After the Russian invasion of Ukraine, the world of business will never be the same again. Deputy Attorney General(DAG) Lisa Monaco recently said that the world’s “geopolitical landscape is more challenging and complex than ever. The most prominent example is of course Russia’s invasion of Ukraine.” It is “nothing less than a fundamental challenge to international norms, sovereignty and the rule of law that underpins our society.” This is even more so in the current business climate.
Supply Chain
There will be no area of businesses which has experienced the tectonic shifts that have occurred in the marketplace over the past couple of years than in Supply Chain.Brandon Daniels, CEO of Exiger identified three key reasons for these shifts. The first began with the realization of the untenable actions of the major player on the US supply chain, China. This realization had begun pre-pandemic, when it became clear of the massive theft of US intellectual property by Chinese businesses which led to a huge counterfeit goods problem coming out of China. Daniels estimated that “70% of the world’s counterfeit market is driven by China.” The second was the slave labor issue with China, particularly the Uyghurs. This extensive use of slave labor gave China an economic advantage which in many cases could not be overcome. It was economic warfare by another name. The third is more and greater government oversight and regulation.
Economic and Trade Sanctions
One of the keys on the nature of sanctions on punitive economic activities, is to endure that you are having the right impact and through a set of comprehensive sanctions. You must do so while “making sure that you’re not hurting your allies and partners that can help unwind some of these undesirable or intolerable geopolitical situations.” This means that when thinking about economic sanctions, it is not simply a consideration of the implemented economic sanctions; it is a broader consideration of “a comprehensive set of economic and trade policies that have been codified into legislation, through regulation and rulemaking, that set the tone for sanctions in the future sanctions and economic prohibitions in the future.”
Once again, as with supply chain, the government is now looking for businesses to help in this fight. The US government has enlisted the private sectors as key partners in the implementation of economic and trade sanctions to allow the US government “to go after those who profit from corruption and crime around the world — whether they are sanctions-evading oligarchs or office-holding bribe recipients. Working with our partners, we can ensure that corrupt regimes will be held responsible — whether we’re seizing yachts or freezing slush funds.”
Anti-Bribery/Anti-Corruption
Writing for the World Economic Forum, Delia Ferreira Rubio, Nicola Bonucci and Rachel Davidson Raycraft linked the fight regarding economic and trade sanctions to bribery and corruption. They connected the monies stolen by oligarchs and strongmen through a variety of strategies to bribery and corruption. Taking this connection a step further, they noted “the close relationship between corruption and conflict”, as laid out in the UN Sustainable Development Goal (SDG) 16 – Peace, Justice and Strong Institutions. As with the Strategy, UN SDG 16, “is grounded in the principles of anti-corruption, including targets such as reducing illicit finance, corruption and bribery; and developing effective, accountable and transparent institutions at all levels.”
An unintended, but no less powerful example of the nefarious impacts of bribery and corruption, has been demonstrated by the Russian Army in the invasion of Ukraine. It has been the abject failure of the Russian Army to be able to keep a modern army functioning in the field. The Russian Army has been plagued by equipment that did not function and non-existent parts and stores which were all sold off on the Black Market by corrupt Russian government officials. In many ways, criminals simply siphoned away the stores of the Russian Army due to bribery and corruption.
Finally, as DAG Lisa Monaco stated, the role of compliance professionals as gatekeepers has dramatically changed. The Department of Justice (DOJ) clearly views corporate citizens as key allies in this fight. Rubio, Bonucci and Raycraft noted that gatekeepers “play an indispensable role in the enforcement and realization of laws and regulations that target illicit finance.” Anti-bribery and anti-corruption compliance has been forever changed by the Ukraine War as it is clear that “by controlling, distributing and managing wealth, gatekeepers control, distribute and manage global power – and, in effect, global security.” Anti-bribery and anti-corruption compliance and enforcement will never be the same again, literally on a worldwide basis.
Cybersecurity
The Russian invasion of Ukraine gave everyone else an understanding of how serious cybersecurity really was from a defense perspective and not just from a corporate risk management perspective. According to Daniels, it drove home the clear message in cybersecurity that the United States is in a non-kinetic war with Russia and China. According to Daniels, over the past decade the theft of intellectual property (IP) through cybercrime has steadily increased but Russia and China are essentially “showering the US with attacks” and specifically Russia is attempting to compromise “US facilities and technologies since the crisis” began.
A second and equally important point on cybersecurity, is how interconnected it is to commerce. Countries such as Russia and China are clearly using both state and non-state businesses to further the ambitions of the state. These attacks have been particularly prevalent in supply chain where 80% of the largest cyber-attacks that have occurred, have been supply chain attacks. This means that you may have integrated some software into your organization through a vendor, but somewhere earlier in that software development, in that vendor’s purchasing of under underlying software capabilities, there was a malicious piece of software that was planted by a state-owned actor, a non-state actor or a criminal network. This interconnectedness between
Finally, another key risk area to consider is jurisdictional risk. This means reviewing the locations of your facilities. Daniels said, “I look at where my top or most critical products are being manufactured. Again, if I’m a cloud hosting company, it might be the microelectronics that I use to power computing resources, to determine where the concentration of manufacturing locations.” But the key is to take it in bite size chunks by company, industry, and jurisdiction, and then monitor so you can at least maintain a reactive posture on upcoming events. By doing so this enables your company to do continuous maturing and evolution thereby increasing complexity and efficacy to continuously improve that program to start to work towards proactive risk management.
ESG
ESG is now a key national security interest of democracy. What the Russian invasion of Ukraine drove home was the need for a more holistic approach to corporate ESG. The transparency mandated by ESG programs, through government required disclosure or private sector required disclosure also ties into the other areas of business change we have explored over this series. Obviously, the disruption in the supply chain of key minerals coming out of Russia, such as aluminum or fossil fuel, is an important issue but companies which tried to continue to use those resources faced a much greater risk and economic sanctions; that being reputational risk. Daniels remarks, “in terms of social issues, companies were forced to comply with sanctions, but then there were boycotts against companies that maintained relationships with the Russian autocracy. There were boycotts against companies that had ties to Russian oligarchs.”
Conclusion
We are in a global corporate ecosystem that is changing for the better and we are making the world a safer place to do business. Daniels concluded, “Ultimately despite some pain, despite some volatility at the end of the day, our goal is to provide sustainable growth. That is fair and just, and it provides opportunity for individuals to thrive. There is no way to accomplish this without having risk management, strong governance and the ability to sometimes put our ethics above profits.” The Russian invasion of Ukraine has changed business forever. How will your business respond?