For many companies operating in international jurisdictions, conducting due diligence on international business partners has become a standard business practice. However, while the need to “know” their foreign counterparts is clear, there is no regulatory guidance specifying a minimum level of due diligence to be conducted. This lack of guidance can make it tempting for companies to take a corner-cutting approach to critical work that must be done properly. A company’s decision to conduct the minimum level of due diligence is almost never in the company’s best long-tern interests. A more systematic investigation on potential international business partners should involve collection of information from the business partner, verifying that information, and following up on identified “red flags” during the course of the investigation.
The U.S. Foreign Corrupt Practices Act (FCPA), the U.K. Bribery Act and increased global compliance regulations require that companies have adequate procedures in place that are designed to address third party corruption risk. Due diligence in regard to FCPA compliance requires that a company evaluate the risks involved in doing business prior to establishing a relationship and if, in facrt, a relationship is formed, an ongoing process of periodically evaluating the association to find links between current business relationships overseas and ties to a foreign official or illegal activities linked to corruption.
Companies wanting to evaluate their business partners for FCPA compliance should consider taking the following steps in their probe of a potential international business partner:
- Require the potential business partner to disclose information on a questionnaire
- Verify the information provided and independently identify adverse information
- Perform additional due diligence on any “red flags” identified in the process
DISCLOSURE OF INFORMATION
Companies should create a questionnaire that, at the very minimum, contains the following components:
- Identifying information for the company – such as, address, registration and contact information
- Ownership and management details, including beneficial owners, as well as identifying background on these individuals, such as, date of birth, current address, educational and employment history, and business affiliations.
- Disclosure of any bankruptcy, civil, criminal and regulatory matters.
BACKGROUND RESEARCH
Once the questionnaire is completed, companies should conduct an assessment to determine the level of risk presented by each business partner. A number of factors should be considered, including the type of relationship, corruption risk associated with the jurisdiction, interaction with government officials, compliance regime, and known adverse information about the business partner.
Effective international business partner due diligence requires companies to gather meaningful information and assess potential risks. International online public records can be sparse and unreliable; instead, local resources may be required for record retrieval and for human source inquiries regarding the reputation and background of the subject at hand. Companies should strongly consider hiring an independent firm to conduct background research to benefit from access to sources otherwise not available. A professional's expertise and knowledge of the jurisdiction would greatly lower the risk of overlooking critical information and provide credibility to the information gathered during the investigative process.
A more systematic investigation on potential international business partners will significantly contribute to a better informed decision and allows the company to evaluate all of its costs, benefits, and risks. MSA Investigations’ due diligence practice is committed to assisting clients in understanding the risks associated with a potential business partner by providing crucial information and intelligence.
Melissa Rodriguez is a Senior Investigative Analyst at MSA Investigations.
Photo Credit: digitalmined.com
