Anti-corruption due diligence for SME’s

Due diligence for SME’s

Due diligence procedures can be both demanding and stringent. When these conditions are imposed by another company who requires full compliance in order to start trading, an SME may feel overwhelmed by the amount of resources required in order to do so.

This is particularly so when an SME is dealing with a multinational company. Nevertheless, developing robust compliance procedures to promote anti-corruption ethics will enable SME’s to minimise the risk of corruption and bribery whilst being compliant with international anti-corruption standards.

The benefits of due diligence for SME’s

It can be tempting for SME’s to feel that due diligence is an unnecessary burden but demonstrating that the business works on an ethical basis also has many benefits. Here are a few:

  • It can give the SME confidence to trade with third partners that are not involved in corrupt or unethical practices.

  • Prosecution and financial penalties due to non-compliance are minimised or totally avoided.

  • The risk of potential damage to reputation as the result of being implicated in corrupt, unethical trading is minimised.

  • Due diligence can open business opportunities by providing assurance that the company is ethical.

  • Due diligence can enable the SME to attract investment and expand.

Implementing due diligence

Due diligence does not have to be labour intensive and can be adopted by businesses of any size if the following steps are followed:

  1. Research
    Obtain organisation information on the third party and store it in management system, with details of the source. If the source is not credible, the data will be flawed.

  2. Due Diligence Questionnaire
    Create and issue an appropriate due diligence questionnaire template and issue to potential suppliers, distributors or other third-party companies. A follow-up process to manage the questionnaire responses also needs to be put in place.

  3. Red Flags
    Once the questionnaire has been returned identify red flags following a pre-agreed procedure and implement any appropriate control measures. At this point it may be necessary to reject the third party if they are deemed to be too great a risk, or it may be necessary to seek additional information/clarification on various issues.

  4. Review
    Develop a monitoring system to identify if and when any follow-up checks are needed.

  5. Record
    Document the process and the results so that the evidence and rational for decision-making is clear should an audit take place.

Commercial benefits from due diligence

The aim of due diligence is to protect the company from risk of corruption and money laundering, but it does not have to be at the expense of other business operations. Adopting due diligence may require an initial time investment but as can be seen from the process above, does not need to be unnecessarily complicated.

Once the system is set up, due diligence is comparatively easy to maintain and apart from offering reassurance to prospective customers or trading partners it can also result in commercial gain.