixPartners, which surveyed more than 250 general counsels, compliance officers, and other senior executives at companies with annual revenues of $150 million or more and based in North America, Europe, the Middle East, and Asia.

According to the study, less than half (43 percent) of respondents said they regularly conduct due diligence on third-party agents. 

“This research highlights the fact that, despite continued efforts by companies to address anti-corruption, these risks remain pervasive—risks that are of particular concern given recent increases in cross-border enforcement,” said Harvey Kelly, global leader of AlixPartners' Financial Advisory Services unit and Corporate Investigations Practice.

Respondents said the biggest obstacles to their companies' anti-corruption efforts and ability to mitigate risk areas were staffing constraints (65 percent); variations in local country regulations covering, for instance, data privacy (65 percent); and pressure to deliver operating results (58 percent).

The survey also revealed that 30 percent of respondents said they ceased doing business with certain partners because of concerns related to corruption. Specifically, 56 percent of respondents said Africa was the riskiest place to do business, followed by Russia, cited by 53 percent of respondents. Other risky countries to do business included the Middle East (49 percent); Central and South America(48 percent); Mexico (48 percent), and Southeast Asia(46 percent). 

Still, 70 percent of respondents said they have not avoided doing business in a region just because of possible corruption risk. Bribery and corruption risks can also be the major reasons behind failed mergers-and-acquisitions transactions. Accordingly, 15 percent of respondents' companies have pulled out of acquisition deals because of possible corruption at the target. 

Perception Gap

The survey also revealed a wide perception gap between respondents at U.S. companies versus those at European companies when it came to the severity of corruption risk. Only one in five respondents at European companies said their industries are exposed to significant corruption risk, compared with 40 percent of respondents from U.S. companies. 

European respondents were less likely to perform due diligence on prospective employment candidates on a regular basis. Twenty-nine percent of European respondents said they did so, compared with 63 percent of U.S. respondents, according to the survey.