Due Diligence Nuts and Bolts

As promised, I wanted to address some of the nuts and bolts of a due diligence review of a third party agent.  The focus of a due diligence inquiry is “reasonable inquiries” to identify and assess the risks that a third party will engage in bribery.  Of course, the specific aspects of the inquiry will change depending on the particular facts surrounding the third party, the presence of red flags, and the country in which the third party will operate.

My suggestions are only of basic subject inquiries and steps taken  — the finer points require attention to detail and focus on issues which may require further investigation.

Most importantly, and as every practitioner will tell you, the due diligence process has to be documented.  By that I mean every step that you take you note on a log and keep in your files the results of that step/action/inquiry.  It can be a tedious process but it is absolutely critical that a record is kept in the event that regulators or the Justice Department require you to assemble information on a particular issue.  It also makes good business sense.

Here are my suggested topics for review:

1.  Risk analysis of corruption conditions for each of the countries in which the agent will be operating
2.  Risk analysis of corruption conditions in the industry(ies) in which the agent will be operating
3.  The proposed services (as specific as possible) which the agent will provide
4.  The proposed written agreement between the company and the agent (or one that you plan to prepare)
5.  Review of any allegations, rumors, or press reports relating to any misconduct, corruption, fraud or any other civil or criminal inquiries/issues relating to the proposed agent, and immediate family of the agent
6.  Review of any affiliations, employment or relationships (past or present) among the agents, the agent’s family, and the government or any government officials or employees in each country
7.  An interview of the proposed agent, where required.
8.  The completion of a detailed questionnaire by the proposed agent
9.  The interview of three business references provided by the proposed agent
10.  Legal analysis of the jurisdiction or application of the FCPA and/or the UK Bribery Act to the proposed agent’s services
11.  Due diligence report prepared by background check organization such as World Compliance
12.  Additional screening and media reports through checks conducted by services such as Complinet, Lexis/Nexis, Google and Westlaw
13.  Clearance certificates in each country relating top pending or past legal proceedings involving the proposed agent and close family members (spouse, father, mother, children).
14.  Compliance with local law
15.  Fee structure and reasonableness of compensation amount and method for payment
16.  The proposed agent’s qualifications

This is not an exhaustive list but it is a good framework for analysis.  Once all of the information is gathered and reviewed, the focus then turns on what conditions, if any, should be imposed to minimize any potential risk of bribery.  The standard written contract requirements for auditing, compliance and termination will be included in this section, as well as participation in the company’s anti-corruption training program, or a requirement that the proposed agent participate in its own anti-corruption training program.

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3 Responses

  1. Kevin L. Warmack says:

    For compliance officers, this list may be a start to get you on the road to making sure that you do what is right for the firm and for you.

  2. Jack Samson says:

    Great title, and nice summary. You should connect with the Association of Due Diligence Professionals, and get this and your other due diligence articles published there, if you haven’t already. I am a Member, and also went through their course and exam for the Certified Due Diligence Professional.

  1. April 30, 2012

    […] to examine how charitable donations are treated under the FCPA, and excerpts his book. Mike Volkov provides some nuts and bolts for due diligence. Thebriberyact.com reports that self-reporting in the U.K. […]