Within the framework of the “Armenia: Promoting Anti-Corruption Conduct and Reforms” project implemented by the the “Center for International Private Enterprise” (CIPE)  the “Armenian Lawyers’ Association” NGO (ALA) undertakes the commitment to introduce  the Anti-Corruption Compliance (ACC) Programs at the Armenian business community, which will contribute to the dissemination of corporate governance and ethical values in Armenia.

By continuing our awareness campaign on the components of ACC, this time we are drawing the attention of business companies to get acquainted with the concept of “red flags”. Thus, during the business activities for company it may be occurred potential “red flags” that are alerts for organizations to review their business activities and conduct risk assessment process. These flags may arise for any company on behalf of itself and/or the partner, supplier, customer, public official and other third parties (Third Parties) working with the company. If the Third Parties are involved or accused of being involved in illegal activities or have a reputation for giving or taking bribes, then the person in charge of the ACC in the organization should take immediate actions as soon as possible. For instance, he or she may notify senior management to review the contractual relations with a particular partner or to apply whistleblowing mechanisms.

Another “red flag” case is considered to be where the Third Parties ask or require an unexpected commission and/or other additional fees, excessive costs and/or gifts prior to the start of negotiations or discussions with a company, prior to the assignment of contract, carrying out or continuing any process for a company. There may be cases when the Third Parties require unexpected cash, refuse to sign relevant contracts, refuse to provide an invoice for payment or other proof of payment. 

These are the cases of "red flags":

1. When the payment is made in another country or geographical location that is not corresponding to where a Third Party lives or works;

2. The Third Parties require unexpected commission or other extra fee for "providing" the service;

3. The Third Parties make the payment by deliberately neglecting and "noticing" potential legal violations;

4. The Third Parties require to hire a friend or a close relative and/or a friend for work and/or other benefits;

5. The Third Parties require to involve such an agent, broker, consultant, distributor or supplier or other Third Party who are unknown for  the company or are not normally involved in such business activities;

6. The Third Party organizes for particular public official expensive and frequent dinners and/or ensures regularly his participation in other events;

7. The company receives by the Third Party an invoice that does not correspond with the sample form and is changed and fit for the Third Party’s;

8. The Company has submitted an invoice for a commission or any other payment/fee that is considered to be in excess of the fair value of the provided services.

IN THE CASE OF “RED FLAGS”

What to do?

Set up an investigation team made up of company’s managers, and recruit independent specialist from outside, if necessary. Keep records of all actions taken during the investigation.

Review the records in your accounting documents to find out evidence.

Once you have sufficient evidence of embezzlement, restrict or ban the fraudulent employee’s access to company’s financial resources. 

Identify the source of the embezzlement. If you don’t already have a whistleblowing system to report (hotline, phone and/or email), now is the time to set one up. 

Encourage and protect the whistleblower who has reported of crime.

What NOT to do?

Don’t jump to accusations. Even if there’s only a tiny chance that someone is actually innocent, follow due process and company’s internal regulations. A false accusation can do irreparable damage to the relationship between the employee and your company, even your company could be sued.

Don’t interview possible accomplices together, and don’t interview suspected employees by yourself alone. Have an Head of HR Department or any other responsible person for HR within all interviews to record the process and make notes.

Don’t reveal your suspicions before you have solid evidence. Gather as much accurate evidence as you can before making your investigation public. A suspected person can delete emails or clean up financial records if they find out you’re carrying on such investigation.

Don’t try to take the law into your own hands. Cooperate with law enforcement bodies to help them do their job quicker. If you’re worried about possible negative impact, talk to your attorney to find out how to proceed.