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Simplifying Third-Party Due Diligence in a Complex World - EY India

EY India's third party due diligence team help clients design, implement and maintain effective third-party diligence systems around the world.

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Simplifying Third-Party Due Diligence in a Complex World - EY India

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  1. Simplifying third-party due diligence in a complex world

  2. A challenging landscape • Understand the business rationale for including a third party in a transaction. You should understand the role of and need for the third-party due diligence to be conducted and ensure that the contract terms specifically describe the services to be performed and the potential risks involved with these. • Monitor your third-party relationships once they begin. Where appropriate, this may include acquiring and exercising audit rights, updating existing due diligence, conducting regular training sessions and requesting third party to obtain annual compliance certification. Understanding who you conduct business with has become more than just good business practice; it is increasingly becoming a smart compliance imperative. Multinational organizations are rapidly adjusting to enforcement standards according to which companies are responsible for the actions of their business partners and vendors, and need to conduct effective third-party due diligence on them. Be it the Foreign Corrupt Practices Act (FCPA) in the US, the UK Bribery Act or the recently enacted anti- corruption regulations in India, Brazil, Russia, China and Mexico, governments are taking clear steps against the practice of making improper payment through third parties. Proper due diligence and monitoring not only helps to reduce the risk of corruption, but can also cut down on fraudulent transactions, embezzlement, conflict of interest, related-party transactions and money laundering. They help a company to safeguard its assets and reputation. Responding to these emerging standards in a standardized and efficient manner is however a huge operational challenge. Management is often challenged by widely varying availability of information across markets and fragmentation of their own internal systems. The question is — how can one create a consistent and, practical diligence process for third parties in New York, New Delhi, Ningbo and Nairobi in order to mitigate third- party risk? While guidance is in the context of anti- corruption controls, the principles generally help third parties deal with risk. The Criminal Division of the United States Department of Justice (DOJ) and the Enforcement Division of the United States Securities and Exchange Commission (SEC) recently provided guidance on compliance with the FCPA. Some key points relating to third parties include: • Understand the qualifications and associations of a third-party partner, including its business reputation and its relationship, if any, with government officials. The degree of scrutiny should be risk-based, and you should increase your scrutiny if and when red flags surface. Simplifying third-party due diligence in a complex world

  3. Overcoming obstacles Integrity Consistency Client needs Accessibility 1 Consistency Our Integrity Diligence teams understand this problem. We help clients design, implement and maintain effective third-party diligence systems around the world. Our offerings are built on our wide and long experience of conducting complex international fraud- and corruption-related investigations, as well as fraud and corruption risk consulting projects, in every major market worldwide. Our Integrity Diligence offering is designed to respond to the following needs of our clients Standardized risk-based procedures for diligence that can be practically implemented wherever our clients do business worldwide 2 Accessibility The ability to continuously update and monitor diligence programs from locals market to headquarters as well as a broad global network of forensic professionals who are located near our clients and their third parties 3 Integrity A careful approach to applicable laws on data privacy and collection in relevant jurisdictions Simplifying third-party due diligence in a complex world

  4. EY_ID is a technology tool created by EY to help its clients efficiently and effectively address the risks involved in their third-party business relationships worldwide. It also offers a highly customizable platform that can be configured to meet your specific program design, including features such as the following: The tool is a web-based, globally accessible platform and provides companies with the opportunity to collect relevant information about their third-party partners, segment third parties by their level of risk, conduct and document multiple levels of due diligence conducted on these, obtain certifications from third parties and incorporate streamlined approval processes in their operations. It is designed to enhance standardization, transparency and accountability throughout the life cycle of a third-party partnership. • End-to-end third-party life cycle management in a client- branded and secure website • Automated risk-scoring engine and self-directed risk assessment tool to calculate third-party risk, based on clients’ risk tolerance and priorities • Highly customizable workflow manager with client-driven approval hierarchy • Secure and archived repository for third party records, red-flag analyses and approvals Addressing third-party risk in today’s environment requires a systematic approach, and EY_ID is there to provide the tools. EY_ID offers advanced dashboards with visual data analytics and an enhanced search functionality. Simplifying third-party due diligence in a complex world

  5. • Today, EY Fraud Investigation & Dispute Services India has more than 65 third- party due diligence specialists with multi- lingual capabilities. The in-house team is proficient in English, German, French, Spanish, Chinese, Japanese, Bangla and various other Indian languages. Commonly raised red flags when conducting third-party due diligence Sector focus Omission of certain key personnel/ shareholders Pharmaceutical • An analysis of over 30,000 third-party due diligence checks which were undertaken in the last three years highlighted that almost 50% of cases which were reviewed had red flags. Oil & Gas A lack of information or trading history (this factor alone would not rule out start-ups) Automobile Financial services A business address in a non-commercial zone or at service office suites Sector focus FMCG Retail Pharmaceutical Low capitalized company Suppliers with a small capital base acting merely as middlemen for undisclosed suppliers 3 Technology Oil & Gas Automobile Financial services Tampering or irregularities with the tendering process Acceptance of late bids or bids being accepted despite failings in technical specifications or scoring, and bids at or very close to set budgets FMCG Retail Technology Types of third parties representing the biggest compliance risk of respondents believe risks are more likely to arise from third parties than from internal staff. 55% 12% Vendor/Supplier Distributor 22% Agent of respondents have no systems or processes in place to manage and monitor third-party relationships. 57% Joint venture partner 26% 9% Source: EY Asia-Pacific Fraud Survey 2013 Simplifying third-party due diligence in a complex world

  6. Our offices 6th floor, Wing A & B, Worldmark 1, Aero city Opp. Holiday Inn, Mahipalpur, New Delhi - 110037 Tel: + 91 11 6671 8000 Ahmedabad 2nd floor, Shivalik Ishaan Near C.N. Vidhyalayva Ambawadi Ahmedabad - 380 015 Tel: + 91 79 6608 3800 Hyderabad Oval Office, 18, iLabs Centre Hitech City, Madhapur Hyderabad - 500081 Tel: + 91 40 6736 2000 Ernst & Young LLP EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. Fax: + 91 11 6671 9999 Fax: + 91 40 6736 2200 Fax: + 91 79 6608 3900 4th & 5th Floor, Plot No 2B, Tower 2, Sector 126, NOIDA 201 304 Gautam Budh Nagar, U.P. India Tel: + 91 120 671 7000 Kochi 9th Floor, ABAD Nucleus NH-49, Maradu PO Kochi - 682304 Tel: + 91 484 304 4000 Bengaluru 12th & 13th floor UB City, Canberra Block No.24 Vittal Mallya Road Bengaluru - 560 001 Tel: + 91 80 4027 5000 + 91 80 6727 5000 Fax: + 91 80 2210 6000 (12th floor) Fax: + 91 80 2224 0695 (13th floor) Fax: + 91 484 270 5393 EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Fax: + 91 120 671 7171 Kolkata 22 Camac Street 3rd floor, Block C Kolkata - 700 016 Tel: + 91 33 6615 3400 Pune C-401, 4th floor Panchshil Tech Park Yerwada (Near Don Bosco School) Pune - 411 006 Tel: + 91 20 6603 6000 Fax: + 91 20 6601 5900 Ernst & Young LLP is one of the Indian client serving member firms of EYGM Limited. For more information about our organization, please visit www.ey.com/in. Fax: + 91 33 2281 7750 1st Floor, Prestige Emerald No. 4, Madras Bank Road Lavelle Road Junction Bengaluru - 560 001 Tel: + 91 80 6727 5000 Ernst & Young LLP is a Limited Liability Partnership, registered under the Limited Liability Partnership Act, 2008 in India, having its registered office at 22 Camac Street, 3rd Floor, Block C, Kolkata - 700016 Mumbai 14th Floor, The Ruby 29 Senapati Bapat Marg Dadar (W), Mumbai - 400028 Tel: + 91 22 6192 0000 © 2015 Ernst & Young LLP. Published in India. All Rights Reserved. Fax: + 91 80 2222 4112 EYIN1502-010 ED NONE Fax: + 91 22 6192 1000 Chandigarh 1st Floor, SCO: 166-167 Sector 9-C, Madhya Marg Chandigarh - 160 009 Tel: + 91 172 671 7800 This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Ernst & Young LLP nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor. 5th Floor, Block B-2 Nirlon Knowledge Park Off Western Express Highway Goregaon (E) Mumbai - 400 063 Tel: + 91 22 6192 0000 Fax: + 91 22 6192 3000 Fax: + 91 172 671 7888 Chennai Tidel Park, 6th & 7th Floor A Block (Module 601,701- 702) No.4, Rajiv Gandhi Salai, Taramani Chennai - 600113 Tel: + 91 44 6654 8100 Fax: + 91 44 2254 0120 NCR Golf View Corporate Tower B Near DLF Golf Course Sector 42 Gurgaon - 122002 Tel: + 91 124 464 4000 EY refers to the global organization, and/or one or more of the independent member firms of Ernst & Young Global Limited Fax: + 91 124 464 4050 Contacts Partner and Head – India and Emerging Markets Arpinder Singh + 91 12 4443 0330 arpinder.singh@in.ey.com Partner Dinesh Moudgil + 91 22 6192 0584 dinesh.moudgil@in.ey.com Simplifying third-party due diligence in a complex world

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