Managing corruption risks in shipping

The war in Ukraine, Russian sanctions, Covid and Brexit have all added significant complications to shipping and freight transport. Writing for Small Business, GoodCorporation director Leo Martin explores the impact of these global developments and the steps needed to mitigate a growing range of corruption risks in shipping.

As we say in this latest article, the war in Ukraine is forcing many organisations to rethink their relationships with Russia and some former Soviet Union states. This is having a knock-on effect on supply-chains with the need to factor in sanctions adding an extra layer of complexity to the process.

In addition, the soaring prices of commodities such as oil, gas, wheat and precious metals has added significant cost to both food and transport which will have an unpredictable impact on supply chains.

Such dramatic developments are changing the landscape for any organisation shipping goods around the world. Moreover, where such major changes happen at speed, the risk of corruption escalates significantly. As such, companies shipping goods around the globe should be prioritising anti-corruption checks and monitoring.

Corruption risks in shipping

Moving goods across borders requires a complex tapestry of permits, licences and authorisations. In addition, shipping companies also face demands for port charges, police and security charges as well as customs clearance fees. Third parties are regularly used to obtain such licences and in many parts of the world, ‘unofficial payments’ are routinely asked for to expedite or even perform such routine services.

It is no surprise, therefore, that the Maritime Anti-Corruption Network has received over 45,000 reports of corruption demands over the last decade.

Businesses involved in shipping goods need to be clear where the risks lie and what steps need to be taken to mitigate corruption risks, particularly as regards the use of third parties. Since the OECD Anti-Bribery Convention came into force in 1999, almost one-in-two enforcement actions has been the result of bribery through sales agents, intermediaries, distributors or brokers, all commonly used in shipping.

Anti-corruption risk assessments in shipping

Conducting and documenting a simple anti-corruption risk assessment is the first step that needs to be taken. All too often companies get this wrong, only considering that they may be at risk if they fail to put an anti-corruption system in place, rather than systematically identifying the actual corruption risks their business might face, including the risk of corruption by suppliers and third parties.

GoodCorporation’s most recent report on the effectiveness of anti-bribery controls found that 40 per cent of the risk assessment procedures evaluated were inadequate. Any company, regardless of size, which fails to conduct a robust and specific bribery risk assessment cannot be confident that its anti-corruption programme would be sufficient to prevent corruption.

Our article examines the questions companies should ask when conducting such a risk assessment and the anti-corruption mitigation measures that might need to be put in place in order to work responsibly with suppliers and other third parties.

The need for risk-based anti-corruption due diligence in the supply chain

Once the risks have been identified, anti-bribery due diligence is needed on any high-risk third parties such as shipping companies being used, especially if these are new relationships. Our article explains the steps companies need to take and how best to manage any red flags identified through the process.

Effective due diligence almost always raises some concerns. However, this does not mean that the relationship cannot move forwards. Liaise with the company to identify whether mitigation measures can be put in place to reduce risk and enhance anti-corruption controls.

Ensure that auditing rights are negotiated as part of the contract and that anti-corruption clauses are included in any agreement.

Logistics is undoubtedly one of the sectors most at risk from corruption. Understanding what the risks are, when a company might be exposed and how to mitigate the risks is vital. For most small businesses, these risks are relatively easy to identify and when a proportionate approach is taken, low cost to mitigate. For those organisations failing to recognise this, there is a real danger of unwittingly walking into corruption and fraud risk.

The current situation and the considerable disruption being wrought upon supply-chains means that good planning and risk assessment are even more essential.