Letting Third Parties Do the Dirty Work

We all know it when we see it – a recurring fact pattern in which a company enlists a corrupt third party intermediary for one purpose (and one purpose only) – to pay a bribe. 

Let me give you a few examples.

Cognizant Technology

In the Cognizant Technology FCPA enforcement action, the former President and General Counsel directed the scheme with two other C-Suite officers to pay $2 million to an Indian government official for a planning permit needed to finish construction of its new campus facility in Chennai, India.

The Cognizant executives pressured a third-party to carry out the bribery scheme.  The third-party, in turn, hired a third-party consultant for a single purpose: to funnel the bribe to the Indian government official.

Cognizant did not conduct any due diligence of the third-party consultant.  Had Cognizant done so, Cognizant would have discovered that the third-party consultant was not needed for any legitimate business purpose.

Sargeant Marine

A second example is the recent DOJ FCPA settlement with Sargeant Marine for $16.6 million for bribery schemes in Brazil, Venezuela and Ecuador.  Sargeant Marine paid bribes to government officials by funneling money through sham consulting agreements with consultants, and payments through offshore bank accounts maintained by shell companies linked to corrupt third-party intermediaries, who in turn made payments to offshore accounts maintained by the foreign government officials.

World Acceptance Corporation

World Acceptance Corporation paid the SEC $21.7 million for FCPA violations in Mexico.  WAC secured valuable government contracts to offer consumer loans to government employees by paying bribes in cash to government and union officials.  WAC hired third-party intermediaries to make the bribery payments in exchange for a commission payment to the third-party.  Approximately $480 million was paid to third parties who in turn transmitted the funds to the government and union officials.

Third-Party Controls

This sounds simplistic but I am just making a point, which applies to both the supply chain and distribution chain (e.g. channel partners).   A company has to gain transparency into its supply chain and its channel partners to identify risky participants. 

For each entity involved, and assuming a company can gain transparency, a company has to ask:

  • What is the value-add of each third-party?
  • What qualifications does the entity have to provide the proposed services?
  • Who introduced the third-party to the transaction(s) and for what reason?
  • How the third-party going to make or receive payments (depending on supply chain versus distribution chain)?
  • What connection, if any, does the third party have to any existing or former government official?

These are only general questions designed to underscore my point.  These principles need to be applied to ensure that companies gain transparency into each transaction or engagement.  Companies need to document how it investigated these issues and secure appropriate representations to confirm its conclusion.

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2 Responses

  1. October 16, 2020

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  2. October 16, 2020

    […] third-party due diligence is an ongoing exercise. Mike Volkov in Corruption Crime and Compliance. Jim Nortz takes a deep dive into 3rd party risk management in Part 1 of a six-part series on […]

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