Most compliance practitioners have heard the term "Red
Flags." Red Flags are generally defined as circumstances which could
place a reasonable person on notice that illegal or improper conduct has or may
occur. A Red Flags does not mean that an action or transaction should
immediately be terminated. It does mean that you should engage in an
appropriate level of additional due diligence and investigation before moving
forward.
In his blog posting yesterday entitled "On
Anti-Money Laundering", our colleague Howard Sklar,
discussed a new anti-money laundering initiative from the Asset Forfeiture
and Money Laundering Section of the Department of Justice. Howard has
previously spoken of "compliance convergence" or the merging of control
programs such as anti-bribery and anti-corruption with anti-money laundering.
Inspired by Howard's post and his use of "compliance convergence" this post
will list some possible Red Flags that you should consider in three control
areas: anti-bribery and and anti-corruption; anti-money laundering and with a
nod towards the ever changing economic sanctions being levied against Libya,
Red Flags regarding international economic sanctions.
I. Anti-Bribery and Anti-Money Laundering
- Doing
business in a high risk county
- Allegations
that the party has made facilitation payments to government officials.
- Refusal
to warrant compliance with the FCPA or other recognized anti-bribery or
anti-corruption law.
- Reluctance
to participate in due diligence.
- Allegations
of illegal or unethical conduct.
- Convictions
for illegal conduct.
- Any
suggestion that laws or regulations or company compliance policies need
not be followed.
- Any
suggestion that unethical conduct is custom or the norm in country.
- Refusal
to follow your code of conduct.
- Use
of shell companies.
- Ownership
by or close relationship to a governmental official
- Refusal
to identify a principal of beneficial owner.
- Recommendation
of use by a governmental official
- Refusal
to sign a contract.
- Lack
of experience in the field.
- Requirement
of an usually high commission.
- Insistence
on payment in cash.
- Insistence
on payment in third party country or to an unrelated third party.
- Request
for advances.
- Sharing
of compensation with undisclosed parties.
- Refusal
to provide adequate invoices.
- Offering
to provide false invoices.
II. Anti-Money
Laundering
- Named
as a Designated Party, SDN or on any similar list.
- Connections
to countries identified as non-cooperative with international efforts
against money laundering.
- Providing
false or misleading information.
- Refusal
to disclose the nature and source of assets.
- Refusal
to identify a beneficial owner.
- Acting
as the agent for an undisclosed principal.
- Company
address is not a physical site but a PO box.
- Use
of a shell company.
- Lack
of concern regarding risks or transaction costs.
- Structuring
transactions to avoid reporting requirements.
- Offering
to engage in transaction with no or little business justification.
- A
request that funds be transferred to an undisclosed third party or in
another jurisdiction.
- Any
transaction designed to evade taxes.
III. International Economic
Sanction
- Connections
to US or UN sanctions or embargoes, including
SDN, Denied Persons, Entity and Debarred Lists.
- Requests
that goods be exported to countries on an international boycott list.
- Inaccuracies
in any shipping documentation and invoicing.
- Abnormal
packing, marking or routing of goods.
- Inconsistencies
between goods and services of that usually offered by the company.
- Declination
of routine installation or training services.
- Promised
delivery dates and locations are vague or out of the way location.
- A
freight forwarding firm is listed as the final destination.
- Shipping
route is out of the ordinary.
As no one list of Red Flags can be exhaustive or final,
you may wish to add Red Flags more specific to the risks appropriate to your
company, such as those based upon the industry in which you conduct business,
the locations where your company does business or other risk factor. If there
are any additional ones you feel our readers should be aware of please list
them in the Comments Section.
Visit the FCPA Compliance and Ethics Blog,
hosted by Thomas Fox, for more commentary on FCPA compliance, indemnities and
other forms of risk management for a worldwide energy practice, tax issues
faced by multi-national US companies, insurance coverage issues and protection
of trade secrets.
This publication contains general information
only and is based on the experiences and research of the author. The author is
not, by means of this publication, rendering business, legal advice, or other
professional advice or services. This publication is not a substitute for such
legal advice or services, nor should it be used as a basis for any decision or
action that may affect your business. Before making any decision or taking any
action that may affect your business, you should consult a qualified legal
advisor. The author, his affiliates, and related entities shall not be
responsible for any loss sustained by any person or entity that relies on this
publication. The Author gives his permission to link, post, distribute, or
reference this article for any lawful purpose, provided attribution is made to
the author. The author can be reached at tfox@tfoxlaw.com.
© Thomas R. Fox, 2011
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