According to a 2016 survey of 267 senior level executives conducted by Kroll, 40 percent of respondents indicated that they believed their company's risk of bribery and corruption would increase over the next year. And of that group, 54 percent attributed that expected increase (at least partially) to third-party relationships.
When you consider that three out of four foreign bribery cases prosecuted in 2014 involved payments through third parties, this belief seems reasonable.
Frequently, these cases are prosecuted under the Foreign Corruption and Practices Act (FCPA), and in 2012 the Department of Justice and the Securities Exchange Commission produced a resource guide to help businesses comply with the act.
Concerned that your business has a blind spot when it comes to anti-corruption policies? Read: Practical Steps for an Effective Ethics and Compliance Program to learn how to bring a more robust, multi-prong approach to your compliance efforts.
As outlined in the guide, both direct and indirect payments to foreign officials are considered unlawful, so your business can be held criminally liable for the actions of third parties -- as long as you "know" that the funds will be used illegally.
The guide further explains that this knowledge threshold can be reached even if your company has no direct evidence of impropriety but is only aware of a "high probability" that a bribe will be offered.
When conducting due diligence on third party agents or vendors, you should keep an eye out for these potential red flags.
While a single incident of past corruption may not indicate a problem, multiple ongoing investigations might. Look into how the business has handled bribery incidents in the past. Did the company proactively resolve the issue? What anti-corruption measures has the firm put in place? And how aggressively are those rules followed?
How does the industry view this third party? Has the company gone through a series of business relationships that have frequently ended in cancelled contracts?
Not only should you be concerned if there are familial relationships between your internal staff and employees at the third party, but also keep an eye out for similar links between third parties and local government.
Be wary of any corporate relationships between government officials and your third party vendors and agents. Take note if the owner, major shareholder or any key executives is currently a government employee or has held a high-ranking office in the past. Is there a "revolving door" between the business and any government agency?
Has the third party made any strange requests regarding payment, such as an unusual advance or a cash reimbursement? Have they requested to be paid in a region or country outside of the scope of a project? Have additional fees been required to "take care of things" or "finalize the deal"?
While confidentiality is important for some industries, be concerned if your third party makes atypical requests for anonymity or confidentiality in business deals or if they refuse to divulge the identity of owners, officers or other principals.
When working with third parties, your company will likely face increased risk for corruption charges, and the level of due diligence that you will need to perform will vary on a number of factors. To better protect your business from risky relationships, be on the lookout for suspicious behavior.
While these behaviors may not explicitly indicate an issue, you should take the advice given in the previously mentioned guide: "the degree of scrutiny should increase as red flags surface."
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