Nearly all companies sit somewhere within a supply chain, requiring them to perform some level of due diligence to mitigate the risk that one or more of their suppliers could pose security, financial, or other threats to their operations, stakeholders, and reputation.
Drexel University’s Kline School of Law hosted an event last week entitled “Supply Strain: Managing Global Compliance Through Your Supply Chain” to discuss among compliance, risk, and legal professionals (and Drexel students) today’s supply chain challenges facing businesses.
With the Russia-Ukraine war’s ever-expanding sanctions landscape, supply chain strain and risk of enforcement are sharply increasing. The U.S. government and other international agencies are intent on strict compliance.
Speakers such as Michael Reilly, general counsel at FMC Corp., and Zane David Memeger, partner at Morgan Lewis, outlined the risk landscape and reminded attendees to regularly evaluate supply chain and trade operations to ensure companies are meeting their compliance expectations. Incorporating know your customer (KYC) practices to understand customer’s ownership structures and supply chains and ensuring all goods are scrutinized throughout the entire product and service life cycle is essential, they said.
Roberto Gonzalez, partner at Paul Weiss, said sanctions compliance revolves around evolving risk assessments, consistent auditing and testing, sanctions screening software on filter faults, information sharing with government agencies, training, and a commitment from management to take the time and use the resources to get sanctions risk under control.
Speaking about the risk of financial crime was Assistant U.S. Attorney Michelle Morgan, chief of the Corruption and Civil Rights Section at the U.S. Attorney’s Office for the Eastern District of Pennsylvania; Cuneyt Akay, shareholder at Greenberg Traurig; Carrie Watt, a compliance executive and attorney at Avantor; and Emilia McKee Vassallo, partner-elect at Ballard Spahr.
They said the risk of such crime hitting one’s supply chain right now is compounded by companies’ increasing dependence on their supply chains, thanks to ongoing shortages caused by the Covid-19 pandemic, significant inflation, and the impact of the Russian-Ukraine war.
Bribery and fraud are two common forms of corruption in business. Bribery can include kickbacks to ensure a supplier is awarded a contract. Some vendors take it more seriously than others, as do certain jurisdictions, as kickbacks are accepted in some regions of the world, even to government officials.
Corruption in the supply chain can lead to human rights and worker safety issues, such as forced labor charges and human trafficking. Those are conditions no one wants to think still exist in today’s global society, never mind have associated with your business.
On another panel, Laura Siegel Rabinowitz, shareholder at Greenberg Traurig, and Jill Steinberg, partner at Ballard Spahr, noted businesses must track the growing number of laws in this area—including the California Transparency in Supply Chains Act and U.K. Modern Slavery Act—and incorporate zero-tolerance policies for human trafficking in supplier selection procedures.
These policies must apply to company operations and the supply chain, including business partners, they said. Brendan Collins, partner at Ballard Spahr, reminded attendees to leverage supply chain management technology and remember what compliance truly comes down to: actually doing what you say you’re doing.
Incorporating training programs to educate relevant representatives on human trafficking is expected, as are regular certifications and as many audits at ground level that can be conducted. (But good luck doing this in certain regions).
To tie together the themes discussed at the event, Susan Frank Divers, a senior adviser on ethics at LRN, in conversation with Catherine Muldoon, general counsel at Baldor Specialty Foods, spoke about ethical cultures at businesses.
A study conducted by LRN revealed 79 percent of respondents reported their company or organization’s ethical culture was strengthened during the pandemic, which LRN described as the ultimate “stress test.” Further, 87 percent of respondents reported leadership rose to the challenges posed by Covid-19.