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We need mandatory due diligence laws to fix our broken supply chains

On April 24, 2013, more than 1,100 textile workers died in the Rana Plaza building collapse in Dhaka, Bangladesh. For many, the tragedy shined a spotlight on the threats to human rights present in global supply chains. It also became apparent that corruption was a critical factor in the disaster.

At the seventh anniversary of the Rana Plaza tragedy, in a period of significant economic disruption resulting from the Covid-19 pandemic, it is time to make supply chains more resilient by introducing mandatory due diligence for anti-corruption, human rights, and environmental protection.

International standards

The UN Guiding Principles for Business and Human Rights clarify that all businesses should undertake human rights due diligence — that is, identify, prevent, mitigate and account for how they address their impact on human rights.

In the past decade, several international and multilateral frameworks have enshrined this principle. The OECD Guidelines for Multinational Enterprises incorporated the UN Guiding Principles immediately in the revision of 2011. Thus, due diligence for human rights became an expected part of corporate responsibility. This concept was also extended to assessing businesses’ impact on employment and industrial relations, the environment, and combating bribery, bribe solicitation, and extortion.

In 2015, the G7 Summit in Germany included responsible supply chains in its communiqué and suggested the development of a common understanding of due diligence. The OECD took this up and, in May 2018, finalized a Due Diligence Guidance for Responsible Business Conduct, drawing on existing sector-specific guidance.

The EU Corporate Social Responsibility (CSR) Directive that came into force in 2016 made reporting on due diligence related to human rights and environmental, social, and anti-corruption matters mandatory for companies with more than 500 employees.

Anti-corruption overlooked

Several countries have made due diligence, or reporting on due diligence, mandatory in specific areas, such as France for human rights and the environment, the UK for modern slavery, and the Netherlands for child labor. The German Ministry of Development Cooperation also floated a proposal on human rights and environmental due diligence, but the prevention of corruption in supply chains has so far only been included in the EU CSR Directive.

A recent comprehensive study commissioned by the EU on due diligence requirements throughout the supply chain focuses on human rights and the environment only. Transparency Germany criticized the omission of corruption prevention from the scope of the study.

Violations of human rights and environmental standards generally become visible when due diligence fails to prevent harm, generating pressure on companies to accept responsibility and on legislators to make due diligence mandatory. Corruption happens in secret, but it is not a victimless crime. Society is the victim. Studies on due diligence should bring this to light.

Gaps remain

Criminal laws proscribe bribery of foreign public officials in all countries. Many also prohibit bribery of business partners. To ensure respect for such laws, companies have set up compliance departments, in essence, performing due diligence. Yet, an expert opinion commissioned by Transparency Germany has confirmed that these laws do not reach beyond the first tier of the supply chain.

In the introduction to the OECD Due Diligence Guidance for Corporate Lending, the authors state that corruption issues are already well defined and thus not the focus of that guidance.

Yes, we have criminal laws that reach beyond the country in which the multinational company is headquartered. But the focus of the risk analysis is on the company, not on the effects of the company’s activities on society or business partners along the supply chain. This shift in perspective is what the OECD Guidelines for Multinational Enterprises require.

Conducting due diligence for human rights and the environment in the entire supply chain is itself a massive task; one can understand the temptation to put off anti-corruption to a later point in time. But, in reality, corruption is a root cause of human rights violations and environmental crimes.

Corruption can undermine environmental protection and pose workplace health and safety risks. TI Bangladesh identified governance challenges in the ready-made garment sector after the collapse of the Rana Plaza building. Corruption related to the trade in wildlife and sales in wet markets may have played a role in the outbreak of Covid-19. These challenges are real and need to be faced by extending due diligence requirements related to preventing corruption to the entire supply chain.

As TI’s latest Exporting Corruption Report shows, laws against foreign bribery are not sufficiently enforced in OECD countries, or China, Hong Kong, India, and Singapore. Requiring due diligence for corruption prevention from companies along the supply chain would go a long way towards complementing the fight against corruption through criminal laws.

To further enhance this complementarity, it is essential to unify tools. The six steps of due diligence developed in the OECD Due Diligence Guidance for Responsible Business Conduct should also be used in corporate compliance with criminal laws against foreign bribery. This is what we are recommending for the revision of the 2009 Recommendation on Further Combating Bribery and its Annex II, the Good Practice Guidance on Internal Controls, and Compliance.

Making corruption prevention part of mandatory due diligence laws would bring together different strands of risk analysis and strengthen responsible business conduct relating to human rights, the environment, and the fight against corruption.

A version of this post was originally published by TI Germany and is republished here with permission.

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1 Comment

  1. Indeed, we need the EU to be crystal clear that they expect and require companies to conduct anti-corruption due diligence (and to cooperate with such due diligence when it is done on them). In addition, they have to square the anti-corruption due diligence with the GDPR. As I’ve written numerous times on this blog, so far we have quite the opposite picture in the EU. The GDPR has raised numerous issues and questions, and I have seen EU-based companies refuse to conduct, or subject themselves to, anti-bribery due diligence “because of the GDPR.” For details, see sections b., c. and d. on pp. 4-7 in our submission to the OECD Working Group on Bribery from last year at
    Moreover, companies in countries that do not have corporate criminal liability (e.g., Germany, although this may soon change) often see anti-bribery due diligence as unnecessary outsourcing of a police function.

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