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Supply chain disruptions bring out the worst in everyone

There are bottlenecks everywhere. Chip shortages, missing workers, clogged ports, rising commodity prices, and yes (still), Covid-19. They’re all disrupting or threatening to disrupt supply chains. For compliance officers, it’s a perfect storm.

That’s because shortages trigger bribery risks.

Since I started writing the FCPA Blog in 2007, I’ve noticed this: Compliance problems often spring from industries that deal in scarce commodities — whatever those happen to be. Everything from lumber to energy, from telecommunications licenses to access to hospital patients, and so on. Today, it’s logistics, raw materials, labor, and more.

Wherever buyers are scrambling for supply, sellers have opportunities to squeeze them. When energy prices rise, for example, corrupt oil-producing countries exert more leverage over foreign buyers. That scenario plays out in similar ways, in different industries, again and again.

After the 2008 market disruption (the “credit crunch”), a commodity in short supply was cash. Sovereign wealth funds had it, and banks needed it. Some of the banks succumbed to market pressures. They abandoned compliance to save their balance sheets. Just as the DOJ had predicted, a string of investigations resulted, and some enforcement actions.

How big a problem are today’s supply chain disruptions? According to Bank of America, during this year’s Q3 earnings calls, mentions of supply chain issues were up 412 percent year-on-year.

CEOs are worried about chip shortages, cargo vessel bookings, clogged ports, energy prices, commodity supplies and pricing — especially wood, paper, metals, food, and more. They’re also concerned that Covid-19 will continue causing trouble for commerce.

During market disruptions like these, the golden rule is in effect. Those who have the gold (or, in this case, the wood, paper, metals, food, ships, energy, etc.) will make the rules. Or try to. That’s going to mean more demands for bribes.

Will companies pressured by supply chain disruptions give in and pay bribes? If history is a guide, some will.

That means what’s most at risk of disruption is compliance itself.

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