One of the things that we screen for in our risk assessments is the connection of the subject to a politically exposed entity. This basically refers to any individual or company that has connections to the government of a country or other public office. For someone unfamiliar with screening processes and typical red flags, you might ask – when does political exposure or state ownership become a red flag?
The short answer is that state-owned corporate groups are linked to sensitive geopolitical spheres and carry with them the potential for many prominent international sanctions.
To get more in depth, the issue with state ownership can be a multi-faceted one. Usually, it’s not a problem. When it does present an issue, it’s because of the political exposure – where an individual or entity with prominent public function is at higher risk for bribery and corruption. In that case, determining the level of risk is up to the country in question.
Russia has had its state-owned companies sanctioned by the West. Whilst proper screening will yield entities that have been sanctioned, the connections between these and potential business partners may not always be so cut and dry. Say you are a tech company supplying technology that has been sanctioned from being imported to Russia. Over the course of business, you may find out that the new customer you were about to supply that tech to has a reliance on a separate customer that is state-owned. In that case, your company would need to evaluate the connections of your prospective customer to ensure that there are no liabilities present.
For a macro perspective, there is also the issue of planning global ventures to navigate geopolitics and risky relations. These situations must take into consideration regional tensions, such as that between the Middle East and Israel.
The issue of lobbying is one that should be considered as well, because a state-owned or backed company may attempt to influence your business to rise to the occasion. Whilst in some cases, state-backing can be a boon, danger could arise from discrete or unknown political exposure. If something is “off the radar”, it could mean that there is something to hide.
In many areas of the world, it’s impossible to do business with important state-owned entities without at least having gratitude payments involved. It’s also very common in some countries to have a former high ranking Politically Exposed Person (PEP) or government official connected to a state-owned company, where the PEP’s own companies on the side are taking advantage of the state-owned one. It’s even possible for these individuals to continue to benefit from this type of action even when they are no longer directly in the state-owned company.
Overall, there is no one-size-fits-all casting for state-owned or politically exposed entities as a whole, as it is all dependent on the laws and geopolitical context of each unique situation. That said, we hope this article has provided you with some perspective on how investigators may draw evidence-based conclusions regarding entities with political connections.
For more content like this, follow @CentryLTD on Twitter! This article was co-written by Oskar Savolainen and Kristina Weber of Centry Ltd.