2012 highlight review – the risks identified in leading industries

June 3, 2014

Popular countries of research and investigation (Finanical Year 2012)

The following is a summary of the countries in which The Red Flag Group conducted research and investigations in the 2012 financial year, and also a representation of the relative amount of work we carried out in each country.

 

Total countries: 182

 Top 5 Countries that the most research and investigations carried out:

  1. China – 18 percent
  2. India – 15 percent
  3. Russia – 14 percent
  4. Mexico – 12 percent
  5. United States – 12 percent

 

Companies are still very interested in their business partners in China, and recent enquiries to The Red Flag Group regarding the region indicate that it will likely remain a hot area for some time.

From the numbers, we can see which regions have had the most growth interest across different industries. From a regional perspective, the Middle East has maintained a steady growth rate, though the largest increase has been Africa.

 

Risk level distribution for key industries

In the 2012 financial year, The Red Flag Group conducted research and investigations in 182 countries, across 25 client industries. By consulting with our clients, we have worked out with each of them what they consider to be a Green, Amber or Red risk rating when conducting their due diligence reports. The colour rating system is therefore defined by each client, and is based on a variety of factors.

We selected ten different industries and have compared their levels of risk.

The highest number of reports rated Red belong to those commissioned by our clients in the energy and natural resources and freight and logistics sectors. For these two industries, the red flags were mostly related to sanction breaches, human rights issues, fraud instances and corruption.

The colour rating system is defined by each client, and is based on a variety of factors. These factors include (but are not limited to):

  • reputability of the source
  • actual convictions
  • on-going enquiries or investigations
  • strength and amount of allegations
  • regional, country and political considerations
  • time lapsed
  • relevance to client’s area of business
  • organisational changes
  • evidence of remediation.

 

CASE STUDY:

Risk analysis of Healthcare Inc.’s third parties

Healthcare Inc.* make high-value medical devices which they sell globally through distributors and resellers. The Red Flag Group was engaged to conduct due diligence on their global third party network. The risk ratings for the reports conducted for Healthcare Inc. have been tailored to the specific risk appetite and risk tolerance of the company.

*Name has been changed.

Generally, Healthcare Inc. has a high risk tolerance towards civil litigation, government contracts and dealings with state-owned entities. In addition, although not a high risk factor, business dealings with politically-exposed persons are still a concern for Healthcare Inc.

 

A.

For Healthcare Inc., the majority of their third parties were classified as Green risk (i.e. little or no issues were identified). This is a higher number of Green reports than the average healthcare company.

B.

Thirty-eight percent of Healthcare Inc.’s third parties were classified as Amber risk, where we uncovered issues such as politically-exposed persons, allegations or historical references to fraud, regulatory breaches and IP issues related to Healthcare Inc. products.

C.

However, twelve percent of Healthcare Inc.’s third parties were classified as Red risk, and included references to bribery as well as recent or on-going cases of fraud, anti-trust and other compliance issues.

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