Why the war in Ukraine raises the spectre of corruption

When Russ­ian mis­siles and airstrikes began falling on Ukraine on the morn­ing of 24 Feb­ru­ary 2022, it trig­gered a dev­as­tat­ing and desta­bil­is­ing domi­no effect that would first affect people’s lives and even­tu­al­ly the glob­al econ­o­my. 

More than a year on, those eco­nom­ic effects are still being felt acute­ly by UK busi­ness­es with ties to Ukraine. Sanc­tions and sup­ply chain dis­rup­tions have forced indus­tries from con­struc­tion to motor man­u­fac­tur­ing to scram­ble to find new sup­pli­ers, and a report by Moody’s Ana­lyt­ics has warned that the Rus­sia-Ukraine mil­i­tary con­flict now pos­es the “great­est risk” to glob­al sup­ply chains. 

All that dis­rup­tion is allow­ing anoth­er threat to flour­ish too. “Cor­rup­tion and con­flict feed each oth­er,” says Chara de Lacey, act­ing head of busi­ness integri­ty at inde­pen­dent anti-cor­rup­tion organ­i­sa­tion Trans­paren­cy Inter­na­tion­al UK. “In par­tic­u­lar, con­flict is a breed­ing ground for cor­rup­tion, with polit­i­cal insta­bil­i­ty, increased pres­sure on resources and weak­ened over­sight bod­ies cre­at­ing a big oppor­tu­ni­ty for crimes such as bribery and embez­zle­ment.” 

That’s bound to be a con­cern for British busi­ness­es with sup­ply chain con­nec­tions in the area. “The inva­sion of Ukraine and the ongo­ing con­flict cre­ate chal­lenges for UK firms sourc­ing from the affect­ed regions,” de Lacey con­tin­ues. “Sup­ply chain dis­rup­tion and the short­age of key region­al com­modi­ties is a key risk for cor­rup­tion, as busi­ness­es may try to jus­ti­fy pay­ing bribes to gain access to resources.”

Why is this threat growing?

A report by cor­po­rate intel­li­gence group Kroll sug­gests that most C‑suites are acute­ly aware of the threat that cor­rup­tion pos­es to com­pa­ny integri­ty. As many as 49% of UK exec­u­tives believe that the lack of third-par­ty vis­i­bil­i­ty is the pri­ma­ry dri­ver of an increased risk of bribery, cor­rup­tion and oppor­tunism. 

And in prac­tice, this ille­gal­i­ty can take many forms, from con­trac­tors rely­ing on kick­backs to gov­ern­ment offi­cials or state-owned enter­pris­es to grease the wheels on the move­ment of goods, to a sup­pli­er sub­mit­ting a false invoice for work done. “The Ukraine cri­sis has added huge pres­sure to the process of achiev­ing busi­ness con­ti­nu­ity,” says Arun Chauhan, founder and direc­tor of Tenet, a law firm spe­cial­is­ing in fraud and com­pli­ance issues. “Some may be tempt­ed to bend the rules or turn a blind eye.”

What’s more, these prob­lems could be tak­ing root right under your nose. As Chauhan puts it: “Do you as a busi­ness know for cer­tain that your pur­chasers will not use any means nec­es­sary to find a sup­pli­er, or to per­suade a sup­pli­er to sup­ply them?” The post-pan­dem­ic trend towards remote work­ing has undoubt­ed­ly made these unwant­ed behav­iours much hard­er to uncov­er. 

The reper­cus­sions for a busi­ness caught oper­at­ing out­side the law can be seri­ous. “Bribery is a crim­i­nal offence under the Bribery Act 2010,” con­tin­ues Chauhan. “Com­mer­cial organ­i­sa­tions can receive an unlim­it­ed fine and suf­fer oth­er sig­nif­i­cant adverse con­se­quences, includ­ing exclu­sion from ten­der­ing for pub­lic con­tracts and rep­u­ta­tion­al dam­age if they are found to have failed to put in place ade­quate pro­ce­dures designed to pre­vent bribery. There is also a risk of impris­on­ment and fur­ther fines to senior man­age­ment and indi­vid­u­als if they are found to be direct­ly respon­si­ble for an offence.” 

How to fend off corruption risk

So, what can British busi­ness­es do to fend off this risk? Legal experts insist that one of the surest and sim­plest ways for busi­ness­es to ensure integri­ty from the out­set is to focus on care­ful­ly draft­ed con­tracts and encour­age greater col­lab­o­ra­tion between their pro­cure­ment, legal and com­pli­ance depart­ments.

“It’s in these ear­ly encoun­ters with poten­tial third par­ties that you have the most pow­er to mit­i­gate risk, when they are still in com­pe­ti­tion with one anoth­er,” explains Pen­ny Ward, a trade and com­merce part­ner at inter­na­tion­al law firm Bak­er McKen­zie.   

For instance, busi­ness­es might be able to take advan­tage of that com­pet­i­tive lever­age to iden­ti­fy key risk areas in that third-par­ty rela­tion­ship and then tai­lor their pro­cure­ment doc­u­ments – par­tic­u­lar­ly their request for pro­pos­als – to address those risks. After all, at that ear­ly stage of the bid­ding process, most sup­pli­ers will realise that non-com­pli­ance will prob­a­bly cost them the ten­der, mak­ing them more like­ly to agree to terms that will lim­it the pos­si­bil­i­ty for cor­rupt activ­i­ties fur­ther down the line. This should also help to fast-track con­tract nego­ti­a­tions, which can be use­ful when you’re try­ing to be as agile as pos­si­ble in the search for new part­ners. 

Sim­i­lar­ly, includ­ing a right-to-audit clause guar­an­tees third-par­ty trans­paren­cy, data dis­clo­sure and reg­u­lar report­ing in future. In some cas­es, it may even enable pro­cure­ment staff to make unan­nounced site vis­its to ware­hous­es and offices. 

Of course, not all sup­pli­ers are new. Even with estab­lished rela­tion­ships, it’s quite pos­si­ble that pre­vi­ous­ly sound work­ing prac­tices can fall prey to ille­gal­i­ties, as sup­pli­ers feel the pres­sure to deliv­er. 

How mapping supply chains in real time could help

One way to safe­guard the exist­ing sup­ply chain and root out wrong­do­ing is to have it exhaus­tive­ly mapped. Unfor­tu­nate­ly, this is far from a sim­ple under­tak­ing, as it requires total vis­i­bil­i­ty of every­one in the chain. Whether you’re a small­er oper­a­tion with a shal­low sup­ply chain or a glob­al cor­po­ra­tion with a deep pool made up of thou­sands of sup­pli­ers, there needs to be a thor­ough under­stand­ing of every sin­gle play­er. 

While expe­ri­enced per­son­nel and risk man­age­ment teams can set about iden­ti­fy­ing and report­ing on trans­ac­tions or process­es which look shady, the num­ber and com­plex­i­ty of the deals tak­ing place in mod­ern sup­ply chains may mean that tech­no­log­i­cal solu­tions will be prefer­able. For instance, tools deploy­ing machine learn­ing to trawl for signs of sus­pi­cious behav­iour may be a fair­ly effi­cient safe­guard, backed up by auto­mat­ed ver­i­fi­ca­tion of cre­den­tials and process­es, and risk indi­ca­tors to flag up poten­tial issues.

Fraud detec­tion mod­els can also be embed­ded in plat­forms that mon­i­tor pro­cure­ment, where they can fur­ther inte­grate with soft­ware that mon­i­tors the whole sup­ply chain and cen­tralis­es every­thing from con­tracts and pur­chase orders to expense reports and the all-impor­tant invoic­es. The sophis­ti­cat­ed pat­tern recog­ni­tion ele­ment of AI can then be brought to bear on this mas­sive amount of data, shin­ing a light on sus­pect behav­iours and actions that clear­ly need some over­sight from pro­cure­ment and legal depart­ments. 

Rolling out these kinds of tools will clear­ly require invest­ment, but the rewards can be sig­nif­i­cant in terms of iden­ti­fy­ing val­ue-erod­ing behav­iours. Whether that’s under­fill­ing trucks, deliv­er­ing parts and pass­ing them off as com­pli­ant when they’re not, or sim­ply mate­ri­als going miss­ing from a shop floor, there are numer­ous ways that dis­rep­utable ven­dors can exploit the strain that many sup­ply chains are cur­rent­ly under. 

Cru­cial­ly, it’s pos­si­ble to scale up or down the tech­no­log­i­cal solu­tions accord­ing to the size of the busi­ness, so that the ini­tial invest­ment is in keep­ing with the bud­get avail­able. While cus­tom mod­els, which usu­al­ly require eye-water­ing invest­ments, can be ‘trained’ on a corporation’s own data, con­sor­tium mod­els use data from mul­ti­ple com­pa­ra­ble com­pa­nies so that small­er insti­tu­tions can share the mod­el, host­ed in the cloud, at a sig­nif­i­cant sav­ing.   

But AI can’t oper­ate inde­pen­dent­ly. There is always a sig­nif­i­cant human ele­ment to map­ping sup­ply chains because many sup­pli­ers will be resis­tant to the process. Inter­ven­tions by per­son­nel will always be required to keep map­ping going down the chain, whether that’s estab­lish­ing ground truths through phys­i­cal vis­its under pre­vi­ous­ly agreed audit claus­es or sim­ply ensur­ing sup­pli­ers buy into what you’re try­ing to do. 

To ensure total vis­i­bil­i­ty, then, sup­pli­ers need to com­ply ful­ly and it’s vital they under­stand a business’s com­mit­ment to the task of root­ing out cor­rup­tion and will­ing­ly share the data need­ed. 

A fish rots from the head down…

Ulti­mate­ly, the com­pa­nies that are best at mit­i­gat­ing risk are those that vet thor­ough­ly, but this becomes increas­ing­ly dif­fi­cult when the pres­sure is on to keep the sup­ply chain mov­ing and out­ma­noeu­vre the logis­ti­cal fall­out from the war. 

Here, though, the board­room sets the tone. “Rig­or­ous due dili­gence is essen­tial to ensure respon­si­ble UK com­pa­nies are not con­nect­ed or con­tribut­ing to cor­rup­tion through their busi­ness rela­tion­ships,” warns de Lacey. “These checks will always be more effec­tive when the UK com­pa­nies car­ry­ing them out are gen­uine­ly com­mit­ted to stop­ping cor­rup­tion, rather than view­ing this mere­ly as a box-tick­ing exer­cise to sat­is­fy legal require­ments.”

For John Glen, an econ­o­mist at the Char­tered Insti­tute of Pro­cure­ment and Sup­ply, the cur­rent focus on sup­ply chains is a gold­en oppor­tu­ni­ty to tack­le cor­rup­tion. “Sup­ply chain and pro­cure­ment are now front and cen­tre of CEO think­ing, and their voice in the board­room has increased expo­nen­tial­ly,” he says. 

“In terms of tack­ling cor­rup­tion, organ­i­sa­tions must decide where and how they want to do busi­ness. It comes down to the ethics of indi­vid­ual lead­ers and man­agers, and organ­i­sa­tions must attract lead­ers who have per­son­al ethics that abhor cor­rup­tion. At an organ­i­sa­tion­al lev­el, the busi­ness must then sup­port the dif­fi­cult cor­po­rate deci­sions that bake anti-cor­rup­tion mea­sures into an organ­i­sa­tion.”

As the con­flict in Ukraine rolls into its sec­ond year, the stakes couldn’t be high­er when it comes to con­duct­ing busi­ness with­out reproach. It’s a time­ly reminder that now, more than ever, UK busi­ness­es need to be mind­ful of the com­pa­nies they keep.

When Russian missiles and airstrikes began falling on Ukraine on the morning of 24 February 2022, it triggered a devastating and destabilising domino effect that would first affect people’s lives and eventually the global economy. 

More than a year on, those economic effects are still being felt acutely by UK businesses with ties to Ukraine. Sanctions and supply chain disruptions have forced industries from construction to motor manufacturing to scramble to find new suppliers, and a report by Moody’s Analytics has warned that the Russia-Ukraine military conflict now poses the “greatest risk” to global supply chains. 

All that disruption is allowing another threat to flourish too. “Corruption and conflict feed each other,” says Chara de Lacey, acting head of business integrity at independent anti-corruption organisation Transparency International UK. “In particular, conflict is a breeding ground for corruption, with political instability, increased pressure on resources and weakened oversight bodies creating a big opportunity for crimes such as bribery and embezzlement.”