Manufacturing Supply Chain

Verify Key Identifying Elements About a Third-Party Vendor

It is time for manufacturing businesses to take a renewed look at third-party risk management.

Companies Need to Focus on Their Supply Chain Integrity


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Identify Third-Parties That May Present Location-Based Sanctions Risk

Prevent vulnerabilities from entering your vendor lifecycle.

Manufacturing Supply Chain

Managing the Two-Fold Challenge of Sanctions and Supply Chain Integrity

Manufacturing businesses have a unique role in global supply chains. A manufacturer often represents a supply chain within their end customers’ larger supply chains. This role puts manufacturing businesses at the epicenter of a fragile ecosystem where ensuring the integrity of third-party relationships is integral to sustainable success. The geopolitical events of 2022 following Russia’s invasion of Ukraine are making implementing and maintaining an effective third-party risk management program a must-have for the manufacturing industry.
Applying “just enough” sanctions compliance oversight can no longer be justified in the wake of expanding global sanctions expectations, increasingly granular export restrictions and a constantly changing Dual Use Goods list. Just enough could jeopardize your ability to operate your business and bring a full stop to the production lines that drive profitability. It is time for manufacturing businesses to take a renewed look at third-party risk management. Read on to find out what you need to know and explore the proactive steps you can take now to protect supply chain integrity.

Evolving Geopolitical Conditions Leave All Sides of a Supply Chain Exposed

2022 has been a year of unprecedented geopolitical and macroeconomic developments. No industry has been immune from the impacts of the fallout following the Russian invasion of Ukraine. The manufacturing industry finds itself uniquely in the middle of both the economic and sanctions compliance impacts. Manufacturing businesses must manage the risk realities of today’s new normal from two sides by protecting their own internal supply chain relationships and playing a role in protecting the end clients who ultimately utilize their products and goods. This is a daunting task as the sheer velocity and volume of sanctions against Russia open significant vulnerabilities across the global trade landscape.

The net count of new Office of Foreign Assets Control (OFAC), Office of Financial Sanctions Implementation (OFSI) and European Union (EU) sanctions designations against Russia-related programs totaled over 2,300 in the first 41 days following the Russian invasion of Ukraine.1 Plurilateral sanctions targeting people, entities and ports-of-embarkation were immediately followed by expansive trade restrictions covering an unprecedented level of granularity around Dual-Use Goods, Airspace, Technologies, Export Controls and more. The extensive and ever-growing list of potential global sanctions violations tied to Russia and Belarus and goods banned by the Bureau of Industry and Security is evolving in real time. Keeping up with these rapidly changing global regulations equates to a massive paradigm shift for manufacturing businesses previously taking a bare minimum approach to compliance.

Damage Extends Far Beyond Dollars When Third-Party Risks are Missed

A lapse in supply chain integrity can introduce a domino effect of negative and long-lasting impacts for a manufacturing business. Recent sanctions and bribery and corruption enforcements illustrate the costly damages non-compliance can have on a manufacturing business:   

  • A manufacturer of process controls, airflow pressure switches, boiler controls and other instrumentation paid over $200,000 to settle a violation of the Iranian Transactions and Sanctions Regulations2 
  • A manufacturer of test measurement equipment paid a settlement of $6.6 million for violations of the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR)3 

Fines are only the first step of an enforcement which can have ongoing operations ramifications and inflict lasting reputational damage that equal staggering opportunity costs. The context of today’s current geopolitical situation introduces even larger consequences for manufactures to contend against. Doing business with a sanctioned entity, exchanging banned goods or facilitating a payment to a Specially Designated Nationals (SDN) can result in an immediate stop in business that can be devastating. Losing an integral supplier is not an easy fix— especially in light of today’s global macroeconomic instability. It is critically important to understand the inherent risk in third-party relationships before they enter a manufacturing supply chain. Manufacturing businesses also need to maintain a current view of risk across the lifecycle of a vendor relationship. 

Vendor Onboarding is an Optimal Place to Start Protecting Supply Chain Integrity

Achieving optimal supply chain integrity in today’s accelerated global economy equates to managing a lot of moving parts. Starting new vendor relationships by screening with robust global risk intelligence can make a difference in preventing compliance risks and relationship vulnerabilities from entering a supply chain ecosystem. Conducting up-front due diligence enables a manufacturing business to verify key identifying elements about a third-party relationship and proactively uncover risk vulnerabilities. Knowing your vendor is a vital risk assessment first step. Today’s interconnected global economy means knowing your vendor has to expand to the next-level. Conducting more in-depth risk assessment of a third-party, their core associations, relationships, customers and business structure is key to truly effective KYC, KYCC and KYB due diligence.

Understanding Ultimate Beneficial Ownership (UBO) can enable a manufacturing business to uncover potential shell companies or regional risks. Taking time to assess digital identity risks helps isolate third-parties that may present location-based sanctions risk or export restrictions risk. Global risk sanctions screening data can make a big difference in helping streamline third-party relationship risk assessment. Targeted screening resources and look-up tools that can be tailored to reflect specific risk appetites and budget realities enable a manufacturing business to address compliance concerns without creating expense constraints or slowing down your business operations. The process of insulating a business against exposure to compliance, sanctions, bribery and corruption and trade-based risk begins with proactively identifying third-party risk with every new supply chain relationship. 

Prevent Vulnerabilities from Entering Any Point of the Vendor Lifecycle 

Most manufacturing businesses are part of a dynamic and complex global supply chain ecosystem full of connections and relationships that open opportunities for risk to enter at any time in the vendor lifecycle. The evolving nature of today’s global markets and geopolitical climate make end-to-end risk assessment an essential part of an effective compliance program. Ongoing mergers and acquisitions mean the vendor you evaluated last week may now be owned by a sanctioned entity or working with a business in a region facing export restrictions. Ongoing monitoring provides the advantage of continuous insight into events and status changes that may create risks in third-party relationships. Global sanctions and trade risk moves at a real time pace. Manufacturing businesses can improve third-party risk management and maintain up-to-date risk visibility across every point of the supply chain by leveraging screening intelligence reflecting the immediate scope and specificity of current sanctions requirements and trade restrictions. Ongoing monitoring occurring in the background is an optimal layer of protection to add to your manufacturing supply chain without slowing revenue generating operations.

Shifting Your Compliance Focus to Strengthen Customer Relationships

Focusing on sanctions compliance and supply chain integrity helps fortify overall business performance. Your best customers count on their ability to have confidence in your product and the integrity of the supply chain underpinning that product. They presume your business is already proactively maintaining end-to-end compliance controls and effectively managing the complexity of today’s geopolitical climate. Regulatory agencies expect the same level of commitment and are increasingly looking beyond financial institutions with sanctions oversight and regulatory enforcements.

Re-evaluating your sanctions and compliance program against today’s macroeconomic and geopolitical risk climate helps reinforce the customer relationships that drive revenue. 

Ready to evaluate your sanctions compliance readiness? Connect with our experts to learn more. 

  1. The Perfect (Sanctions) Storm | LexisNexis Risk Solutions

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