Organized crime is large scale and sophisticated; comprehensive due diligence is essential.
According to the UN
, the amount of money laundered worldwide is equivalent to 2–5% of global GDP per year (around $800 billion–$2 trillion). The scale of organized crime is huge, and criminals have quickly adapted to and are thriving in the conditions created by COVID-19, including supply chain upheaval.
Criminals often use legitimate businesses to hide the proceeds of fincrime. In its 'EU Serious and Organised Crime Threat Assessment' for 2021
, Europol reported that 80% of criminal networks active in the EU use legal business structures for their illegal operations. A comprehensive compliance program is essential to rooting out such activities in your supply chain.
“Criminal networks are sophisticated,” says Bill Hauserman, Head of Financial Crime Due Diligence at Moody’s Analytics. “It’s critical that companies take the due diligence process seriously, so that they’re not funding terrorism or human trafficking.”
Being unaware of fincrime within your operations can result in hefty penalties. At the end of 2021, a leading bank was fined £64 million by the UK’s Financial Conduct Authority for failures in its automated anti-money laundering system between 2010 and 2018.
“Using technology to monitor for ESG-related risk in the supply chain can bring fairness and transparency to the decision-making process,” says Alex Zuck, Managing Director, Product Strategy for KYC at Moody’s Analytics.
How is your supply chain affecting society?
According to the latest International Labor Organization data
, an estimated 40.3 million people worldwide were in modern slavery in 2016. Even if you believe there are no slaves in the country where your business is headquartered, there could be connections with slavery in your global supply chain. According to the Global Slavery Index
produced by human rights group Walk Free, laptops and garments are among the five products most at risk of modern slavery that are imported into the G20. “Human trafficking, human rights and all the other issues that come under ‘social’, such as pay equality, these affect your reputation—and that’s what people remember,” says Hauserman.
Of course, unethical working practices can still take place in richer nations. In 2020, headlines abounded about a UK-based fast-fashion retailer regarding employment practices in some of its factories in the north of the country. The news had significant reputational and financial consequences for the company, with £1 billion wiped off its value in the immediate aftermath of the reports. In November 2021, its share price had fallen 44.3% since January of the same year.
“Companies can take action against modern slavery, but first they need to find out where in their supply chains slavery risk is highest,” explains Dr Alexander Trautrims, Associate Professor in Supply Chain and Operations Management at the University of Nottingham Rights Lab. Different solutions are appropriate in different situations, he says. “You might want to change the way you place orders, or instead of spot buying decide to develop longer-term relationships. You have to go in, see where risks are and engage with the situation.”
Read more about fincrime in the supply chain.