Written by Danyal Solomon
Most of us who work within the confines of FCPA compliance requirements have studied, contemplated, and interpreted the Resource Guide to the U.S. Foreign Corrupt Practices Act. Written with the intent to inspire compliant standards and practices, the guide provides helpful hints, prosecution procedures, and outlines benefits of self-monitoring and reporting. However, within the guide are a multitude of ambiguities that pose serious challenges for the compliance professional. Just to name two, the “reasonable standard” of due diligence, and the concept of “instrumentality.”
Recently, the 11th Circuit Court defined “instrumentality” as an entity that is “controlled by the government of a foreign country” and “that performs a function the controlling government treats as its own.” Any compliance professional will testify to the importance of this term being defined so as to allow their programs to function around this requirement. So, while we still need to determine what the “reasonable standard” of due diligence is, we now have a framework to work with that defines instrumentality. So what does this mean for the compliance program executor and his/her third-party international due diligence process?
One of the first questions a compliance practitioner should ask themselves is: Does the nature of this relationship present more opportunity for concern? Is the third-party performing a professional service (accountant, legal advice) within the jurisdiction, or are they acting as an agent, on your behalf, with a contract manager of a government “instrument?” This is especially important within the industries that have heavily scrutinized touch points with nationalized services e.g. oil & gas, medical device, pharmaceutical manufacturing, defense contracting, and more recently, manufacturing. The nature of the business relationship with a third-party needs to be defined before any level of “reasonable” due diligence can be undertaken.
After assessing the relationship, think for a moment whether your due diligence questionnaire (if you have one in place) addresses issues of interaction with an “instrument.” Does the questionnaire ask to disclose government relationships? Does it ask for specific dates of government employment and specific duties while in that position? Does it ask for a disclosure of any political exposure, whether acute or broadly? An effective questionnaire contains effective questions – the risk posed by interacting with an official of the “instrument” is worth devoting time into a well-structured, in-depth due diligence questionnaire.
You have now completed the assessment of the relationship and the initial questionnaire. Great – now what to do with all of this self-submitted, unverified information? Most likely, not every questionnaire and/or relationship will pose an equal amount of concern for risk exposure. Thus, a “reasonable standard” will not be the same for different levels of risk. Cursory checks on database driven platforms will suffice for some engagements. However, anything more concerning than a single red flag needs to be addressed by an agency which specializes in extracting information from difficult jurisdictions. Regulatory agencies have, will, and currently do scrutinize the due diligence standards of an organization to determine their pursuit, or lack thereof, of ascertaining the truth behind the individuals/entities that are engaged. Anomalies within the FCPA due diligence program will be discovered, and ultimately, cited during prosecution.
FCPA prosecutions are rising. Fines are increasing. Access to the global economy demands stronger business ethics for companies conducting significant transactions abroad. As members of the global business community, it is all of our responsibilities’ to engage in investigative standards that will permit us a more-clear picture of risk, corruption, and graft. In order to reach this “standard,” it is necessary to perpetuate compliant and ethical business standards around the globe.
The Kreller Group was founded in 1988. The company provides comprehensive corporate due diligence investigation services for government entities and Fortune 100 and 500 corporations in the U.S. and abroad. The Kreller Group team is comprised of a worldwide network of investigators and business analysts with domestic and foreign expertise in all jurisdictions. For additional information about the Kreller Group Family of Companies contact Gina M. Martin, 513.723.8902, email@example.com or visit www.kreller.com.
Danyal Solomon is a global due diligence consultant for Kreller Group. Prior to his tenure at Kreller, Solomon was a business analyst for Microsoft and worked in Constituent Services for the United States Congress. He advises multinational Fortune 100 companies in the areas of FCPA Compliance Program Construction, Third Party and Serial Litigations Investigations, Anti-Corruption, Anti-Money Laundering and M&A Due Diligence. Solomon received his B.A. in Middle Eastern Languages & Cultures/International Relations from Columbia University. He is currently pursuing a Juris Doctor at Salmon P. Chase College of Law. Solomon is fluent in Arabic.
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