Preventing Corruption Risk and Compliance Violations in Bangladesh Factories

Last year, top apparel manufacturers and retailers were in the spotlight for failing to prevent a series of fatal accidents and fires in supplier garment factories across Bangladesh. In response, retailers and brands – including Walmart, Gap, Target, Adidas, Esprit, Tesco, Mothercare and many more – have come forward to create two groups aimed at safety improvements designed to protect the health and well-being of garment workers: the Accord on Fire and Building Safety in Bangladesh and the Alliance for Bangladesh Worker Safety

The Bangladesh government and other representatives also created the Tripartite National Plan of Action on Fire Safety for the Ready-Made Garment (RMG) Sector to improve safety standards of Bangladesh's garment industry.

A recent factory inspection by the Bangladesh Accord Foundation revealed cracked support beams, extra floors built without permit and exposed electrical cables in the garment factories. Overly heavy structures on roofs, substandard building materials and an unauthorized helicopter pad were also among the problems revealed in the first round of inspection reports.

Another concern in general, and certainly for organizations with substantial supply chains in Bangladesh, is the risk of corruption, which could impact the reliability and credibility of safety inspections and certifications.  This is particularly relevant given that Transparency International has ranked Bangladesh among the more corrupt countries. Now, if an apparel brand's supplier factory in Bangladesh fails to adhere to the minimum safety standards, but bribes auditors to pass an inspection, the retailers and brands, based thousands of miles away, face the risk of being charged under laws such as the Foreign Corrupt Practices Act (FCPA), the UK Bribery Act, or EU anti-corruption laws.

Towards safer garment factories
With the intervention of associations, the onus to a large extent has shifted to the companies that have supply chains in the region. Thus wherever safety issues are identified, retailers and brands in the alliance and the accord have committed to ensuring that sufficient funds are made available to carry out repair work, while workers at these factories continue to receive wages.
Three groups that have been formed to improve safety standards in Bangladesh's garment industry function in the following ways:
  • The Accord on Fire and Building Safety in Bangladesh, comprised of 100 apparel corporations from 19 countries, two global trade unions, and numerous Bangladeshi unions, has set building and fire safety inspection and training programs, and is inspecting 1,613 factories.
  • The Alliance for Bangladesh Worker Safety, comprised of 26 North American retailers, is expected to inspect fire safety, structural, and electrical safety in approximately 700 factories.
  • National Tripartite Committee, led by the Bangladesh Government, has initiated garment factory inspections to check building and fire safety measures in production units by 30 expert panels, led by Bangladesh University of Engineering and Technology (BUET).
In addition to the efforts of these associations, some retailers continue to conduct, and in some cases have expanded, their own supplier audit programs.

This could give rise to two issues. First, supplier factories pressured with high production targets have to face numerous, continuous and often overlapping inspections from different groups. Second, if no one takes ownership of the entire safety initiative across all three groups as well as other involved parties, who should be held accountable?

Similarly, who should be responsible for mitigating the risk of corruption in factory safety inspections? In mid-2013, seven inspectors in Bangladesh were suspended after having reportedly renewed licenses without even checking safety conditions in the Rana Plaza building that collapsed on April 24 in Dhaka, killing more than 1,000 people. Could such incidents be prevented if anti-corruption measures had been more strictly enforced? According to Transparency International's Corruption Perception Index (CPI), Bangladesh is ranked 136 (out of 177 countries) with a score of 27 (out of 100). The CPI scores are based on how corrupt a country's public sector is perceived to be. The lower the score, the more corrupt the country.

To avoid any FCPA violations and thereby regulatory investigations and penalties, apparel brands should focus on creating and implementing a streamlined and reliable supply chain governance, risk, and compliance program across their entire supply chain. Organizations should integrate multiple compliance, risk, and audit programs including on-boarding assessments, security audits, CSR social compliance audits, quality inspections, production capacity audits, sustainability audits, environmental compliance, etc., to garner a unified view of supplier performance. The Chief Compliance Officer (CCO) should work with the supply chain, CSR and sourcing teams to mitigate the risk of corruption and non-compliance with laws.

Building a supply chain governance, risk and compliance program
Here are a few key steps on how retailers can mitigate the risk of corruption and FCPA compliance violations in factory safety inspections:
  • Implement a stringent supplier on-boarding process: Collect and verify the accuracy of supplier information such as its production capacity and sub-contractor details. If the information appears to be suspicious or inaccurate, leverage a third-party auditor to verify the details, or identify alternative suppliers.
  • Create a risk-centered supplier compliance program: Identify and understand the prevalent compliance and corruption risks in the supplier's country. Conduct due diligence, and implement effective risk mitigation controls.
  • Oversee/track supplier activities: Establish central as well as regional teams to keep a strict watch over third-party dealings.
  • Improve the culture of sourcing: Ensure that sufficient time is taken to investigate the new supplier, and collect and verify their details.
  • Replace a policing attitude with dialogue and collaboration: Replace punitive measures with open communication and dialogue. Appoint whistleblowers to voice employee concerns and incidents of non-compliance.
Establishing an ethical supply chain is not easy. In Bangladesh, retailers could set the stage for change by working with suppliers, government officials, and local and international trade bodies to improve factory conditions and employee wages, along with fighting corruption.

A robust supply chain governance, risk and compliance program can help ensure an organization's coordination among their factory safety monitoring and improvement programs and other legal and regulatory compliance obligations. This coordination can help in avoiding duplication of efforts and maximizing the efficiency of existing compliance programs associated with the FCPA and other anti-corruption statutes.

Keri Dawson is vice president of industry solutions and advisory services, and Manu Gopeendran is senior manager of product marketing for MetricStream.
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