Company risk manifests in a myriad of ways, some seemingly easy to overlook and others more obvious.
One of the biggest risks in day to day operations for companies comes from third parties – distributors, potential employees, suppliers, service providers, contracts, clients, vendors, etc. Basically, anyone on the outside who encounters your business can potentially become a threat.
- Commercial: They sell products and services to foreign officials and commercial parties (agents and distributors)
- Regulatory: They assist in securing regulatory approvals, permits and licenses (visas, customs, permits, licenses, and other government interactions)
- Vendors/Suppliers: These have close relationships with the business or offer unique services/products
- Professionals: These are lobbyists, lawyers, consultants, accountants, tax professionals (can be high-risk depending on country and interactions)
- Nominees: Local officials serving in limited authority positions with little ability to bind the company (depending on power of attorney and authority to spend)
With such broad classifications, how is it possible to recognize the difference between a compliant partner or a business relationship that has the potential to pose a risk to your business? Well, here are some things to watch out for.
Before conducting business with a third party, one should make sure that the entity in question is reputable in their industry. Are they on any Sanction Lists? Have there been any litigations related to them? Keep in mind associating with a business that has a poor reputation may impact your company’s reputation and ability to market as well.
- Connections to Government Officials
Is the third party connected to a government official, or worse, recommended by one? A common example of this usually is when someone in the senior management of a company – or a beneficiary of it also holds political office or familial connections to someone in office.
- Geographic Risk
Is the third party in a country or region of the world that has known issues with corruption, war, or sanctions? How does the country of your business relate to the geographic place of the third party? Something else to consider is whether or not it is hazardous to send your employees to this region.
- “Shell” Companies
These are companies that exist on paper – registries, in someone’s name, etc. but do not exist in the real world. Often their registered addresses are apartments or other home residences, or buildings that have no documented signage for the company. Another thing to look out for is that most Western companies utilize the internet and have a presence on social media, and so being unable to identify them online should raise “red flags”.
- Information that is inconsistent, false, or incorrect
Information that a third party gives you about itself should be compared with information from other sources to validate it.
If you feel that there is a third party that may pose a risk to your organization, do not hesitate to contact us at firstname.lastname@example.org, where a professional from Centry will be happy to help.
This article was written by Kristina Weber, Content Supervisor of Centry. She holds a Bachelor’s Degree in History from the University of Calgary.