Panama Papers

April 26th, 2016

The Panama Papers: Where Contract Management Meets Third-Party Integrity

The initial storms fermented by the coordinated press announcements around the release of the Panama Papers are perhaps calming. However, this is by no means the end of the story. The vast leakage of data from Mossack Fonseca (11.5 million confidential documents involving more than 214,000 offshore companies) will certainly have major repercussions over many years to come. Already we have seen significant impacts both at a personal level for politicians and celebrities and at the enterprise level in sectors ranging from finance to industry.
Increasingly, business relationships are structured and governed by some form of contract. The Panama Papers have highlighted examples of the risks associated with a lack of visibility during contracting processes and failure to establish the quality and integrity of a contracting partner.

Often the final authorizing signature to a contract is not that of an individual that has been actively involved in the negotiation process. It may be that of a senior executive mistakenly believing that all integrity and due diligence checks have been comprehensively undertaken. The contract negotiation may have actually been handled by a different part of the organization or even outsourced to a third party with specific capabilities not held within that of the contracting organization. This mistaken belief does not, unfortunately, diminish the fact that the ultimate responsibility finally lies with the signatory.

Even if the final signatory of the contract has been involved in the negotiation process, it is often the case that little research will have been undertaken to verify the credentials, credibility, integrity and ultimately risk exposure associated with any new third-party. Potential exposures could include outstanding or previous prosecutions, politically exposed people, other directorships or conflicts of interests.

An inability to identify such exposure prior to contractually committing to a future commercial relationship can have significant impacts both from organizational and personal perspectives.

For the organization, there may be significant exposure to financial liability, market reputation or commercial penalties.
The personal impact may include loss of reputation, negative impact on a career and even the launching of criminal processes.

What are the lessons to be learned?

Firstly it is crucial to have a clearly defined contracting system with a process for tracking the contract lifecycle and providing an audit trail.

Secondly, it is crucial to undertake background integrity checks when onboarding any new third party. Online databases providing checks at a global level are available from organizations such as Thomson Reuters, Dun & Bradstreet, and others. National databases also exist including for some of the emerging market territories.

In summary, it is critical to have efficient and effective contracting processes integrated with online data sources to verify the integrity of your contracting party.

Chris Craddock, Director, Symfact

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