ACCA says the recent crisis in Iraq highlights the risk of ‘pillaged goods’ entering the global supply chain, and warns that companies are at risk of prosecution if they are found to have paid for goods or materials that have been stolen from war zones.
Recent reports from foreign intelligence agencies identify pillage of raw materials from Syria by Isis fighters in Iraq as being a source of funding for the group. However, ACCA says pillage - the crime of theft in armed conflict – is widespread beyond the conflict in the Middle East and urges companies to ensure they have adequate assurance in place to ensure they are not seen to be indirectly financing the actions of terrorists or criminals.
Jason Piper, ACCA’s technical manager, tax and business law, said: ‘Pillage as a prosecuted offence seemed to disappear after the Second World War, but globalisation and the related supply chains have seen it re-emerge in the 21st century.’
In a report on the issue, Pillage: a new threat to global supply chains, ACCA says that the rise of cross-border supply chains, and the fact they have become longer and more complex ,makes it easier for raw materials that have been pillaged to enter the supply chain. Simply handling pillaged goods can count as money laundering, vastly expanding the scope for prosecutions.
ACCA cautions that pillage is much more widespread than just the current flashpoint in Iraq, citing the example of ongoing conflict in the Democratic Republic of Congo which has given rise to concerns over pillage of minerals and other commodities used in the consumer electronics industry.
Piper said: ‘As well as the potential legal threat a business faces by using pillaged goods, there is a crippling reputational impact. While it will depend on a company’s customer base, the main risk is that today’s customer is more socially aware and concerned about the impact businesses have on the social and physical environment.’
ACCA says that finance professionals have an important role to play in designing and implementing assurance systems to guard against pillaged goods and materials in a company’s supply chain. The report points to various government-led initiatives around the world, such as the European Union proposed regulations for self-certification of responsible importers and provisions in the US Dodd-Frank Act.
However, ACCA says that creating a consistent paper trail of accountability at every stage in the production process in respect of every individual shipment of materials is likely to be too great an administrative burden for most companies, although lack of resource to confirm the status of goods would not in itself constitute a defence in criminal proceedings.
Instead, it is urging accountants to help businesses find other ways of ensuring as best they can that the supply chain is pillage-free.
Piper said: ‘Business may need to give consideration to finding proxies for direct assurance. For example, suppliers’ membership of recognised trade bodies or submission to certain levels of audit will demonstrate a commitment to good practice. Whether this can be judged adequate will involve a considered appraisal of the circumstances, a process ideally suited to the skills of the modern accountant.’
