jason atchley

Using Risk-Sorting for Smarter International Compliance


Sue Reisinger, Corporate Counsel

March 24, 2014    |0 Comments

Sergey Nivens
Like most large multinational companies, Dell Inc. engages with many third parties across its business and around the world. And that means Dell’s chief compliance counsel, Joseph Burke, has his hands full on most days making sure those third parties are trustworthy.
That’s why Dell and Burke, who is the company’s global coordinator of compliance counsel, have turned to a risk-sorting system that helps them put the most company resources where the risks are higher—and save when it can determine that the risks are lower.
The idea seems to meet with government approval. In its latest guidance on the Foreign Corrupt Practices Act [PDF], the U.S. Department of Justice states that the “assessment of risk is fundamental to developing a strong compliance program.”
Alexandra Wrage, president of TRACE International and a columnist for CorpCounsel.com, explained, “In some [industries], like aerospace and defense, the challenge is less daunting because they tend to have a smaller number of agents and consultants working on very large deals. As such, investing thousands of dollars in each due diligence review can make sense.”
But Wrage said other industries, like the technology sector, “may have tens of thousands of partners, with each accounting for a very small portion of the overall international revenue.” In such cases, the cost of due diligence on each one “can quickly overshadow” the financial gains, she added.
“If a company has 50,000 partners—not uncommon—even a very light review at $150 per partner gets to $7.5 million quickly,” Wrage noted.
And even baseline due diligence, she said, requires companies to identify true beneficial ownership; look for ties to the government, if any; conduct screening against international watch lists; and ask the usual questions about past misconduct, bankruptcies and such. “Most companies have added to these items questions about conflict minerals and trafficked labor, which are relatively new risk areas,” she said.
So Wrage’s nonprofit organization came up with a new tool, called TRACEsort, to help companies filter their third parties and identify the highest risks.
Burke told CorpCounsel.com that Dell’s compliance team worked directly with TRACE and its own anticorruption counsel to build a customized version of TRACEsort to address Dell’s specific needs.
The tool “can be calibrated both to the diversity of the population being vetted and to Dell’s particular risk appetite for one aspect of our business as opposed to another,” Burke explained. “For example, we are likely to apply a higher vetting standard to a small reseller selling to government customers in a risk-centric country than we are to a larger, and potentially better-known, supplier of routine products or services in a less risky environment.”

Read more: http://www.corpcounsel.com/id=1202647979833/Using-Risk-Sorting-for-Smarter-International-Compliance#ixzz2wtfgoJ00

Posted by at 11:08 AM 

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