Lessons Learned from the Albemarle FCPA Enforcement Action: Mind Your Third Parties (Part III of III)
The Albemarle FCPA enforcement action was announced at a good time. This year has been a slow year for DOJ’s FCPA enforcement program, although there are several months before the end of the year. The SEC, on the other hand, has been steady this year — the Albemarle and Clear Channel enforcement actions are numbers eight and nine for the year.
The Albemarle enforcement action underscores yet again the dangers of relying on third-party agents to secure valuable contracts in the chemical, oil and gas industries, and the use of commission payments to fund bribery payments to secure contracts and distort the competitive bidding process maintained by state-owned oil and gas companies.
In the Albemarle case, sales commissions and changes in applicable rates were directly tied to the need to pay bribes to foreign officials to secure contracts and obtain nonpublic information needed to win valuable contracts. Albemarle executives were well aware that the sales commissions were too high and reflected a high probability that Albemarle planned to pay bribes.
But there is much more to be learned from the Albemarle FCPA enforcement actions.
First, the Albemarle enforcement actions remind legal and compliance officials how fragile a third-party due diligence program can be. Albemarle business interests were able to circumvent its due diligence process by entering into a contract with a third-party before even starting the due diligence process. Further, in several cases, Albemarle business sponsors lied or omitted critical information concerning a prospective third-party’s prior relationship or familial connection with stated-owned oil company foreign officials, whether the third-party will interact with foreign officials on behalf of Albemarle, and other significant factors relevant to assessing the potential risk of engaging a third-party.
A company’s due diligence program depends on cooperation of its business. If the business sponsors are going to “game” the system, they are likely to be able to do so. Legal and compliance cannot always detect business circumvention and outright misrepresentations. Testing and auditing may uncover such misconduct but the odds are it will not be detected.
A second and significant lesson from the Albemarle bribery enforcement actions is the importance of internal audits and remediation. In Albemarle’s case, internal audit uncovered problems with its management of third-party risks and use of sales agents. However, the remedial measures were only partially implemented. Albemarle failed to make changes to the commission compensation arrangements and rein in the ongoing bribery activities.
A company has to support internal audit, its work and its remediation efforts. Albemarle ignored some of the internal audit findings. Albemarle’s board of directors or audit committee should have assumed responsibility and followed up on the internal audit findings and remedial steps. Albemarle’s failure to hold the business accountable for ignoring these internal audit findings was another contributing cause to Albemarle’s illegal bribery schemes.