Third-party risk

Understanding the growing risk of ownership in your global supply chain

Samah Nour Eddine

Director, Customer & Third-Party Risk Intelligence, LSEG

Discover the global drivers that impact the due diligence of beneficial ownership in supply chain operations.

  • Uncover the global drivers that impact the due diligence of beneficial ownership in supply chain operations.
  • Explore how companies can implement successful sustainable supply chain management practices.

Ownership risks across global supply chains are increasingly a source of risk in today’s world.

There are global drivers that impact the due diligence of beneficial ownership in supply chain operations:

Regulatory trends

Beneficial ownership criticality provoked regulators to issue directives and regulations to govern this space. The EU’s 5th Anti-Money Laundering (AML) Directive, effective since January 2020, and the U.S. Corporate Transparency Act, enacted in January 2021, signify milestones in the evolution of corporate accountability. These directives propel member states to establish centralised registers of beneficial ownership, triggering a seismic shift toward transparency and a systematic combat against financial irregularities.

Compliance with these regulations demands a thorough understanding of supplier networks, scrutiny of ultimate beneficiaries, and reporting to relevant authorities. This encompasses collecting accurate ownership information and ensuring it aligns with legal requirements.

Societal drivers

Beyond the legal realm, there’s a discernible shift in societal expectations, nudging businesses to centre their priorities on ethical practices and supply chain transparency. Investors, consumers, and advocacy groups are increasingly magnifying their focus on the origins of products and the practices of suppliers, prompting businesses to adopt sustainable and conscientious sourcing.

Companies need to adhere to ethical sourcing, deter associations with beneficial owners mired in exploitative practices, and serve as a shield against potential damage to brand reputation in order to address the societal driver. This dual alignment with regulatory pressures and evolving consumer preferences renders an invaluable protective measure for the brand.

Geopolitical drivers

The stable instability of geopolitical drivers greatly impacts companies’ risk exposure at a faster pace than their business resiliency and agility.

Sanctions

These political tools used by governments to influence the behavior of other nations, often for the protection of national security, the preservation of human rights, or in response to aggression. However, these sanctions can directly or indirectly disrupt the established order of global supply chains and their beneficial ownerships. Companies find their operations tangled in a web of restrictions, affecting the sourcing of raw materials, the transportation of goods, or even access to certain markets. Even with a robust sanctions programme in place, geopolitical tensions challenge the resiliency of such programmes against the sanctions’ ongoing circumstantial changes.

Country based geopolitical tension

The balance of our global supply chains is further challenged by the geopolitical turbulence between the United States and China, two of our world’s true economic powerhouses. Matters of trade tariffs, technology restrictions, and even ideological differences frequently cause uncertainties in the business environment. These dynamics, however, are not confined to these two nations, but indeed, send shockwaves across the world, jeopardising the reliability and integrity of transnational supply chains.

Companies need to navigate in these troubled waters by striving for flexibility and resilience. Solid geopolitical forecast and contingency planning are no longer luxuries, they become the pillars of an efficient beneficial ownership due diligence programme.

Conclusion

  • Regulatory trends and global drivers impact the beneficial ownership due diligence programme of companies’ supply chain operations. The cost of non-compliance ushers in significant consequences. Legal penalties, reputational harm, and disrupted operations are among the foremost risks. To navigate through ownership risks, companies need to uphold sound due diligence programmes of supply chain ownership:
  • Keep up with the regulatory and global drivers, identify their risk exposure and build a strong geopolitical forecast to build business resiliency.
  • Navigate the due diligence challenges with workflow- based technologies driven by trusted, complete and updated beneficial ownership data intelligence. The data updates safeguard the business against future circumstantial changes.
  • Implement a multi-step beneficial ownership due diligence approach starting with the traditional online data verification, complimented by outsourced vendor-based data especially for companies with global operations and complex supply chain in countries with poorly managed beneficial ownership registries.
  • Address high risk supply chain ownership with outsourced research intelligence to uncover hidden risks that traditional and outsourced data methodologies are unable to mitigate.

Companies that diligently comply not only fortify their operations against potential legal repercussions but also gain a strategic edge. Transparent practices enhance investor confidence, foster positive brand perception, and stimulate partnerships grounded in trust. The ability to showcase ethical and compliant supplier networks becomes a cornerstone for your long-term business viability.

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