Coronavirus: challenges for compliance departments

The progression of the new coronavirus (Covid-19) pandemic in the world and, more recently, in Brazil, created an environment with different operational routines, uncertainties and market volatility. This scenario presents new challenges for companies’ compliance departments, as it generates or intensifies risks related to fraud, non-compliance with internal policies, potential acts of corruption and other undue interactions with governmental authorities. An efficient response requires companies to re-evaluate, adapt and put into practice their crisis management plans.

Some risks associated with this emergency situation are evident and require an immediate response, such as the risks to human health and the need to adopt measures to ensure the safety of employees, clients and their families. On the other hand, unexpected circumstances such as those arising from the progression of the Covid-19 pandemic may aggravate other risks not apparent at first and response actions may generate new ones.

In times of crises, there may also be a perception that enforcement authorities will reduce their investigation efforts. However, at the end of the emergency period, these activities will return to normal. In Brazil, this is even more relevant, considering the strict liability standard set forth by Law No. 12,846/2013 (Anticorruption Law).

For this reason, companies’ compliance departments must seek to maintain and, in some cases, reinforce their monitoring and prevention procedures during the crisis. This includes not only ensuring the continuous application of existing policies, but also identifying and monitoring risks that may have arisen or increased amid the crisis and implementing adequate controls, even if remotely. These risks include, for example:

•        Import/export: travel restrictions, border closures and social isolation can turn importing and exporting equipment and products slower and more complex, increasing the risk of irregularities in customs clearance or other customs procedures by employees and/or service providers.

•        Replacement of suppliers and engagement of new third parties: changes in the market and interruption in the supply of certain consumer goods may require the replacement of service providers and suppliers on an emergency basis, not allowing sufficient time to adopt selection and vetting procedures and increasing the exposure of companies to risks of liability arising from third parties’ actions.

•        Donations to governmental authorities: certain sectors, especially the pharmaceutical and hospital sectors, may be called upon by the government to assist in the combat of the pandemic, for example, by means of donation of medicine and equipment, which require formalities and the adoption of special precautions to avoid embezzlement or misappropriation of the donated resources.

•        Bids and tenders: in response to the crisis, governmental authorities may declare an emergency situation and waive rules for contracting services or acquiring goods, using mechanisms of non-enforceability or exemption of biddings (as already implemented by the Municipality of São Paulo and the Government of the Federal District, among others). Although more flexible, these mechanisms still require caution and specific procedures.

•        Accounting fraud: with pressure for results, employees (especially in publicly traded companies) may be reluctant to recognize losses or seek alternative ways of bookkeeping, increasing the risk of accounting frauds.

•        Sales and marketing: pressure to achieve sales targets and increase revenues may intensify risks of public and private corruption schemes and internal fraud. The risk may be exacerbated in the case of companies with bonuses’ policies linked to financial metrics.

The risks mentioned above tend to worsen as the pandemic continues to expand. Because of this, it is essential that companies’ compliance departments and senior management, with proper specialized legal support, adapt their internal control procedures and mechanisms to emphasize the importance of compliance obligations even in times of crises. This can be done through remote training, electronic communications and the use of ethics/whistleblowers’ channels to guide employees, clients and partners. These instruments can also play an important role in helping companies to disseminate public health guidelines and fight the spread of the virus.