If just a few years ago the compliance system was found in few companies, now its presence is considered not only a “good practice”, but sometimes a prerequisite for concluding contracts.

Compliance helps businesses avoid a significant number of risks, reduce financial losses, preserve reputation and assets.

“For Armenia, this topic is becoming relevant now, as many foreign companies have entered the market, and the country’s market itself is actively developing,” says Suren Ghalumyan, the Managing Partner of GLT Solutions consulting company.

In an interview with Banks.am, Suren Ghalumyan talked about the importance of compliance, its types and the process of implementation in a company.

- Today, the importance of having a compliance system in companies is increasingly emphasized. Could you please explain what it is?

- Compliance is a set of measures aimed at preventing actions by a company or its employees that contradict legislation, industry-accepted standards and internal ethical norms.

The term “compliance” comes from the English “to comply” or “to conform, adhere”.

For example, if a driver does not comply with traffic rules, he is fined. In the best-case scenario, this is the outcome, but there is also the possibility to get into an accident. Therefore, adhering to traffic rules is compliance.

The same applies in the commercial sphere: if a company fails to pay taxes, it not only risks large fines, but, in some cases, even criminal proceedings. Therefore, monitoring and paying all taxes are considered compliance.

In general, compliance is necessary to reduce the risks of financial and reputational losses for businesses, so it can also be referred to as a risk management system. In simple terms, compliance encompasses everything a company does to ensure responsible behavior by its employees and the business as a whole in the market.

- Why does a business need compliance? Is it a matter of adopting the experiences of foreign countries or does it have a more conscious character driven by the need to prevent violations?

- Compliance has an accumulative effect and allows businesses to protect themselves, including for future prospects. The concept of “compliance” in business did not emerge out of nowhere: today, it is a necessary condition for safety. Legislation changes rapidly, new regulations and requirements emerge in various commercial sectors, and existing requirements may become more stringent. If a business is not prepared for this, it may face significant fines and legal proceedings due to accusations of tax or economic crimes. The main task of compliance is to prevent this.

For Armenia, the topic of compliance is becoming relevant not only because many foreign companies have entered the market, but also because the country’s market is actively developing. Foreign partners expect that potential contractors do their business honestly, ethically, and pay proper attention to security issues. Compliance is now becoming not only a matter of “good practice” but sometimes a precondition for concluding contracts.

But therein lies the advantage of having it in the company. By complying with the requirements of partners, the company establishes reliable internal protection mechanisms through compliance. Introducing a compliance culture has evident benefits for everyone:

•     Increased investment attractiveness;

•     Reduced risk of breaching obligations, simplifying the debt recovery process from contractors;

•     Improved company image, contributing to business reputation;

•     Increased trust from regulatory and supervisory authorities, among many other advantages:

- Does the compliance system imply the development of separate policies and procedures within the company?

-  Yes, and each company determines the set of documents it will develop and implement to comply with legal norms and meet the expectations of society, clients, and partners. For example, these may include:

Code of Corporate Ethics and Business Conduct: it defines the moral and ethical principles of operation, priorities, and values of the company, as well as the responsibilities of management and employees to adhere to the compliance culture.

Anti-corruption policy: the company’s primary document that establishes a “zero tolerance” principle towards corrupt activities.

Anti-money laundering (legalization) policy: it outlines actions aimed at preventing laundering of money obtained through criminal means, including measures to counter the financing of terrorist organizations.

Conflict of Interest Resolution Policy: a set of ethical standards for employee behavior in cases of conflicts of interest.

Gift-Giving Policy: it distinguishes between the concept of a gift and a bribe/kickback, usually setting the maximum allowable value for gifts.

It is evident that for companies oriented towards long-term success, the benefits of implementing compliance outweigh the challenges on this path. Compliance becomes not just a trendy but a necessary tool for managing antitrust, corruption, and criminal risks in business.

- What types of compliance exist?

- Anti-corruption compliance: includes everything a business can do to counteract corruption within the company. It reduces the likelihood of the organization getting involved in situations associated with the risk of legal violations or reputational damage.

Anti-fraud compliance: a set of measures to assess financial transactions from the perspective of fraud. This is common in banks, whose customers’ funds are deliberately targeted by phone scammers and fraudsters. It is also used by trading organizations with online sales.

Antitrust compliance: primarily oriented towards natural monopolies, it is intended to monitor compliance with current antitrust legislation. However, it is relevant for any commercial companies as well. For example, a business may face serious fines if it claims in targeted or contextual advertising that it provides the “best prices” or the “highest product quality on the market” without evidence of these claims.

Tax compliance: a risk management system, checking business processes for compliance with current tax legislation and the voluntary commitments that the business has undertaken.

Financial compliance: the regulation and ensuring compliance with laws/rules in the financial sector. Financial compliance is necessary for all financial sector companies, from investment firms to banks, whose activities are closely regulated by regulatory authorities.

- What are the main risks that the compliance system helps prevent?

- In general, compliance helps businesses avoid a significant number of risks, reduce financial losses, preserve reputation and assets.

Non-compliance with regulatory norms and standards: everyone remembers that “ignorance of the law does not exempt from responsibility,” right? Not being aware, failing to track legislative changes, and non-compliance pose a very serious risk.

Reputational risks: previously, negative information about a company might not reach its customers. Today, with people actively communicating on social media, any violation of customer interests or simply rudeness from an employee quickly becomes known to the target audience.

Financial risks: these also include losses from collaborating with suppliers chosen not based on objective data but personal connections, or in simpler terms, “kickbacks.” Additionally, non-compliance by a product-selling company with current sanitary control requirements can lead to serious financial penalties – another type of financial risk.

- How to implement compliance in an organization?

- The general sequence of actions is almost always as follows:

•     Assess the risks existing for the business. For some, it may be primarily compliance with antimonopoly legislation, for others, dealing with conflicts of interest among employees, and for yet another business, it might involve working with tax authorities.
  
  

•     Make a decision. “We need compliance in the field of tax legislation, an internal ethical code, and regulation of what can be considered gifts to company employees.”
  
  

•     Analyze the work of competitors. Perhaps someone has already successfully implemented a risk control system, and it can serve as a reference in developing your own version.
  
  

•     Engage experts. For example, lawyers to develop all necessary policies. Experts can be internal (company employees) or external.
  
  

•     Inform employees about all important rules.
  
  

•     Appoint responsible individuals. They should monitor how policies are implemented.
  
  

•     Work on eliminating identified violations. Respond to risky or unethical actions by employees, monitor changes in legislation and industry standards.

Compliance is necessary for businesses to mitigate all sorts of risks, ranging from the risk of non-compliance with current legislation requirements to the risks of data leakage and employees receiving “kickbacks” from contractors.

Yana Shakhramanyan

Photos: Emin Aristakesyan