Dealing with Third-Party Contractors: How Organizations Can Avoid FCPA Violation

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The direct and indirect consequences of not complying with the U.S. Foreign Corrupt Practices Act (FCPA) are bitter. Organizations violating the FCPA not only face hefty penalties and costly personal and civil litigation but also lose their credibility and reputation in the market. In addition to the penalties, businesses are also required to forfeit all the profits gained from these violations. Also, in egregious cases, the federal government can bar the firm from bidding on government contracts or even revoke their export privileges.

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Data shared by the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) clearly reveals how the number of FCPA enforcement actions have increased over the past decade.

DOJ

Source: http://fcpa.stanford.edu/statistics-analytics.html

The stakes of corporate corruption are high. In 2019 alone, 14 organizations (including corporate giants like Ericsson, Walmart, MTS, and Barclays among others) paid USD 2.9 billion to resolve FCPA cases.

Almost every organization is in a business deal with an overseas third-party agent. If organizations are unaware of the FCPA requirements, they may soon land in a legal soup. Read on to know how you can avoid FCPA violation and protect your firm from any unwanted civil and criminal liability and heavy penalties.

1. Study the FCPA Requirements in Detail

The FCPA prohibits firms from offering or promising to pay, paying, or authorizing the payment of money or anything of value to a foreign official with the objective of furthering a business deal. Thus, the FCPA aims at addressing the issue of international corruption in two ways -

  1. Anti-bribery provisions - They prohibit businesses and individuals from bribing foreign government officials for obtaining or retaining business.
  2. Accounting provisions - They impose specific record-keeping and internal control requirements on issuers and prohibit businesses and individuals from falsifying the information entered.

Before entering into a business deal with an offshore agent, it’s is wise to get a quick refresher on the latest FCPA requirements. Refer to this FCPA guide shared by the DOJ and SEC or consult an attorney who specializes in FCPA compliance to gain clarity on this subject.

2. Establish a Robust FCPA Compliance Program

A corporate compliance program is not just a critical component of a firm’s internal controls but also works as a tool to detect and prevent FCPA violations. A firm’s compliance program should be tailored to the nature of the business and workforce, the extent of government interaction, the degree of regulation, and the extent to which it deals with countries with a high risk of corruption.

Thus, there is no one-size-fits-all approach that can be taken when designing an FCPA compliance program for a business. The DOJ and SEC encourage firms to use a common-sense and pragmatic approach towards establishing a fitting compliance program to effectively fight corporate corruption. Check whether your compliance program satisfactorily answers these three questions.

  • Is the company’s compliance program well-designed?
  • Is it being applied in good faith?
  • Does it work?

Involve a corporate compliance lawyer to establish clear guidelines and training programs based on the factors mentioned above. This will clarify the FCPA terms to all your company representatives who regularly transact with international agents. At the end of each training, have your team sign a statement certifying that they have understood the FCPA requirements and will comply with them.

Also, inform your existing and prospective third-party contractors about your corporate compliance program and procure assurances through FCPA certifications. You can do this through a live FCPA compliance training or during the due diligence interview with the agent.

3. Know Who You Are Partnering with

More often than not, FCPA violations are attributable to unethical practices of third-party contractors. In the U.S. alone, 90 percent of the reported FCPA cases involve third-party intermediaries. Therefore, it’s critical to evaluate these agents through a risk-based approach. The DOJ and SEC too lay special emphasis on knowing who you will be partnering with.

In other words, organizations should research the qualifications, capabilities, business reputation, professional background, and business or family connections of the foreign officials they will be partnering with.

Dr. Nick Oberheiden, Founder and Attorney, Oberheiden P.C., says, ‘Effective due diligence of the third-party contractor is a critical step towards identifying the red flags early on. If the agent is charging an excessive commission, offering a large discount that’s uncalled for, is closely related to government officials, or asking you to enter into an agreement carrying vaguely-described terms, it is a warning sign. Identifying these red flags early will help you stay away from any form of FCPA violation in the future.”

Consider the following points before entering into an agreement with the third party.

  1. Conduct a thorough background check and investigation. The agent should readily share detailed information about the business and references in the questionnaire offered. All these should be attached to the FCPA policy document.
  2. Make sure the third-party agent has taken the FCPA training and get a certification for the same.
  3. Procure a certified statement from the agent that they will comply with the anti-corruption laws and the FCPA.
  4. Incorporate contractual warranties and documents that the agent is not owned or controlled by a foreign government official.
  5. The agent should also produce annual certifications with the FCPA.

4. Be Proactive: Get the Opinion of the DOJ

If your still aren’t clear about the FCPA requirements or unsure whether a certain international business act complies with FCPA, you can request an opinion from the Department of Justice. This simple step will help you get a reality check of your FCPA compliance level and save you costly penalties and litigation in the future.

Summing Up

Collaborating with third-party contractors overseas has become a norm in the current age of globalization. Third-party contractors have local expertise, experience, and business connections that can take your business to the next level. However, these agents come with legal and reputational risks.

Corporate misconduct by third-party contractors can cause you to face charges of FCPA violations. Follow the strategies shared above to build a strong FCPA-compliant culture in your organization and protect your firm from unwanted legal issues and fines.

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About the Author

Hazel Raoult
Hazel Raoult is a freelance marketing writer and works with PRmention. She has 6+ years of experience in writing about business, entrepreneurship, marketing and all things SaaS. Hazel loves to split her time between writing, editing, and hanging out with her family.

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