The missing piece of country intelligence gathering

June 19, 2019

Managers have in the past relied on various country reports to aid them in decision making and strategic planning. The reports often focus on identifying opportunities and market trends and assessing financial and geopolitical risks, and, while they prove to be extremely beneficial in mapping out the overall business environment, the lack of information in one critical area renders country risk evaluations much less comprehensive.

In today’s world of increased emphasis on corporate governance and regulatory oversight, the threat of enforcement action against businesses with questionable integrity is becoming increasingly apparent. Stories quickly spread when organisations are handed severe penalties for their compliance lapses. Consequently, companies have been building dedicated teams of compliance professionals and implementing internal programmes to meet international standards. Despite this, compliance risks appear to be receiving much less coverage than they deserve in typical country intelligence offerings.

Current country intelligence offerings

There are currently a number of high-quality sources in the market from which business managers can obtain country intelligence. Companies providing this information often employ large teams of country specialists and experts that are spread across the globe. Typically, each provider will have a range of offerings, such as country profiles, risk reports, online databases and subscription-based periodic updates. Together these provide a comprehensive overview of market conditions, significant political developments, and the common economic or financial risks in a given country. These assist managers in identifying opportunities in the global market and understanding the risks involved.

With that said, current country intelligence reports often lean heavily on information that is traditionally deemed to be critical for foreign business decision making. Economic indicators, market-trend forecasts and short- to mid-term assessments of the local business climate often form the basis of these reports. Similarly, much emphasis is placed on the economic and geopolitical risks involved in a certain country. While the scope of country intelligence reports has historically been sufficient to assess business risks, recent changes in the regulatory environment of international business naturally leaves a desire for more comprehensive analysis that encompasses compliance risks.

Gathering country compliance intelligence

As with economic or geopolitical factors, country compliance intelligence is strategically important, both for assessing the risks involved in doing business in a certain market and in deciding whether to exploit seemingly-attractive business opportunities.

Needless to say, enforcement activity in many jurisdictions has intensified, and not only in terms of sheer quantity. Regulatory authorities are now taking a tougher, more rigorous stance against corporate misconduct and the figures for penalties and settlement fees have proven to be much more than a mere ‘slap on the hand’.

Thus, as well as being aware of lucrative opportunities in foreign markets, managers must also be attuned to country-specific characteristics that may heighten or aggravate the risks of non-compliance.

THE COMPLETE GUIDE TO THE 23 RISK AREAS

At the moment, there are tools available for managers to obtain high-level overviews of key compliance risks in different countries. These often take the form of more quantified assessments, such as indices or scored risk ratings. While these provide a preliminary view of the local compliance risk landscape, managers should seek more in-depth information when planning for a robust system that meets both local and international standards of compliance for foreign operations.

In addition to the key compliance risk areas such as anti-competition and corruption, it is equally critical for managers to assess the main areas where red flags may arise in a foreign market. For instance, where there have been numerous reports of potential human rights abuses in a certain country, companies may want to implement extra measures to ensure suppliers are adhering to the law and are respecting individuals’ rights. Along with quantitative data that assists in identifying areas that have historically been most problematic, cultural characteristics should be considered as they often indicate fundamental risks in the foreign country. Knowing the key red flag areas greatly assists the compliance function to adopt an approach that is proportionate and cost-effective while mitigating compliance risks. Gaining a perspective into cultural traditions and practices will also help to create better-tailored compliance training sessions and enable the business to quickly establish rapport in a region they are not already accustomed to working in.

Salient points of local legislation should be considered, as should foreign laws that may have extraterritorial reach. At a minimum, managers should be able to determine the applicability of these relevant laws, the scope of regulated activity and the potential liabilities that may be incurred by the company and/or individual employees. As the regulatory environment is dynamic, managers should stay updated on the latest legislative and administrative changes in key risk areas.

It is also important to canvas the extent of the powers held by the enforcement bodies. This is of particular importance in the area of antitrust; authorities are often accorded broad investigative powers under antitrust law, so it is vital that companies adequately prepare for potential enforcement action (a notable example being dawn raids).

Last but not least, it is crucial to have an understanding of how the laws are actually enforced. Gaining this understanding may involve examining recent or landmark cases to get an insight into the approach of regulatory authorities and the courts, plus studying any guidance that may be published by relevant bodies. Observing this information will help you to determine which elements to include in a compliance programme and, in the unfortunate event of facing regulatory action, how to devise suitable risk mitigation or defence strategy. In many jurisdictions, the worst situation to be in is for a company to be seen by the authorities as being uncooperative. While it may be suitable to assert certain rights in the domestic country of operation, companies may run into trouble blindly applying the same strategy elsewhere.

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