With recent announcements from the Department of Justice on corporate criminal enforcement in mind, businesses operating in international trade should be aware of their potential exposure to the Foreign Corrupt Practices Act (FCPA). While often associated with multinational corporations and high-profile bribery cases, any company doing business with non-US parties could find themselves facing a criminal investigation for their foreign party’s actions if they knew, or should have known, there was corrupt activity.

Compliance personnel and corporate officers must avoid “self-blinding,” as the definition of knowledge used in the FCPA anticipates attempts by persons and organizations to avoid learning the truth about a corrupt transaction. Under the FCPA, “a person’s state of mind is “knowing” with respect to conduct, a circumstance, or a result if the person: is aware that [he] is engaging in such conduct, that such circumstance exists, or that such result is substantially certain to occur; or has a firm belief that such circumstance exists or that such result is substantially certain to occur (15 U.S.C. § 78dd-2(h)(3)(A)(i), (ii)).” Falling back on the “I had no idea” defense is not a good plan in these circumstances.

Companies engaging third parties overseas should be proactive in preventing corrupt activities. It should start with ensuring knowledge: consulting agreements, distributorship contracts, and other commitments with overseas partners should include a prohibition on and a description of corrupt activities. When reviewing the activities of a suspect company, the government will “assess whether the company has informed third parties of the company’s compliance program and commitment to ethical and lawful business practices and, where appropriate, whether it has sought assurances from third parties, through certifications and otherwise, of reciprocal commitments” according to the Department of Justice’s FCPA Resource Guide.

Knowing the landscape will also reduce risk. Examining the traditional business practices and compliance culture of new markets can aid in your decision-making process. Focus on areas known to have prior or continuing corruption issues, and ensure that the organizations and employees you are engaging are aware of the risks as well. One size does not fit all; focus your compliance efforts on areas and transactions with higher risk exposure. For long-term commitments in areas prone to bribery, recurring training and awareness activities should be employed on a regular basis.

Compliance officials should keep a sharp eye out for the warning signs of potential corruption in third party activities. As stated in the Department of Justice’s FCPA Resource Guide, red flags associated with third party risk include:

  • excessive commissions to third-party agents or consultants
  • unreasonably large discounts to third-party distributors
  • third party “consulting agreements” that include only vaguely described services
  • the third party consultant is in a different line of business than that for which it has been engaged
  • the third party is related to or closely associated with the foreign official
  • the third party became part of the transaction at the express request or insistence of the foreign official
  • the third party is merely a shell company incorporated in an offshore jurisdiction
  • the third party requests payment to offshore bank accounts

Vigilance is a key component of a good FCPA compliance program. Ongoing reviews of both domestic and overseas activities will aid in identifying potential areas of risk. The ability to recognize and flag potential high value transactions with government involvement in places with high corruption risk relies on a corporate commitment to anti-corruption. The front-line sales and negotiations teams should feel comfortable seeking guidance from the compliance program, and the compliance officers should have a clear picture of the sales and marketing departments plans and operations with third parties. Strategic planning by the board or executives should include input from compliance, such as risk assessments for potential new markets and updates on any new developments in established regions.