Foreign Business Partner under the FCPA: The Problem and Managing It

This article is the first in a series of articles detailing the risk assessment, evaluation and management of a foreign business partner under the Foreign Corrupt Practices Act (FCPA). This article sets out the parameters of the problem and suggests a format for risk assessment, suggesting an approach based upon Release Opinion 08-02 that recommend dividing foreign business partners into categories of "High Risk, Medium Risk and Low Risk."

Mr. Fox writes: US companies have long utilized foreign business partner relationships to leverage their global reach and assist in the growth and development of overseas business relationships. When a US company enters into this type of business relationship it enables the company to expand their commercial reach in a cost effective manner. One key component of this foreign business relationship is that the US company must manage compliance under the FCPA by the foreign business partner.

While the FCPA itself does not speak directly to the foreign business partner issue, the Federal Sentencing Guidelines for FCPA violations, and related US government commentary, make clear that US based companies bear the same legal responsibility for the actions of foreign business partners as they do for the actions of their own employees. In the "Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934 and Commission Statement on the Relationship of Cooperation to Agency Enforcement Decisions, Release No. 34-44969 (Oct. 23, 2001)"[i] and "Principles of Federal Prosecution of Business Organizations (Dec. 12, 2006)"[ii] the Securities Exchange Commission (SEC) and Department of Justice (DOJ) Deputy Attorney General Paul McNulty each confirmed that the quality of a company's due diligence on foreign business partners will be considered when fashioning penalties for companies whose business partners violate the FCPA.

In spite of these clear statements by the SEC and DOJ, the relationships of US companies with foreign business partners remains one of the greatest areas of consternation for US companies. In its "2008 Anti-Bribery and Anti-Corruption Survey" KPMG Forensic reported, based on responses from 103 US multinational company executives, that eighty-five percent of the respondents said their company has a formal FCPA or anti-corruption compliance program, however, even with this high level of commitment to the FCPA, many respondents still feel uneasy about third party due diligence. The survey reported:

• 82 percent said the challenges they faced in performing effective due diligence on business partners, including foreign agents and other third parties was "challenging".
• 76 percent of the companies responding said they that auditing third parties for compliance was "a significant challenge".
• 73 percent said their mergers and acquisition due diligence is less than adequate.
• 27 percent said their level of their mergers and acquisition due diligence is minimal.

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LN Corporate & Securities Law Community Blog posts by Thomas Fox:

What Is the Cost of FCPA Compliance? Or What Is the Cost of Non-Compliance?

Oversight Committee and Management of Foreign Business Partners

Changes Coming:US Sentencing Guidelines, UK Bribery Act and the OECD on Facilitation Payments-Part III

Changes Coming: US Sentencing Guidelines, UK Bribery Billand the OECD on Facilitation Payment-Part II

Who Will Have the Better Season?

Changes Coming: US Sentencing Guidelines, UK Bribery Bill & OECD on Facilitation Payments-Part I

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