Pandemic Is An Opportunity to Clean House, Compliance Experts Say

The coronavirus pandemic is presenting companies with an opportunity to scrutinize due diligence processes, risk assessments and other routine tasks that help businesses avoid brushes with the law, compliance chiefs say.

The effort to make compliance departments more cost-effective is happening as companies grapple with the economic fallout from the coronavirus pandemic.

“This is an amazing time for companies—especially their compliance departments—who are resource strapped, to engage in what I call internal cleanup,” said Allen Chiu, chief compliance officer of Genesys Telecommunications Laboratories Inc., a call-center software company.

The pandemic has radically changed the business landscape for many companies, and in turn altered where legal risks such as bribery and corruption lie. Compliance officers should be asking themselves if they have the right policies in place or if they are doing business with third-party business partners that are no longer relevant, Mr. Chiu said during a virtual panel hosted on Friday by the Practicing Law Institute, a nonprofit organization that provides continuing legal education programs.

Third parties such as distributors, resellers and suppliers pose a corruption risk for companies, since they can be used to funnel bribes to government officials. Vetting them is one of the core responsibilities of a compliance department.

“If you are putting resources into looking at 100 companies and you don’t even use 25 of those companies, then you’re wasting resources chasing after diligence requests from [companies] that you don’t use or that produce little or no revenue,” Mr. Chiu said.

In that way, reassessing a company’s risk profile during the pandemic should go hand in hand with the effort to cut costs across the business, panelists said. As part of its periodic due diligence of third parties, compliance officers should be asking the company what the business justification for the relationship is, said Palmina Fava, a partner at law firm Vinson and Elkins LLP.

“When you have to cut costs, the question has to be, ‘Do you need this?’” Ms. Fava said. The exercise should extend to other expenditures that can be used to fund bribes, such as a company’s travel and entertainment budget, she said.

“Everybody’s having to do business in a way that culturally is very different from the way they did it before,” Ms. Fava said. “You have to ask, ‘Do we really need that meals budget going forward? Do we need this travel budget going forward?’”

Companies conduct compliance risk assessments to figure out where their legal risks lie. To save costs during the pandemic, compliance officers may have to eschew elements of the formal risk-assessment process.

“We’re not putting risk assessment to the side; we’re just doing it in a more targeted and thoughtful, proactive way,” said Catherine Razzano, the chief compliance officer of Panasonic Avionics Corp., which designs in-flight entertainment systems.

Write to Dylan Tokar at dylan.tokar@wsj.com

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