Highlighting another not insignificant supply chain risk, the Transported Asset Protection Association’s (TAPA) Cargo Theft Annual Report estimated that in 2020, theft from supply chains in Europe, the Middle East and Africa (EMEA) region resulted in reported losses of over 172m Euros. That equates to over 1m USD reported lost every other day.

This number, whilst based on TAPA membership data is assumed to be significantly understated as less than two thirds of members share real financial data plus the majority of losses are believed to go unreported. Bearing in mind that during 2020 much of the region was locked down, the level of losses illustrate that organised criminal groups (OCGs) were still actively focusing on their own supply chains. 

It's an effective reminder of why supply chain participants should regularly assess the risks they are exposed to and consider the measures they can take to help mitigate and control those risks, including understanding the extent of their insurance coverage. 

This is important as supply chain risks can be diverse and often, some may not receive the appropriate level of management attention - in many cases the potential impact can be significant. This is particularly relevant to companies who are rightly focused on achieving operational objectives but perhaps less familiar with legal and regulatory considerations across the supply chain. 

Companies that fall into this category may want to ask themselves the following 3 questions.

1. Are we exposed to the risk of being implicated in a trade based money laundering (TBML) scheme?

With increasing regulatory focus on TBML, supply chain participants should make themselves familiar with the indicators of trade based money laundering to help reduce the risk that they are unwittingly implicated in such a scheme. The Financial Action Task Force (FATF) and the Egmont Group of Financial Intelligence Units published a set of TBML Risk Indicators which can help companies identify some of the warning signs.

2. Do we know who we are doing business with?

As supply chains become more complex and multi-jurisdictional, the risk of doing business with a supplier or customer that is involved in illegal activities such as money laundering, fraud or corruption becomes more challenging and is critically important to detect. Other areas of concern include companies involved in unethical or illicit activities such as wildlife trafficking, abuse of workers rights, human trafficking, slavery and illegal mining, logging, fishing or other environmental crimes. As well as damaging reputation and brand, business relationships with companies involved in this type of activity may expose an organisation to the risk of legal and regulatory action which can result in significant financial penalties and senior management distraction. 

An effective customer and supply chain due diligence process is a key control to help mitigate this risk

3. Are we complying with international sanction requirements?

One critical output from a customer and supply chain due diligence process  should be the identification of individuals, entities and jurisdictions that are subject to economic and trade sanctions. In the first 4 months of 2021, the Office of Foreign Assets Control (OFAC) issued 6 financial penalties for apparent sanction violations totalling over 11m USD. Of those, 4 instances were directly related to supply chain cases illustrating the potential impact of failing to comply with sanction requirements. Understanding the requirements and having appropriate levels of management awareness is absolutely vital and when combined with a customer and supply chain due diligence process, can be a very effective control to manage supply chain based sanctions risk.

Supply chain risk is complex to assess and there are many different factors to consider. Companies should be asking themselves many more questions as they consider the risks to their business but these three should be included in that process. If you need help to answer them or would like to know how Clyde & Co can help you improve your controls, please do not hesitate to contact me.