|
The Library
Are Third Party Agents Really Necessary to Conduct Business in a Foreign Country?
The Deputy Chief of the Fraud Section of the Department of Justice, Mark
Mendelsohn, posed that question in a private dialogue held after a panel
discussion at the American Bar Association’s Annual White Collar Crime Seminar
on February 25, 2010.
Most companies hire third party agents in the countries where they do
business for many purposes. Agents provide a local link to potential customers
and vendors; they know the country’s culture, practices, language and customs;
and they provide local insights to a company that is trying to navigate through
an unfamiliar country. Agents, however, can also pose a significant risk if they
engage in corrupt practices. Companies which intend to hire a foreign agent are
well-advised to conduct a due diligence investigation on the foreign agent. A
thorough investigation will aid in protecting the company from a Foreign Corrupt
Practices Act prosecution. The lack of due diligence is a significant red flag
to the Securities Exchange Commission and the Department of Justice. The company
must determine the scope and depth of the due diligence investigation.
Many investigative companies perform due diligence investigations around the
world. The cost of a routine background investigation of a third party agent in
a foreign country ranges from $350.00 to $15,000.00, depending on the company
hired. The United States government has its own agency, the U.S. Commercial
Services, which conducts full-blown due diligence investigations for as little
as $350.00. It uses personnel at U.S. embassies throughout the world to conduct
on-the-ground, face-to-face investigations. How better to ensure protection from
an FCPA prosecution than to have a U.S. government service conduct the required
due diligence investigation? When asked that question, Mr. Mendelsohn responded
that, in most circumstances, the due diligence the U.S. Commercial Services
performs is only the bare minimum required. Deeper investigations may be
necessary, depending on the level of corruption perceived in the country where
the business is being conducted.
The most interesting question Mr. Mendelsohn raised was whether agents are
truly necessary when conducting business abroad. He stated that in most FCPA
prosecutions, where an agent is involved, the purpose for hiring the agent was
to bribe a foreign official. This statement suggests that companies that hire
agents presumptively engage in bribery. It also suggests that companies that
hire agents are more at risk of being investigated than companies that deal
directly with foreign officials.
Most companies are ethical and intend to comply with U.S. and local laws.
They want to protect themselves from committing a criminal act and avoiding
prosecution. The only option a company has in today’s enforcement climate is to
develop a robust compliance plan which is routinely monitored and audited.
Mr. Mendelsohn also stated that the Department of Justice will focus on
prosecution of small and mid-size companies. He stated that Fortune 1000
companies have developed effective and robust compliance programs in the
aftermath of the Siemans’[1] case. It is Mr. Mendelsohn’s belief that
many small and mid-size companies do not have effective compliance programs and
believe that they are too small for the government to target.
Mr. Mendelsohn also announced that there has been, and will continue to be, a
substantial increase in DOJ and FBI personnel dedicated to FCPA prosecutions.
Their aggressive tactics of employing undercover agents, informants,
wiretapping, and the like, will allow them to build easier to prove FCPA
prosecutions.
The Department of Justice has maintained its promise to combat international
bribery as evidenced by the increase in prosecutions of corporations and
individuals, the use of tactics that have not been traditionally used in white
collar criminal prosecutions, and the prosecutions of smaller companies.
Maintaining a well-developed compliance plan, custom-made to your company, is
the only tool a company can obtain to reduce its risk of an FCPA
prosecution.
For questions or comments, please contact Lourdes Sanchez
Ridge at 412.394.2462 or lridge@thorpreed.com.
About the Author:
Ms. Sanchez Ridge’s law practice includes commercial litigation with a strong
focus on white collar defense. She has handled domestic and international fraud
litigations. She has also handled Foreign Corrupt Practices Act (FCPA) issues
confronting multi-national corporations including drafting and assisting in the
implementation of comprehensive compliance programs, custom-tailored systems of
internal control, and training. She has also been a speaker on various FCPA
panels. Ms. Sanchez Ridge has experience in international bankruptcy dealing
with international service of process and recognition courts. Prior to joining
Thorp Reed & Armstrong, Ms. Ridge served as an Assistant United States
Attorney in Washington, D.C. and an Assistant State Attorney in Miami, Florida.
Ms. Sanchez Ridge is a law graduate of the University of Florida and has a
Bachelor of Science in Accounting from the University of Miami.
This Thorp Reed & Armstrong, LLP Communiqué is prepared in summary
form and is not to be construed as legal advice or opinion on any specific fact
or circumstance. We do not assume any responsibility to revise the Communiqué if
there are subsequent changes in the law.
#P0094592 March 2010
[1] In 2008, Siemens was prosecuted by the U.S. and a myriad of other
countries for bribing foreign officials. They paid a global settlement of $1.6
billion in penalties, being the largest penalty ever paid for bribery.
|
