When conducting anti-bribery training for TRACE member companies, the most common question we hear is: how can companies persuade commercial intermediaries to participate in due diligence reviews? This is a concern for all companies, but especially for small and medium-sized companies or companies partnering with state-owned entities. These companies are often less confident about their ability to impose requirements on their third parties. Anne Richardson, Director of Member Services, offers some advice on how to overcome resistance and make the process more collaborative:
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As those in this field know well, a host of compliance “basics” make up a solid and effective anti-bribery compliance program: “tone at the top,” clear and consistent policies and procedures, reporting mechanisms, and training … training … training. Another of these essential elements, of course, is due diligence. As the majority of FCPA cases make clear, third party intermediary relationships carry a high level of risk for bribery. Not that these sales agents or distributors, who are usually small and based in developing countries, deserve all the blame when it comes to corrupt business practices – the small time intermediary making an improper payment to a foreign official in the typical FCPA case often does so at the behest, either explicit or implicit, of a large multinational. Regardless, due diligence has become a key ingredient of prudent anti-bribery compliance for companies working with intermediaries internationally. The flip side of this enforcement trend is equally potent – neither the DOJ nor SEC has brought an FCPA action against a company that had, in fact, conducted meaningful due diligence on its overseas partners. The due diligence process cannot guarantee that an intermediary will not engage in illegal business practices, but having the process in place as part of a compliance program goes a long way toward convincing prosecutors that a company takes anti-bribery compliance seriously.
Due diligence, whether done in-house or through a third party provider, can be a hard sell both within a company, particularly to local business people, and outside a company, to the distributors and agents a company seeks to put through the process. If a compliance officer thinks engaging hundreds (or thousands) of employees and agents in anti-bribery training is tough enough, imagine trying to pitch an intrusive, months-long process that may threaten to delay urgent business transactions. Despite these difficulties, however, there are some strategies and approaches that can help bring everyone on-board.
Potential intermediaries should be educated about the due diligence requirement from the outset; this is where local or regional business people play a crucial role. Candidates should be introduced to the due diligence process at the beginning of the relationship, along with the company’s anti-bribery policy and contractual certification requirements. Explaining the purpose and role of due diligence from the beginning can go a long way toward encouraging mutual transparency once the process begins. Treating the intermediary as a partner at this stage lays the groundwork for respect and accountability going forward, with all parties committing themselves to commercial transparency and appropriate business practices, — and with all parties invested in promoting the company’s reputation in the local market. Having the local marketing team deliver and reinforce the anti-bribery message and play a role in implementing the due diligence process can help establish legitimacy and credibility among the intermediaries a company is seeking to vet. In addition, clear support from the local business staff, including support in enforcing deadlines, will help ensure that intermediaries are responsive during the review process.
The message to intermediaries should assure them that they are not being singled out for due diligence and that the process does not reflect on their business ethics. Instead, due diligence reviews should be explained as a cost-effective and prudent risk-mitigation tool for companies doing business internationally. Intermediaries that are new to the company are likely to accept this more readily than those that have represented the company for many years. For the latter, an extra effort should be made to explain that a compliance program is stronger when the same policies are rolled-out worldwide, without regard to the intermediaries’ country of residence or the longevity of the relationship. When engaging intermediaries in due diligence, a professional, respectful and cordial approach can work wonders. Your company and your intermediaries are, after all, on the same side.