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Distributor management—the process of screening, monitoring, and evaluating an organization’s relationships with downstream business partners—is critical to operational continuity.
Ensure the distributors you depend on are reputable and reliable.

This requires more detailed due diligence at the inception of the business relationship than is normally required for other business partners like vendors or suppliers.

In the preliminary due diligence phase, elicit key information concerning an organization’s

  • qualifications,
  • ownership structure,
  • regulatory and legal history,
  • financial solvency, and
  • overall industry reputation.

Screen against sanctions lists, such as the U.S. Department of the Treasury’s Specially Designated Nationals and Blocked Persons List to ensure that the organization is not partnering with an otherwise prohibited party.

Prospective business partners should commit to abiding by an organization’s code of conduct (or where available, a supplier or third-party code of conduct) that explicitly emphasizes the specific compliance responsibilities the organization expects its distributors to undertake.

As the U.S. Department of Justice has emphasized, a company’s third-party management process should closely correspond to the nature and level of total enterprise risk identified by the organization. Too often, an organization’s management of distributor relationships is completely divorced from other third-party relationships. This results in a wholesale failure to prioritize critical risks over more routine risks and the adoption of an ad hoc compliance strategy that completely disregards the value of targeted, effective internal controls.

Put simply, not all third-party relationships are created equally, and distributor relationships are often the most vital arteries in an organization’s operational lifeline.

Distributors are direct representatives of the organizations whose products and services they market. As a consequence, organizations that rely on distributors are more vulnerable than their “direct-to-market” counterparts to enforcement actions stemming from violations of international anti-bribery and corruption laws–including most notably, the U.S. Foreign Corrupt Practices Act (“FCPA”) and UK Bribery Act.

Case spotlight: BK Medical

A major U.S. medical device company and its wholly-owned subsidiary in Denmark were held directly liable for allowing multiple distributors to use the Denmark subsidiary as a proverbial slush fund for processing corrupt payments to foreign government officials. Finding (among other things) that the company violated the FCPA’s books and records provisions with lax oversight of its third-party relationships, the U.S. Securities and Exchange Commission (“SEC”) imposed monetary sanctions on the medical device company to the tune of nearly $14 million.

The SEC’s enforcement action also targeted individual executives who recklessly disregarded the corrupt actions of the medical device company’s distributors. Specifically, the SEC fined both the CEO and CFO of the medical device company for violating internal controls, falsifying books and records, and knowingly processing more than 140 suspicious payments to third parties at distributors’ requests despite the lack of a legitimate business rationale.

The SEC’s action in the medical device case emphasizes the need for organizations to actively monitor their distributor relationships from the very inception of the business relationship through contract renewals, periodic audits, and contract termination.

Stakeholder Engagement

Maximize distributor visibility

GAN Integrity allows organizations to implement compliance workflows that provide maximum visibility into key third-party associations–including distributor relationships.

Granular Auditing

Evaluate custom questionnaires

Fully customizable questionnaires permit compliance officers to engage in more comprehensive due diligence of prospective distributors and to replicate the same due diligence at scale with all prospective distributors.

Eliminate information silos

Consolidation of key information into a single platform solves the seemingly intractable problem of information silos: pockets of ‘organizational ignorance’ that threaten to undermine a company’s efforts to develop a cohesive third-party risk management program.

Extract deep analytic insights

GAN Integrity’s state-of-the-art incident reporting capabilities also allow for the confidential and/or anonymous submission of information concerning improprieties that might arise with respect to an organization’s distributors and third parties more generally.

Such a reporting mechanism is an integral first-line defense that is increasingly recognized by regulators as the marquee element of an effective compliance program.

Integrate with existing systems

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