As pointed out in some previous articles, most of corruption cases happen via third parties, nevertheless, using them is essential to unlock business opportunities as they have local expertise, especially in those countries where having a local partner is compulsory in order to have licences or concessions.
That being said, risks cannot be underestimated, especially if these are state owned or controlled, or they have been suggested by public officials. Laws prohibiting corruption, such as the FCPA of the UK Anti Bribery Act prohibit illegal payments made indirectly on one’s behalf. it is, therefore, essential having in place appropriate strategies to mitigate risks also in light of the aforementioned laws.
Follow the money
Indeed, this is the golden rule while talking about financial crime. In light of the FCPA and the UK ABA, in fact, financial records should faithfully reflect the nature of every transaction.
This is very important because improper payments are often masked by legitimate transactions; unusually high professional fees, undue requests to prepay certain activities, unjustified bonuses or incentives, payments to be made in cash or under other physical/legal persons name are all particularly risky and should be duly investigated before proceeding.
Due diligence, due diligence, due diligence
it is worth repeating that before entering into business with other entities, you should make your homework, particularly about the following;
- (beneficial) ownership, which must be carefully studied in order to support ties with the politically exposed persons, previous misconducts and, in general, if it is qualified to perform the job,
- The country and, consequently, the legal framework in which your business partner operates,
- The nature of the activity your business partner is meant to perform; especially where government/public approvals are needed (visas, procurement, customs operations, licences or concessions etc.),
Even if some of the red flags above mentioned are spotted, this doesn’t mean that you shouldn’t partner up with another business, it means that you should pay additional attention. One of the most common mistake in this case is worrying about policies and less about implementation.
This is absolutely wrong as they are equally important; acknowledgement and written assurance to comply with your code of conduct and anti corruption laws are the basis to build up a solid professional relationship.
The importance of a very well drafted contract
One of the posts best possible ways to protect your business and your reputation from third parties misconduct is having a well drafted agreement in place. Although each situation should be evaluated on case by case basis, there are some strategies that can generally be used:
- The third party, nor its owners or managers, are politically exposed persons and you will be promptly notified in case of changes,
- Your business partner commits to comply with applicable laws and your code of conduct (included facilitating payments, gifts, hospitality, offsets),
- Your business partner commits to provide a detailed, complete and faithful documentation about expenditures, services provided and any other activity performed on your behalf,
- You are granted approval rights should your counterpart wishes to appoint agents, consultants, vendors, contractors or anyone else performing any kind of activities on you for behalf,
- You are granted audit rights and, whenever justificable, your partner is required to cooperate with internal, group-wide investigations (in compliance with applicable privacy laws),
- You can suspend pending payments and even terminate, without compensation nor notice, the contract in case of violation of anti corruption laws,
- In accordance with applicable laws, you are granted indemnification in relation to your counterpart violations.
Besides the aforementioned, you should also take into account other risks deriving from the power of representation and lack of training. Since anti bribery laws are not equally enforced everywhere, you may wish to add specific training clauses prior to enter in any business relationship.
Keep accurate evidence
Of any activity, audit process or investigation. There is no law whatsoever asking for the perfect compliance, due diligence or anti bribery program, however, taking all the possible reasonable strategies and be able to document them is undoubtedly the first step to show genuine commitment toward compliance.