FCPA Compliance and Ethics Blog

February 28, 2011

After the Contract is Signed: How Frequently Should You Perform (FCPA) Due Diligence

Yesterday we participated in a workshop at the 2011 SCCE Utilities & Energy Compliance and Ethics Conference with Scott Lane, President of the Red Flag Group. In his presentation, he discussed a White Paper that he and his colleague James Walton recently released entitled, “Best Practices in Conducting FCPA /Anti-bribery Due Diligence”. We went back and read the article and found it to be an excellent resource for many questions relating to due diligence as required by the Foreign Corrupt Practices Act (FCPA) or any best practices anti-bribery and anti-corruption program. Today we will focus on the question of how often should a company perform due diligence on its foreign business relationships.

Lane and Walton begin by noting that due diligence is very hard to keep consistent as no two are ever the same. They believe it is important to keep a close watch on information sources, to search for improved providers, and ensure that the information you are looking at is useful for the business needs. The specific time frame for ongoing due diligence depends on the risk profile of a company’s foreign business relationship. They provide three benchmarks: (1) annually; (2) biennially; or (3) at contract renewal.

In making this determination, the authors suggest several risk factors which a company should evaluate in making this determination regarding the frequency of due diligence. these include:

Physical allocation of the partner: The authors define this risk as whether the foreign business partner is located in, or providing services to your company in a geographic area recognized as a high risk country. Reference can be made to the Transparency International Corruption Perceptions Index or another recognized country risk rating such as Country-Check.

Findings of the original due diligence: The authors define this factor as one based upon prior due diligence investigation. The key issues here are (1) were any Red Flags identified and (2) how were these Red Flags cleared?  It is assumed that if a Red Flag was raised in prior due diligence, then the Red Flag was cleared to enable the business relationship to come into existence. This also brings up an important point about Red Flags that is often overlooked. A Red Flag should not automatically mean that a foreign company cannot become a foreign business partner of your company. It does mean that the Red Flag must be investigated and cleared before such a foreign business relationship is created.

Type of partner: There are a side variety of foreign business relationship which require due diligence under the FCPA. As noted in several recent Deferred Prosecution Agreements, Alcatel-Lucent, Maxwell Technologies and the Panalpina settlements,  these can include resellers, agents, intermediaries, consultants, representatives, distributors, teaming partners, contractors and suppliers, consortia and joint venture partners. Those foreign business partners which are actively promoting your company in the market place put your company at the greatest risk and should therefore require more due diligence.

Type of customers the partner sells to: Most companies understand the motto  “Know Your Customer” but under FPCA, and other anti-bribery best practices, your company must also know the customers that your foreign business partner sells to or, in any other manner, interacts with. The more interaction with foreign governmental officials that your foreign business partner engages in, the more due diligence scrutiny is appropriate.

Amount of business being transacted by the partner: The authors point to this risk factor by noting that a company should keep a close watch on the dollar volume of business that it may engage in with a foreign business representative. We would suggest that a company should also review the relevant percentages of services or goods sold or services rendered for each foreign business partner. A company should certainly desire to know if a certain vendor provided a very high percentage of raw materials or any services critical to the delivery of products. Additionally if most, or all, of a company’s products are sold by or through one foreign business partner, this may call for greater due diligence scrutiny.

The authors end by noting that they believe the ideal solution for renewal of due diligence is a mixed approach based on risk. In most cases, renewals should be done annually or at least every two years. However, best practice also requires regularly checking whether the partner, or its directors, shareholders or senior executives are listed on any watch lists. This should be completed periodically – at least monthly.

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



January 28, 2010

FCPA Sentencing Box Score

Tfoxlaw is an avid baseball fan. As a child, he was taught how to keep score at professional baseball games by his Grandfather. This had two effects. The first was immediate; it kept him quiet at ballgames. The second is more long term; he continues to keep score at baseball games up to the present. So he appreciates it when he reads (or hears) the words, “For those of you scoring at home” as was stated by the FCPA Professor in his December 31, 2009 posting on the UTStarcom matter. Judging from his posts, it appears the FCPA Professor is also a baseball fan.

In his post of January 18, entitled, “Four Awaiting Sentencing”; the FCPABlog discussed four persons, currently scheduled to be sentenced in January for pleas or convictions of FCPA violations. Two of the individuals are former Willbros employees who have pled guilty and are awaiting sentencing, Jim Bob Brown and Jason Edward Steph. The remaining two are the husband and wife team of Gerald and Patricia Green, who were convicted in a jury trial of FCPA violations related to their attempts to acquire lucrative film festival contracts in Thailand. The Greens were the third of three high profile FCPA trials which were concluded in 2009. See my prior post, “2009-Year of the Trial” at https://tfoxlaw.wordpress.com/2009/12/31/2009-the-year-of-the-trial/.

The convicted defendants from the first two trials, Frederick Bourke and William Jefferson have been sentenced and are out on bail during their respective appeals. As mentioned in its “Four Awaiting Sentencing”, the FCPA Blog stated that “Under the federal guidelines, Gerald Green, 77, is facing between 20 and 25 years in prison; the government wants him sentenced to life in prison.” While a 25 year sentence for a 77 year old man is tantamount to a life sentence, it is not clear how much weight the trial judge would give to the Prosecution’s proposed life sentence.

As pitchers and catchers are scheduled to report to Spring Training in only 30 days, the FCPABlog article and the FCPA Professor’s comment got Tfoxlaw’s baseball mind thinking about the FCPA sentencing boxscore for the two defendants in the other 2009 FCPA trials and how that might related to those upcoming in 2010.


Defendant Sentencing Guidelines Prosecution Recommended Sentence Defense Recommended Sentence Judge’s Sentence


324 to 405 mos.

=27 to 33 yrs.

27 to 33 years “less than 10 years” 13 years
Frederick Bourke 57 to 71 mos.

=4.75 to 6 yrs.

10 years Probation A year and a day
Gerald Green 235 to 293 mos.

=20 to 24.4 yrs.

Life in Prison Green does not pose risk to society Sentencing now set for March 11

 In both the Bourke and Jefferson cases, the trial judge gave jail time considerably less than that suggested by the Sentencing Guidelines and that sought by the Prosecutors; albeit with longer sentences than requested by the defendant’s attorneys. So what does all this mean? Tfoxlaw comes from a civil law background so has no experience as a prosecutors. Perhaps a blogger with the prosecutorial background can help to explain these (apparently) wide discrepancies and what that might mean for Gerald Green.

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