COVID-19 corporate compliance risks

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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.

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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.

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