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Volume 32, Issue 1

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Thursday, 06 December 2018 15:01

Common Pitfalls In Third-Party Due Diligence

5 Risky Mistakes Companies Make

Third-party relationships result in a majority of FCPA resolutions and investigations. Dan Wendt, member at Miller & Chevalier, discusses why third-party due diligence should be a central part of any anti-corruption program and shares insights into some of the customary ways companies fall short in terms of anti-corruption due diligence.

Agents and third parties create most bribery problems these days. It is relatively rare for companies to create legal liabilities under the Foreign Corrupt Practices Act (FCPA) or similar laws by making payments directly to government officials. Instead, a majority of corporate FCPA resolutions in recent years involve fact patterns in which the infringing companies make payments to a third party, which in turn passes on some of the payments to a government official. For this reason, the U.S. Department of Justice (DOJ) and U.S. Securities and Exchange Commission (SEC) repeatedly emphasize the importance of third-party due diligence as a critical part of an effective anti-corruption compliance program. Moreover, in conducting investigations of foreign bribery, both the DOJ and SEC initially ask for all relevant third-party due diligence files in order to assess corporate wrongdoing.

Consequently, anti-corruption third-party due diligence is critically important for companies, especially companies that operate in high-risk jurisdictions. In general, third-party due diligence may be more of an art than a science, but there are many pitfalls or shortcuts that should be avoided. This article summarizes a few common mistakes seen in third-party due diligence efforts.