COVID-19 corporate compliance risks

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compliance

As COVID-19 continues to spread worldwide, more governments are implementing heavy travel and work restrictions on individuals and companies. For many companies, these restrictions have severely disrupted or even halted business operations. Their priority is to implement alternative arrangements to ensure that the frontline business can operate as usual.

However, another casualty of these travel and work restrictions has been to disrupt the important activities of in-house regional and global compliance teams, who are not able to provide direct oversight, training and risk assessments to their local business operations.

There are several main compliance risks that may arise from the COVID-19 outbreak disruption, and practical steps that companies can take to pre-empt these risks.

The COVID-19 outbreak has caused significant financial stress and economic uncertainty for companies across all sectors. This stress and uncertainty – and the crisis mentality that comes with it – may result in increased non-compliant behaviour. For example, when employees or third-party intermediaries:

  • Attempt to speed up processes that may be stalled due to short-staffing or closure of government offices, such as by providing improper payments to government officials;
  • Attempt to apply for government subsidies designed to support business entities sustaining adverse impact from the COVID-19 outbreak by submitting falsified supporting materials to meet thresholds;
  • Seek to bypass product quality approval processes or testing/licensing requirements to meet increasing market demand; or
  • Falsify accounting entries of profits and losses to meet sales targets and investor expectations.

The COVID-19 outbreak has also caused significant restrictions on movement around the world, both at a local level, through mandatory remote working arrangements, and at an international level, through travel bans and quarantine policies. The implications of these restrictions on corporate compliance are varied, and there are three key examples that can be seen on the ground:

  • Where compliance issues have been identified, companies are no longer able to easily speak to involved employees, gather and examine physical evidence, and conduct site visits, making it difficult to swiftly investigate and remediate the suspected misconduct; and
  • Companies are seeking to shift supply chains to alternative locations and suppliers less affected by the outbreak. However, changing manufacturing locations or suppliers quickly raises additional compliance risks, especially if time constraints prevent the company from properly screening and vetting new parties. Possible areas of liability that companies may be exposed to include: bribery/corruption, trade sanctions, and supplier abuses (such as forced or child labour).

Many companies are making donations to hospitals, governmental organs and charity institutions as part of their corporate social responsibility practices, and to assist with the current health crisis. Companies should remain vigilant to compliance risks associated with such donation activities, and avoid any attempt to use these activities as a means of influencing the business decision of the receiving party with a view to securing business advantages or opportunities.

Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker McKenzie by e-mailing Danian Zhang (Shanghai) at danian.zhang@bakermckenzie.com.