Can smart compliance fight sanction risks?

sanction risksA billion dollar infrastructure project was allocated to a leading company by a multilateral bank. Post the development stage, it was observed that the road constructed was 30% narrower than pre-decided specifications. However, the contract was paid in full to the allotted contractor company.

So, where did the money go? How did this happen?

Funding by multilateral development banks (MDBs) such as the World Bank, the Asian Development Bank, the African Development Bank and others has increased significantly over the last couple of years. This has eventually magnified the risks associated with fraud, bribery and corruption which can seep in projects allotted to various organisations. These practices can often turn dubious, and even jeopardize the efforts of various stakeholders that are looking to drive inclusive development in the country.

In India, industries such as infrastructure and pharmaceuticals have had significant funding provided by MDBs due to the nature of their work. On the functional front, it has become evident that a major area of concern for organizations lies in procurement processes. Although procurement is not really a cause, it can provide a breeding ground for corruption, which can affect public finance, disrupt the delivery of public services and undermine efforts to reduce poverty.

In order to curb growing cases of fraud and corruption, MDBs maintain a formal process for debarring or sanctioning organizations or individuals found to be engaged in unethical practices in projects allotted to them. Over the years, funding agencies are becoming more aggressive in identifying and penalizing sanctionable practices. They are increasingly identifying and weeding out unethical practices through effective utilization of the sanctions framework to penalize delinquent organisations.

They are also attempting to ensure compliance with guidelines on integrity in the corporate environment. These agencies have stringent mandates to ensure that donor funds are utilized for the intended purpose, achieve transparency in spending of funds and execution of projects. Consequently, companies executing projects funded by these agencies need to be cognizant of the policies, processes and sanctionable practices applicable for them.


To be able to mitigate the sanctions risks, organisations need to design and implement an effective and integrated compliance framework. This framework needs to be fully embedded into the all levels of the organization as well as designed to meet the primary objectives of executing a project.  Companies are seeking ways to prevent non-compliance – to protect their reputation, limit the liability on their management and supervisory bodies, and their employees.

Hence, companies need to build an effective compliance program and consider the following six success factors

Step 1 – Undertake a thorough risk assessment

Step 2 – Set the tone at the top

Step 3 – Implement specific policies and financial controls

Step 4 – Conduct compliance trainings

Step 5 – Monitor compliance programs

Step 6 – Periodically reassess risk and modify the plan

These would be key in mitigating the chances of falling prey to sanctionable risks.


Click here to download our publication Eluding sanction-related risks through enhanced compliance

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