United States

Due diligence in compliance with anti-corruption rules and regulations

MUSE  | 

The United States Congress enacted the Foreign Corruption Practice Act (FCPA) in 1977 to address the issue of U.S. companies bribing foreign officials. As amended over the years, the anti-bribery provisions of the act make it unlawful for a U.S. citizen, U.S. company and certain foreign firms and persons to make or offer a payment to a foreign official for the corrupt purpose of gaining a competitive advantage.

In 1998, the FCPA expanded to apply to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States.

In 2010, the UK Bribery Act  was enacted by combining previous U.K. bribery legislation into a single act. The Bribery Act goes further than the FCPA in that it prohibits not only the payment of bribes to foreign officials, but also to commercial businesses and individuals. It also prohibits the receipt of bribes.

Over the last five years, more countries have enacted anti-bribery laws, including India, China, Brazil, Chile and Indonesia. On June 24, 2014, during the UN Global Compact Leaders Summit, it was announced that the UN Global Compact added a 10th principle against corruption. Principle 10 "Businesses should work against corruption in all its forms, including extortion and bribery" states that:

"Corruption is now recognized to be one of the world's greatest challenges. It is a major hindrance to sustainable development, with a disproportionate impact on poor communities and is corrosive on the very fabric of society. The impact on the private sector is also considerable—it impedes economic growth, distorts competition and represents serious legal and reputational risks. Corruption is also very costly for business, with the extra financial burden estimated to add 10 percent or more to the costs of doing business in many parts of the world. The World Bank has stated that "bribery has become a $1 trillion industry."

The Bribery Act provides the "Six Principles" which were published by the UK government as its guidance paper for the Bribery Act. The U.S. Department of Justice (DOJ) published the Resource Guide to the U.S. Foreign Corrupt Practices Act in late 2012, which provides a guidance on what the DOJ expects from the corporations and individuals covered by the act. Both FCPA and the Bribery Act enforcement authorities recommend that management carry out due diligence (internally or by external consultants) related to all third-parties with whom they do business globally. However, definitive guidance as to what good due diligence screening programs for third-party agents should look like does not exist. This becomes more challenging for international non-governmental organizations (INGO) that rely on local vendors and subcontractors to perform many of the programs in underdeveloped and developing countries. Building the local capacity of those countries is part of the donor requirements and many times, part of the INGO mission.

Below are some suggestions an INGO can do to address their "due diligence" requirement:

  1. For all third party agents or business representatives, INGOs should require a completed questionnaire containing detailed information on ownership, CVs and references for those involved in performing the proposed service; details of any existing partnerships, and conflicts of interest that may exist. The questionnaire should be completed by the agent or representative, and the INGO should ensure the questionnaire is fully completed and properly signed.
  2. Verify the information provided by the agent or representative. This can be challenging in countries where background checks and search engines are not accessible or reliable. Some best practices include:
    1. Civil litigation searches – as many countries do not have a country-wide litigation database, having someone with local knowledge and an understanding of the workings of the judiciary system
    2. Criminal history search – as most countries do not have this available to the public, an alternative way is to use civil litigation search and a local language media search to ensure that any known criminal antecedence is disclosed
    3. Checks with local regulators
    4. Local language media and Internet searches
    5. Checks on political exposure – foreign officials are not just politicians, but also members of ruling families, the judiciary, security forces and the management personnel of state-owned enterprises (if a politically exposed person (PEP) is known, you must document that is aware and how this PEP is not affecting the business)
    6. Inquiries with local sources but also note that any information provided by such sources must be cross referenced and substantiated using alternative research methods
  3. Validate that any information received was obtained ethically and reliably. INGOs should document how the information was obtained.
  4. Periodically review and update all due diligence inquiries and questionnaires to ensure that the INGO can make appropriate decisions based on the most current information.

As enforcement of anti-corruption legislation continues to increase, INGOs will be required to ensure they have the controls to address due diligence. The costs of ignoring corruption can be devastating to the reputation of any organization. INGOs must be more vigilant with governance and control efforts to ensure compliance as the stakes have never been higher.

Learn more in the Global Corruption Law Compliance Report.