Integrity Risk

Hilary Tuttle


December 1, 2013


In an analysis of third-party integrity risk, KPMG found that due diligence based only on sanction reviews and press searches of prospective partners missed 84% of potential integrity risks. Of more than 8,000 integrity due diligence reports analyzed, only 12% received an all-clear. More than 20% were given a risk rating of red, meaning they were associated with significant risks, such as allegations or incidences of corruption, fraud, money laundering, or other unethical or illegal practices. Two-thirds were rated amber, signifying notable risks. Risk professionals in the financial services sector should be especially wary: more than 60% of the riskiest reports were on banking industry subjects. Identifying the individuals behind organizations may be the most critical part of due diligence—a particularly difficult task with trusts, foundations and international corporations registered in areas with lax regulations or limited media access. Extra screening can do more than just help prevent ill-advised partnerships. According to the resource guide to the U.S. Foreign Corrupt Practices Act, “Risk-based due diligence is particularly important with third parties and will also be considered by the DoJ and SEC in assessing the effectiveness of a company’s compliance program.”

Hilary Tuttle is managing editor of Risk Management.