Tag: 3rd parties

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31 Days to More Effective Compliance Programs

One Month to a More Effective Compliance Program for 3rd Parties-Managing 3rd Party After the Contract is Signed

The building blocks of any compliance program lay the foundations for a best practices compliance program. For instance, in the life cycle management of third parties, most compliance practitioners understand the need for a business justification, questionnaire, due diligence, evaluation, and contract compliance terms and conditions. However, as many companies mature in their compliance programs, the issue of third-party management becomes more important. It is also where the rubber meets the road of operationalizing compliance. It is also an area the DOJ specifically articulated in the 2020 Update that companies need to consider.

Managing your third parties is where the rubber meets the road in your overall third-party risk management program. You must execute this task. Even if you successfully navigate the first four steps in your third-party risk management program, those are in reality the easy steps. Managing the relationship is where the real work begins.

Three key takeaways:

  1. Have a strategic approach to third-party risk management.
  2. Rank third parties based on a variety of factors including compliance and business performance, length of the relationship, benchmarking metrics, and KPIs for ongoing monitoring and auditing.
  3. Managing the relationship is where the real work begins.
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31 Days to More Effective Compliance Programs

One Month to a More Effective Compliance Program for 3rd Parties – Questionnaire

The next step in the five-step process is the questionnaire. The term ‘questionnaire’ is mentioned several times in the 2020 FCPA Resource Guide. It is generally recognized as one of the tools that a company should complete in its investigation to understand better with whom it is doing business. The questionnaire should be mandatory for any third party that desires to work with your company as it mandates the proposed business partner commit to the required information in writing before beginning the due diligence process. Remember, if a third party does not want to fill out the questionnaire or will not fill it out completely, you should not walk but run away from doing business with such a party.

One of the key requirements of any successful compliance program is that a company must make an initial assessment of a proposed third party. The size of a company does not matter, as small businesses can face significant risks and will need more extensive procedures than other businesses facing limited threats. The level of risk that companies face will also vary with the type and nature of the third parties with which they may have business relationships. For example, a company that appropriately assesses that there is no risk of bribery on the part of one group of its third parties will require nothing in the way of procedures to prevent corruption in the context of those relationships. By the same token, the bribery risks associated with reliance on a third-party agent representing a company in negotiations with foreign government officials may be assessed as significant and, accordingly, requires much more in the way of procedures to mitigate those risks.
The questionnaire fills several vital roles in your overall management of third parties. It provides key information you need to know about who you are doing business with and whether they can fulfill your commercial needs. Just as important is what is said if the questionnaire is not completed or is only partially completed, such as the lack of awareness of the FCPA, U.K. Bribery Act, or anti-corruption/anti-bribery programs generally. Lastly, the information provided (or not provided) in the questionnaire will assist you in determining what level of due diligence to perform.

Three key takeaways:

  1. You must have enough information to fully identify the owners, UBOs, and related parties to determine if there is foreign official involvement.
  2. All commentary on best practices compliance programs requires questionnaires.
  3. If a third party refuses to fully respond to your questionnaire, run and don’t walk away from the proposed relationship.
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31 Days to More Effective Compliance Programs

One Month to a More Effective Compliance Program for 3rd Parties-Business Justification

The 2023 Evaluation of Corporate Compliance Programs stated, “Prosecutors should also assess whether the company knows the business rationale for needing the third party in the transaction, and the risks posed by third-party partners, including the third-party partners’ reputations and relationships, if any, with foreign officials.” This standard articulates one of the most basic tools to operationalize your compliance program and should form the basis of your third-party risk management process. Indeed, this is viewed as an internal control with the 2023 ECCP going on to pose the following question, “How does the company ensure there is an appropriate business rationale for the use of third parties?”

What should go into your business justification? At the most basic level, you should craft a document, which works for both you as the compliance practitioner and the business folks in your company, that details some basic concepts which includes the following: 1) The name and contact information for both the Relationship Manager and the proposed third party; 2) How the Relationship Manager came to know about the third party because it is a red flag if a customer or government representative points you towards a specific third party; 3) What services the third party will perform for your company, the length of time and compensation rate for the third party; and 4) An explanation of why this specific third party should be used as opposed to an existing or other third party, if such were considered. All this information should be documented and then signed by the Relationship Manager.

Remember, the purpose of the business rationale is to document the satisfactoriness of the business case to retain a third party. The business rationale should be included in the compliance review file assembled on every third party at the time of initial certification and again if the third-party relationship is renewed. This means “Document, Document, and Document.”

 Three key takeaways:

1. You should always have a business reason for using a third party which is articulated by the business folks, not compliance.

2. A Relationship Manager is the key going forward in operationalizing your compliance program through the life of the third-party relationship with your company.

3. Always remember to “Document, Document, and Document”.

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31 Days to More Effective Compliance Programs

One Month to a More Effective Compliance Program for 3rd Parties – 3rd Party Risk Management Process

As every compliance practitioner knows, third parties still present the highest risk under the FCPA. The 2020 Update devotes an entire prong to third-party management. It begins with the following:
 Prosecutors should also assess whether the company knows the business rationale for needing the third party in the transaction and the risks posed by third-party partners, including the third-party partners’ reputations and relationships, if any, with foreign officials. For example, a prosecutor should analyze whether the company has ensured that contract terms with third parties specifically describe the services to be performed, that the third party is performing the work, and that its compensation is commensurate with the work provided in that industry and geographical region.   Prosecutors should further assess whether the company engaged in ongoing monitoring of the third-party relationships through updated due diligence, training, audits, and/or annual compliance certifications by the third party.

This specifies that the DOJ expects an integrated approach operationalized throughout the company. This means you must have a process for the full third-party risk management life cycle. Five steps in the life cycle of third-party risk management will fulfill the DOJ requirements in the 2020 FCPA Resource Guide and the Hallmarks of an Effective Compliance Program. The five steps in the lifecycle of third-party management are:

  1. Business Justification by the Business Sponsor;
  2. Questionnaire to Third-party;
  3. Due Diligence on Third-party, including triage of results;
  4. Compliance Terms and Conditions, including payment terms; and
  5. Management and Oversight of Third Parties After Contract Signing.

Three key takeaways:

  1. Use the entire 5-step process for third-party management.
  2. Make sure you have business development involvement and buy-in.
  3. Operationalize all steps going forward by including business unit representatives.
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31 Days to More Effective Compliance Programs

One Month to a More Effective Compliance Program for 3rd Parties – Introduction and Key 2022 Enforcement Actions Involving 3rd Parties

Over the month of April, I will consider the risk management of third parties in an operationalized compliance program. As every compliance practitioner knows, third parties still present the highest risk under the FCPA. You must assess whether the company has a business rationale for needing the third party in the transaction, and the risks posed by third parties, including their reputations and relationships, if any, with foreign government officials. You should ensure that contract terms with third parties specifically describe the services to be performed, the third party performing the work, and that its compensation is commensurate with the work provided in that industry and geographical region.   Finally, you must continuously monitor the third-party relationships through updated due diligence, training, audits, and/or annual compliance certifications by the third party.

In this introduction, I visit with Alexander Cotoia, a Regulatory and Compliance Attorney at the Volkov Law Group, to consider how recent FCPA enforcement actions point towards the use cases for a robust third-party risk management system. In 2022, most FCPA-related enforcement actions involved third parties and required organizations to reprioritize third-party risk management. In this episode, we consider case studies involving ABB Limited, GOL Airlines, and Oracle, demonstrating the importance of understanding bribery and corruption schemes, making voluntary disclosures, and reassessing third-party risk management.

3 Key Takeaways:

1. How can organizations reprioritize third-party risk management as a core compliance function?

2. How can organizations avoid FCPA violations and maximize cooperation credit?

3. How can organizations effectively assess the risks posed by potential business partners?

Check out The Compliance Handbook, 3rd edition, here.

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31 Days to More Effective Compliance Programs

One Month to a More Effective Compliance Program for Business Ventures-Why Business Ventures are Different than 3rd Parties

Business ventures, whether JVs, partnerships, franchises, team agreements, strategic alliances or one of the myriad types of business relationships a U.S. company can form outside the U.S., are different than the usual risk presented by third-parties under compliance requirements such as those mandated by the FCPA. The problems for companies is that they tend to treat business venture risk the same as third-party risk. They are different and must be managed differently.

The bottom line is that may compliance practitioners have not thought through the specific risks of business ventures such as JVs, franchises, strategic alliances, teaming partner or others as opposed to sales agents or representatives on the sales side of the business. I hope that this will help facilitate a discussion that maybe people will begin to think about more of the issues, more of the risk parameters and perhaps put a better risk management strategy in place.
Three key takeaways:

  1. Business ventures bring different FCPA risks from third-parties.
  2. JVs have both external compliance risks and corporate governance risks.
  3. Use your full compliance tool kit for business ventures in managing the FCPA risk for franchises.
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Innovation in Compliance

Third-Party Management: A Risk-Based Approach – Part 5: Alexander Cotoia on Use Cases

Welcome to a special 5-part podcast series sponsored by Diligent. Over this series, we will consider a risk-based approach to third-party risk management. Over this series, I will visit with Michael Parker, the Director of Advisory and Consulting Services; Stephanie Font, Director of the Optimizations Group; Kairi Isse, Managed Services Group Manager; Adam Bailey, Senior Vice President, Product Management and Alexander Cotoia, Associate at the Volkov Law Group. In this Part 5, I visit with Alexander Cotoia, a Regulatory and Compliance Manager at the Volkov Law Group, to consider how recent FCPA enforcement actions point toward the use cases for a robust third-party risk management system.

In 2022, the overwhelming majority of FCPA-related enforcement actions involved third parties and required organizations to reprioritize third-party risk management. In this episode, we consider case studies involving ABB Limited, GOL Airlines, and Oracle, which all demonstrated the importance of understanding bribery and corruption schemes, making voluntary disclosures, and reassessing third-party risk management.

Key Highlights

·      How can organizations reprioritize third-party risk management as a core compliance function?

·      What strategies can organizations use to avoid FCPA violations and maximize cooperation credit?

·      How can organizations effectively assess the risks posed by potential business partners?

 Notable Quotes 

1.     “Don’t put yourself in a position of being uncooperative with either the SEC or DOJ. Reassess your framework for third-party risk management holistically and hone in on the nature and quality of the information that’s being collected to objectively evaluate the totality of risks posed by a potential business partner to the organization.”

2.     “You really can’t afford to be complacent, especially as we have a new emerging consideration suspecting sanctions and export controls that have become core enforcement priorities of the federal government.”

3.     “The critical question asked from a functional perspective is, is it adequate to objectively evaluate the totality of risks posed by a potential business partner to the organization?”

4.     “You have to understand that third-party risk, especially as it pertains to anti-bribery and corruption concerns, is a universal constant.”

 Resources

Alexander Cotoia on LinkedIn

Check out Diligent’s 3rd party products and services here.

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Reprioritizing Your Third-Party Risk Management Program – Key 2022 FCPA Enforcement Actions

From the Foreign Corruption Practices Act (FCPA) enforcement actions in 2022, one clear theme emerges; that is, organizations must reprioritize their third-party risk management programs. Many companies are becoming complacent in this arena, not realizing the potential consequences of not properly assessing their third-party risk management practices. I recently had the opportunity to visit with Alexander Cotoia of the Volkov Law Group to discuss importance of reprioritizing third-party risk management and how organizations can assess the effectiveness of their current practices. We review three 2022 FCPA enforcement actions to explore the importance of proper third-party risk management and how to avoid the potential consequences of not properly assessing these risks. Join us as we explore the details and implications of these enforcement actions and how organizations can reprioritize their compliance programs for the ever-changing dynamics of third-party risk management.

Here are the steps you need to follow to reprioritize your third-party risk management program.:

  1. Understand that third-party risk, especially as it pertains to anti bribery and corruption concerns, is a universal constant and still the highest risk.
  2. Reassess the framework by which third parties are evaluated and objectively evaluate the totality of risks posed by a potential business partner to the organization.
  3. Implement a risk-based approach to third party risk management.
  1. Understanding third-party risk

Understanding that third party risk, especially as it pertains to anti-bribery and corruption, is a universal constant is an important step in the risk management process. As evidenced by three key enforcement actions, ABB Limited, Oracle and GOL Airlines, organizations must evaluate the risks posed by potential business partners and ensure that the information collected is adequate to objectively assess the totality of the risks. Organizations should be aware that the DOJ requires companies to adopt a risk-based approach to third party risk management. To ensure that the organization is compliant with these regulations, they should review their existing practices and be prepared to supplement them if necessary. Additionally, organizations should be aware that they may be given credit for voluntary disclosure and cooperation efforts when faced with potential violations. This may be beneficial when determining penalties and is an important factor to consider when dealing with third party risk.

  1. Reassess your third-party framework

Reassessing the framework by which third parties are evaluated and objectively evaluating the totality of risks posed by a potential business partner to the organization is a critical step in reprioritizing your third-party risk management strategy. This should be approached holistically, focusing on the information being collected and its adequacy in objectively evaluating risks. Organizations should adopt a risk-based approach, as recommended by the DOJ, and not simply have a one size fits all approach. This approach should include due diligence, assessing the potential partner’s reputation and business practices, verifying their legitimacy and background, and understanding their country of origin and its laws. Additionally, organizations should consider the potential partner’s relationship with government officials and whether it could violate any anti-bribery or corruption laws. If any of these issues are identified, organizations should look into it further to ensure that their partner is compliant. By doing this, organizations can ensure that they are not engaging in any activities that could be deemed illegal or unethical. 

  1. Implement a risk-based approach

Implementing a risk-based approach to third party risk management is essential to any organization’s compliance program. This involves assessing the external parties on which an organization relies operationally, and identifying any risks associated with those external parties. This assessment should include evaluating their qualifications and experience to ensure they are able to meet the organization’s expectations. Additionally, organizations should consider conducting background checks on potential external parties, and assessing any potential conflicts of interest that may arise. Once potential external parties have been identified, organizations should consider conducting due diligence to ensure that the external party has not been involved in any fraud, bribery, or other criminal activities. Organizations should also consider developing contracts and compliance policies for external parties and monitoring their activities to ensure compliance. Finally, organizations should consider developing a training program for their external parties to ensure they understand the organization’s expectations and policies. By implementing a risk-based approach to third party risk management, organizations can reduce the risk of an FCPA violation and ensure their organization remains compliant.

Third-party risk management one of the most critical components of any organization’s compliance program. Organizations should take the initiative to reprioritize third-party risk management and assess the effectiveness of their current practices. Through the exploration of three enforcement actions and the introduction of the joint compliance note, this article has highlighted the importance of properly assessing third-party risk and how to best prepare for the ever-changing dynamics of third-party risk management. By implementing a risk-based approach to third party risk management, organizations can protect themselves from potential violations of the FCPA and ensure their organization remains compliant. With the right tools, processes, and dedication you can achieve the same results and protect your organization from costly fines and penalties.

For more information, on Diligent’s Third-party Risk Management solution, click here.

Listen to Alexander Cotoia on the podcast series, sponsored by Diligent here.

Check out the Volkov Law Group here.

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Reprioritizing Your Third-Party Risk Management Program -Reporting

Today’s business landscape is becoming increasingly complex and globally interconnected, with the average business now working with over 100 third-party vendors. While this presents a wealth of opportunities, it also brings a range of challenges for boards and GRC professionals alike when it comes to third-party risk management. I recently visited with Diligent’s Senior Vice President of Products, Adam Bailey on how to tackle these challenges and leverage third-party risk management to identify opportunities and equip boards to take risks, innovate and drive things forward. Here are the steps you need to follow to also get clarity, insight, innovation.:

  1. Understand the role of the board in oversight and provide clarity on third-party risk management.
  2. Board review Codes of Conduct.
  3. Continuous improvement view of risk management.
  4. Utilize real-time data to react to changing times.
  5. Ensure commitment to shared values and ethical cultures.

 1.Understand the role of the Board in oversight

Understanding the role of the Board in oversight and providing clarity on third-party risk management is an essential step in any risk management strategy. Obviously, the Caremark Doctrine is the leading authority which Boards must follow. But more than simply oversight to  meet a legal requirement, businesses should see the business opportunity by creating a business process which connects employees, compliance professionals, executives, and boards together in a seamless process. This connection enables a culture of continuous improvement that starts at board level and cascades down through the structures of the business. This allows two-way communication between boards and compliance professionals, so that boards can clearly communicate their risk management strategy and expectations. 

  1. Board review of Codes of Conduct

A key role for any Board is to review and refresh if needed your organization’s Code of Conduct on a regular basis. When it comes to third-party risk management this is needed to  ensure that the third parties are following the company’s established guidelines. A Board should understand the importance of third-party risk management and how to fulfill their role of oversight. There should be an enterprise-wide single source of data for every Board to ensure effective governance, risk and compliance. Boards should also be provided with dashboards to allow for continuous monitoring of third-party relationships and to provide real-time information and data to enable businesses to react to changing times. Ultimately, companies need to show that their Board is making a good faith effort to address risks by having due diligence processes in place and effective plans to monitor those processes.

  1. Continuous improvement view of risk management

A key role for any Board is to implement a continual improvement view of risk management. This shifts an organization’s focus from a one-time due diligence approach to ongoing, rigorous due diligence designed to identify risk areas and set benchmarks for improvement. This allows a Board to have a clear view of the risks involved and make informed decisions. A two-way dialogue is also important, with data flowing up to the board and actions cascading back down to the compliance team. 

  1. Utilize real-time data to react to changing times

There is probably no more important task for a Board in 2023 than responding to changing times. Obviously Covid-19 is still in front of mind, but the change political, geographic, economic and even climate changes are moving much more quickly now. For a Board to provide effective oversight, it must have access to real-time data to react to changing times. This is both from a regulatory perspective and a business/reputational perspective. All internal stakeholders should be connected with enterprise-wide single source of all nonfinancial data required for effective governance, risk, and compliance. The platform also provides real-time information and data so Boards can quickly react to changing times. Furthermore, the platform adds relevancy and context to the risk data which helps Boards make informed decisions based on the potential upside and downside of taking on certain risks.

  1. Ensure commitment to ethical values and ethical cultures

It really all does start at the top and Boards must ensure commitment to ethical values and ethical cultures. Boards should mandate that companies adopt a continual improvement view and embrace not just one and done due diligence, but ongoing monitoring and continuous improvement. Boards should mandate that organization enforce their commitment to ethical values, ethical cultures, and honest business practices. When it comes to third parties, Boards must understand the risk each third-party poses and to consider the business in question and the sort of inherent nature of the dealings with that third-party. Having a robust platform also provides real-time information and data throughout the relationship with the third-party, dashboards to monitor third-party information, and a single source of truth for all nonfinancial data. This allows for a two-way dialogue between GRC professionals and the board to ensure that the board has the clearest, most relevant, and most targeted information to inform better decisions.

For more information, on Diligent’s Third-party Risk Management solution, click here.

Listen to Adam Bailey on the podcast series here.

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Reprioritizing Your Third-Party Risk Management Program -Implementation and Maintenance

Are you a compliance professional tasked with managing third-party risk relationships? Are you overwhelmed with the sheer amount of data that comes with that responsibility? How do you engage in implementation and maintenance. To answer these and other questions, I recently visited with Kairi Isse, Diligent’s Managed Services Group Manager, to discuss why the step of management after the contract is signed is the most important part of the third-party risk management cycle. She discusses the importance of ongoing monitoring and why it is critical for modern companies to understand the risks posed by their third parties. We consider the uses of an AI-driven ongoing monitoring search tool, allowing a customizable, auditable way to ensure compliance and reduce risk. Join us as we explore this most critical step on the life cycle of the third-party risk management—managing the relationship after the contract is signed. Here are the steps you need to follow to manage relationships with third-parties after the contract is signed:

  1. The importance of ongoing monitoring for third party risk management to minimize risks of data breach, bribery, and fines.
  2. Design and implement an effective ongoing monitoring program that works in practice.
  3. Utilize AI-driven ongoing monitoring search tools to focus on the right data for your organization.
  4. Create an audit trail to demonstrate the company’s continuous improvement based upon ongoing monitoring.
  1. The importance of ongoing monitoring

Ongoing monitoring for third-party risk management is key to minimizing risks of data breaches, bribery, and fines. Through proper monitoring and management of third parties, companies can ensure that their vendors are not putting them in a vulnerable position. In this interconnected world, third party risk is a significant compliance threat and can cause damage to a company’s reputation, leading to potentially hefty fines and perhaps more importantly reputational damage. Utilizing an AI-driven ongoing monitoring search tool can help reduce the haystack of data and find the needle, as well as a human element to review and analyze the watch list screen results. The key is to ensure their ongoing monitoring is effective and efficient throughout the entire life cycle of their third-party relationships.

 2. Design and implementation of ongoing monitoring

Designing and implementation of ongoing monitoring that works in practice is a critical step in managing a third-party relationship after the contract is signed. Utilizing AI-driven ongoing monitoring search tools is essential for a successful third-party risk management relationship. It is important to customize the search to focus on the right data for your organization, as this will make it easier to find the needle in the haystack. An AI-driven search tool should include all the big databases and sanctions watch lists, as well as adverse media, to ensure that the third party poses no regulatory risk; all after the contract is signed. There should also be transaction monitoring which reviews the sales or other transactions by the third-party. Finally, never forget the human element, to ensure that the data is correct and validated before final decisions are made.

  1. Analyze and validate thru AI-driven search tool

To analyze and validate watch list screen results and consider only true matches for further review, utilize an AI-driven ongoing monitoring search tool that includes all the major databases, sanctions watch lists, and adverse media. You should customize usage to your company’s risk profile, industry, and regulations your organization is required to comply with. Next review the search to determine if they are true matches or false positives. This helps to reduce the amount of noise and unnecessary data, as well as provides an auditable trail for every action. These actions will help create an auditable document trail which can be presented to auditors or regulators.

  1. Continuous improvement through ongoing monitoring

The next step is continuous improvement based upon your organization’s ongoing monitoring. Here an audit trail to demonstrate the company’s maintenance of ongoing monitoring, is critical. The Fox Maxim of Document Document Document, is still alive and well in the era of AI. Moreover,

This allows your organization to customize their search to focus on the right data for their organization and industry, eliminating the noise from irrelevant data sets. Once again the human factor comes into play through the review and analysis any potential matches from the AI searches to validate true matches. All of these steps should be auditable, recording every action taken in the system, allowing a company to demonstrate their continuous improvement based upon ongoing monitoring.

Managing your third-party relationship after the contract is signed is still the most a critical step any successful third-party risk management protocol. A well-designed and implemented compliance program should include regular screening of global databases and adverse media, even after the contract is signed. Transaction monitoring should also be used to test individual sales for any issues. An AI-driven ongoing monitoring search tool that can help reduce the haystack of data and find the needle, as well as a human element to review and analyze the watch list screen results. With these steps, your organization can be confident that your third-party risk management program is effective and efficient throughout the entire life cycle of your third-party relationships.

For more information, on Diligent’s Third Party Risk Management solution, click here.

Listen to Kairi Isse on the podcast series here.