Welcome to this ACT webinarKnow your third party compliance

22 October 2015 | 12.30-13.15 BST

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Introduction

Stephen Baseby Associate Policy & Technical DirectorACT

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AgendaIntroductionStephen Baseby Associate Policy & Technical Director, ACT

PresentationJames Swenson, Head of Operations and Delivery for Thomson Reuters Enhanced Due Diligence, Thomson Reuters

Discussion and Q&A

Presentation

James Swenson Head of Operations and Delivery for Thomson Reuters Enhanced Due Diligence Thomson Reuters

Know your Third Party Compliance

James Swenson | October 2015

Accelus Enhanced Due Diligence

Key Areas of Risk in the Supply Chain

Customer & 3rd Party Risk• Identify an individual/entity• Understand if you can and should do business with the

individual / entity• Monitor for suspicious activity• Report and disclose to regulators and board

Compliance Risk• Stay current on all regulations• Anticipate how regulations might change and how they could

impact your organisation• Link changing regulations to policies• Report and disclose to regulators and board

Enterprise Risk• Measure and monitor risks related to events and the breakdown

of internal procedures, people and systems• Report and disclose to board

Financial Risk• Understand and optimise exposure to credit, liquidity and market

risk• Comply with financial regulations• Deliver accurate reporting

Corporate Governance and Controls• Build rules, practices and processes for operational

effectiveness• Monitor and test rules, practices and processes to ensure

compliance

KY3P Risk Management

Develop

Build

Identify

Assess

Monitor

Review

Educate

In order to prevent, detect and investigate supplier and third party risk, organisations need to implement a simple framework :

1. Develop your program

2. Build and operate controls

3. Identify the risks

4. Assess the results

5. Monitor and report

6. Review and align

7. Train and educate

Pillars of a ABC Compliance Programme

ProportionateProcedures

Top-Level Commitment

Risk Assessment

Due Diligence

Training

Monitoring & Review

KY3P Risk Management

Third-parties or business associates include:

1. Clients/Customers

2. Joint Venture/Consortium Partners

3. Contractors/Suppliers/Vendors/Distributors

4. Agents/Introducers/Intermediaries/Consultants

Risk Variables

JurisdictionsExposure to

Gov’tOfficials

Business Sector

Relationship Type

Risk-Based Approach

Exposure to Public

Officials?

Relationship Type

Risk RatingBusiness Sector

Location

Low Risk Norway/Canada

Medium Risk Malaysia/Poland

High Risk Venezuela/

Ukraine

Low Risk Consumer

Services, Retail

Medium Risk Pharmaceuticals/

Telecoms

High RiskOil & Gas, Extraction, Defense

Are the principals behind the

company Foreign Public Figures?

Will the business involve gov’t or

public contracts?

Is a gov’t license required for the

operation?

Are the third party goods and services mission-

critical?

Does the supplier deal with proprietary info,

IT systems, security

services?

MEDIUM RISK

HIGH RISK

LOW RISK

Risk-Based Approach

Exposure to Public

Officials?

Relationship Type

Risk RatingBusiness Sector

Location

Low Risk Norway/Canada

Medium Risk Malaysia/Poland

High Risk Venezuela/

Ukraine

Low Risk Consumer

Services, Retail

Medium Risk Pharmaceuticals/

Telecoms

High RiskOil & Gas, Extraction, Defense

Are the principals behind the

company Foreign Public Figures?

Will the business involve gov’t or

public contracts?

Is a gov’t license required for the

operation?

Are the third party goods and services mission-

critical?

Does the supplier deal with proprietary info,

IT systems, security

services?

MEDIUM RISK

HIGH RISK

LOW RISK

Risk-Based Approach

Exposure to Public

Officials?

Relationship Type

Risk RatingBusiness Sector

Location

Low Risk Norway/Canada

Medium Risk Malaysia/Poland

High Risk Venezuela/

Ukraine

Low Risk Consumer

Services, Retail

Medium Risk Pharmaceuticals/

Telecoms

High RiskOil & Gas, Extraction, Defense

Are the principals behind the

company Foreign Public Figures?

Will the business involve gov’t or

public contracts?

Is a gov’t license required for the

operation?

Are the third party goods and services mission-

critical?

Does the supplier deal with proprietary info,

IT systems, security

services?

MEDIUM RISK

HIGH RISK

LOW RISK

KY3P Risk Management

Lower Risk Medium Risk Higher Risk Sanctions Screening Sanctions Screening Sanctions Screening

Black & Watch Lists Black & Watch Lists Black & Watch Lists PEPs/Heightened Risk PEPs/Heightened Risk PEPs/Heightened Risk

Adverse Media Search Adverse Media Search Adverse Media Search

Company status verification Company status verification

Directors/Shareholders Directors/ShareholdersIn-country database and local language media check

In-country database and local language media check In-depth reputational assessmentSource interviews and reference checks

Drivers for Due Diligence

• Foreign Corrupt Practices Act (FCPA)

• UK Bribery Act (UKBA)

• OECD Good Practices Guidance

• US Patriot Act

• EU Money Laundering Directives

• Reputation

• Ethical Business Practices

• Sanctions Compliance

• Ultimate Beneficial Ownership Obligations

Drivers for Due Diligence

• Does the company exist?

• Who owns it?

• Where is the office and who manages it?

• Physical office location?

• Is it well established?

• Is it owned or managed by entities connected to political figures?

• Is it newly incorporated?

• Is it established offshore? Who are the Ultimate Beneficial Owners (UBOs)?

• Are the principals criminals or money launderers?

• Are they a risk to your reputation and your business?

• What is their track record?

• Do they pay or accept bribes?

Sources of Information

Open Sources

Databases

Public Records/Official

Gov’t Sites

PEP/Sanctions/Blacklists

Court Records

Company Registrars/Tax Bureaus/Gov’t Ministries

Litigation/Regulatory /Bankruptcy Databases

Commercial Information Databases

Media Monitoring

Internet/News Aggregators/Foreign Press/Social media

EMERGING RISKS IN THE SUPPLY CHAIN

• Forced Labour

• Bonded Labour

• Modern-Day Slavery

• Child Labour

“Supply Web”

“Supply Web”

Direct Supplier

HOW SIGNIFICANT IS THE PROBLEM?

• Forced/Bonded/Child Labour in the Private Sector generates an estimated USD 150 million in profits.

• More than 21 million people worldwide are currently in conditions of forced or bonded labour.

• Most common industries: cottons, tobacco, sugarcane, cattle and coffee

• Also prevalent in garments, electronics and construction.

• Controversial issue in Qatar.

RECENT EXAMPLES

• Electronics Section in Malaysia– Recruitment firms in Nepal/Myanmar – Confiscation of Travel Documents– Conditions of Indentured Servitude

• Seafood Industry and Thailand– Family Members Forced to Sign Agreements– Living Wages– Market Backlash

DRIVERS

• California – Supply Chain Transparency – CA Companies with Revenues over USD 100 million– Must Disclose Efforts Though These are not Regulated– Conditions of Indentured Servitude

• US Federal Government Executive Order

• Modern Slavery Bill 2014/2015 (UK)– Committee Stage in the House of Lords– Similar to the California Legislation

Any Questions?

The panel

ChairStephen Baseby Associate Policy & Technical Director, ACT

Speaker

James SwensonHead of Operations and Delivery for Thomson Reuters Enhanced Due Diligence, Thomson Reuters

Chair’s closing remarks

Stephen Baseby Associate Policy & DirectorACT

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