Managing Risk in Your Global Talent Supply Chain

While the topic of customer due diligence (CDD) in global talent supply chains may not be widely discussed, it’s important to be aware of the challenges faced by organisations in this industry, the potential risks involved and the strategies that can be implemented to ensure compliance and maintain operational integrity. Generally speaking, supply chain due diligence is the process companies use to identify, prevent and mitigate any adverse impact of their entire supply chain operations, typically as it relates to environmental, social and governance (ESG) issues.

In today's globalised and interconnected business landscape, organisations are increasingly relying on managed service providers (MSP) to meet their operational needs. However, as supply chains grow more complex, so does potential risk. To address these risks, businesses and financial institutions have adopted CDD as a fundamental set of principles to guide their practices and help prevent illicit activities – while maintaining a robust compliance framework and ensure the integrity of their global supply chains.

Applying the 4 Key Principles of Customer Due Diligence to Global Talent Supply Chains

The primary value drivers of CDD are to gain a thorough understanding of the customer, their business and the associated risks they face throughout the end-to-end process of their projects. By adhering to these four principles as it pertains to your global talent supply chain, your organisation can effectively mitigate potential threats and safeguard the global workforce and talent system at large:

1. Establish the identity and verify the background of suppliers through reliable sources.

This step ensures that your business has accurate information about your suppliers, reducing the risk of anti-money laundering (AML) activities. By verifying suppliers, this allows for confident engagement in business relationships and confirms the legitimacy of your partners, subcontractors, agents and any other persons with which your suppliers engage.

2. Assess the purpose and nature of the business relationship to determine if it aligns with the supplier’s profile and expected activities.

This assessment helps identify any discrepancies (such as any criminal activity) or red flags (such as history of fraud), allowing your business to make informed decisions regarding their engagement by ensuring alignment between a supplier’s business objectives and their actual activities.

3. Ensure continual customer due diligence.

Regular monitoring enables businesses to identify unusual patterns or unexpected changes in a supplier’s behaviour, which empowers the business (or your talent supply chain partner acting on your behalf) to take proactive measures to mitigate risks and maintain the integrity of your operations.

4. Manage and maintain all documentation and record-keeping to the highest standards possible to ensure transparency and enable audit trails.

By documenting and maintaining accurate records of supplier interactions, you can establish a solid foundation for compliance and reporting. This practice not only helps your organisation meet legal obligations but also assists in internal risk assessments and potential investigations.

Adopting and adhering to these core principles of CDD organizations as it pertains to the management of global talent supply chains can help to mitigate risks. Implementing robust CDD practices contributes to the overall integrity of supply chains, safeguarding of businesses and compliance with legal and regulatory requirements.
 

Understanding the Risks

Companies globally are now more in tune with the importance of having a compliant supply chain, not just for reputational and financial reasons, but ethically as well. As a trusted MSP, AGS is also aligned to these core values. The following are some of the key risks that businesses may expose themselves to by failing to complete CDD.

• Regulatory noncompliance and financial risk: Many jurisdictions have stringent regulations in place to prevent money laundering, terrorist financing and all other illicit activities. Failing to complete CDD may lead to noncompliance with these laws and regulations, possibly resulting in legal penalties, fines, reputational damage and even loss of business licenses.
  
  
• Reputational damage: Inadequate CDD practices can harm your business's reputation. If it becomes known that your organisation does not take the necessary steps to ensure compliance and prevent illicit activities, customers, partners and investors may lose trust in your business. Reputational damage can lead to a loss of business opportunities, difficulty in attracting new customers and challenges in retaining existing ones.
  
  
• Increased exposure to fraud: Without proper CDD, your business becomes more susceptible to fraudulent activities. Incomplete background checks and verification processes can make it easier for individuals or entities to use false identities, engage in identity theft or conduct fraudulent transactions. This can result in financial losses and legal complications for your business.
  
  
• Adverse business relationships: Inadequate CDD can lead to entering business relationships with high-risk individuals or entities. This can include individuals or entities involved in illegal activities or those with a history of financial fraud. Such relationships can damage your business's credibility and integrity, making it challenging to establish trustworthy partnerships or secure financing from reputable sources.
  
  
• Weakened internal controls: CDD is a crucial component of an organisation's internal control framework. Neglecting or not completing CDD can weaken these controls, leaving your business vulnerable to internal fraud, embezzlement or unauthorized activities. Proper CDD procedures help identify and mitigate risks, ensuring a more robust internal control environment.
  
  
• Legal and compliance issues: Incomplete CDD exposes your business to potential legal and compliance issues. Regulators may conduct audits or investigations, and if your business is found to have neglected CDD requirements, it could face legal action, penalties or even criminal charges. Noncompliance can also result in limitations on your business operations or restrictions on international transactions.

Businesses must prioritize CDD processes to help mitigate these risks and drive compliance with regulatory requirements. Implementing thorough and effective CDD measures helps protect your business, its stakeholders and the broader financial system from potential harm.

How Technology Can Transform Risk Mitigation

For businesses looking to establish a robust CDD process, there are several tools and technologies available to help streamline and enhance the process. These tools help in efficiently gathering and analysing customer information, assessing risks and ensuring compliance with regulations.

Customer relationship management (CRM) systems

CRM systems serve as a central repository for customer data and interactions. They enable businesses to manage customer information effectively, track communication history, and store relevant documents. CRM systems also support automated workflows, reminders and reporting functionalities, enhancing overall CDD efficiency.

Identity access management tools

Likewise, identity verification and authentication tools – which help mitigate the risk of identity theft, fraud and other illegal activities – typically use various methods including document verification, biometrics and database checks to ensure the authenticity of customer-provided information. Similarly, risk assessment and scoring solutions consider factors such as transaction history, financial behaviour, geographic location and industry to evaluate the risk level associated with each customer. By assigning risk scores or categories, you can prioritise your organisation’s due diligence efforts accordingly.

Artificial intelligence (AI) technologies

As with many industries today, AI technologies and advanced data analytics can be employed within the global workforce realm to analyse large volumes of customer data and identify patterns, anomalies or suspicious activities. Machine learning algorithms can flag potentially high-risk customers, transactions or behaviour, aiding in the early detection of fraudulent or noncompliant activities.

Compliance management tools

Further, compliance management tools help organisations stay up to date with ever-evolving regulations and ensure adherence to legal requirements. These systems facilitate documentation, risk assessment, monitoring, and reporting, enabling efficient compliance with AML, know your customer (KYC) and other regulatory frameworks. Sanctions and watchlist screening tools also provide automated screening to ensure that your business does not engage with individuals or entities associated with illegal or prohibited activities, reducing legal and reputational risks.

Document management systems

It is crucial to maintain a comprehensive audit trail and securely store relevant documents related to customer due diligence. Document management systems help you to capture, organise, and retain essential records, facilitating regulatory audits and compliance reviews. In addition, workflow automation tools streamline the CDD process by automating repetitive tasks, such as data entry, documentation generation and risk scoring. Case management systems provide a centralised platform to manage and track CDD cases, ensuring consistent and efficient processing.

Training and education platforms

Businesses can utilise training and education platforms to educate employees on CDD requirements, regulatory changes and best practices. These platforms provide interactive courses, quizzes and certifications, ensuring that employees stay updated and comply with due diligence procedures. Additionally, external data providers offer access to vast data sets and databases that businesses can leverage for customer research and verification. These sources can include credit bureaus, government records, public records and commercial databases.

It is also worth noting that the specific tools required for a robust CDD process may vary based on the industry, regulatory environment and complexity of a business's operations. Customized solutions or integration of multiple tools may be necessary to meet specific requirements and optimize the due diligence process.

The Importance of the Human Element

While technology can play a crucial role in streamlining and enhancing the CDD screening process, the human element is also essential. Humans possess a contextual understanding and critical thinking abilities that technology currently lacks. They can analyse complex situations, assess nuances and make sound judgments based on their expertise, experience and understanding. This is particularly important when dealing with ambiguous or unusual cases that require human judgment to evaluate risks accurately.

CDD processes often need to adapt to changing regulations, emerging risks and evolving customer behaviours. Humans are better equipped to quickly adapt to these changes, interpret new guidelines and adjust the screening criteria accordingly. They can also respond to emerging risks that technology may not have been programmed to identify.

Technology can provide automated risk scoring and flag suspicious activities, but it is humans who ultimately make the decisions based on the information provided. Human analysts can weigh different factors, consider mitigating circumstances and make informed judgments – considering a broader understanding of the business and industry context.

Technology tools are invaluable for automating routine tasks and verifying customer information against databases and watchlists. However, in cases where discrepancies or red flags are identified, human investigators can conduct further research, conduct interviews and gather additional information to make informed decisions. They can engage in conversation with customers, identify inconsistencies and assess the credibility of the provided information.

CDD processes involve handling sensitive customer data and making decisions that can significantly impact individuals and businesses. Humans can bring ethical considerations into the decision-making process, ensuring that the CDD screening is conducted fairly, respectfully and in accordance with legal and regulatory requirements. They can also handle exceptional cases with compassion and empathy, considering individual circumstances and potential mitigating factors.

Humans play a vital role in the continuous improvement of the CDD process. They can provide feedback, identify areas for improvement and suggest refinements to the screening procedures and technology tools being used. Human analysts can detect patterns, identify new risks and provide insights that can enhance the effectiveness and efficiency of the CDD process.

While technology can automate and accelerate certain aspects of CDD screening, it is the combination of human judgment, expertise, adaptability and ethical considerations that ensure a robust and comprehensive approach to customer due diligence. The collaboration between humans and technology creates a more reliable and effective screening process – balancing efficiency with the need for accurate risk assessment and decision-making.

Customer Due Diligence Principles Support Strong Supply Chain Management in MSPs

These practical recommendations are intended to provide insight into how CDD principles can support a strong, ethical and compliant global supply chain. As mentioned, failing to prioritize CDD can expose businesses to various risks, including regulatory non-compliance, increased financial risk, reputational damage, exposure to fraud, adverse business relationships, weakened internal controls, and legal and compliance issues.

To mitigate these risks, businesses can leverage technology that is available. These tools streamline the CDD process, enhance efficiency, and improve compliance with regulatory frameworks. However, while technology plays a vital role, the human element remains essential in the CDD screening process. Humans provide contextual understanding, critical thinking abilities, and subjective judgment necessary for assessing risks accurately. The collaboration between humans and technology ensures a more comprehensive and reliable approach to customer due diligence.

By embracing robust CDD practices as part of your global talent supply chain management programme, you can make an impact to safeguarding your operations, protecting stakeholders and contributing to the overall integrity of supply chains.