Research Call for Case Studies to Advance Third Party Due Diligence Reply

Until now, if ten companies all work with the same ten distributors, these relationships generated a total of 100 due diligence reports.   Each company paid ten times and each distributor completed ten labor-intensive reviews.   This has become ruinously expensive and very slow, all without enhancing the protection to any party.

TRACE is changing the way the business community approaches third party due diligence.   Our new model shifts the expense to the intermediaries, but relieves them of duplicative demands from different companies.  Third parties are required to complete only one process per year, which includes an extensive questionnaire, online training, collection of business registrations, adoption of a code of conduct and ongoing daily media and denied party screening.

These due diligence reports are completed to the same exceptionally high standard as TRACE’s other due diligence reports, but they are “portable”.   That is, they are owned by the third party, which can – after our rigorous review, verification and approval –provide the report to as many companies as they choose and advertise the fact of their certification on their websites.  (Their control over the distribution of the report also enables companies to avoid data privacy concerns about the transmission of personal data across borders.)


Biggest Compliance Stories for July 2014 Reply

Take a moment to read our poll and vote for which headline you think was most newsworthy this month:

  1. UK’s Serious Fraud Office Charges Alstom Network UK with Corruption: The investigation, which commenced as a result of information provided to the SFO by the Office of the Attorney General in Switzerland, concerns large transport projects in India, Poland and Tunisia in the early 2000s. None of the charges fall, however, under the UK’s 2010 Bribery Act.
  1. China Launches Formal Investigation of Zhou Yongkang for Graft: China put an end to years of speculation when it brought charges this month against Mr. Zhou, who was formerly in charge of the country’s entire state security, courts, police and paramilitary forces until retiring two years ago.
  1. U.S.-based Firearms Manufacturer to Pay $2 million to Settle SEC Corruption Charges: Smith & Wesson Holding Corporation agreed to pay $2 million to the U.S. Securities and Exchange Commission to settle charges that it violated the U.S. Foreign Corrupt Practices Act, after last month receiving a declination from the U.S. Department of Justice for its role in the Africa Sting Operation.
  1. U.S. Corruption Trial of Former Virginia Governor Bob McDonnell Begins: McDonnell and his wife were indicted in January on federal corruption charges following a months-long federal investigation into gifts McDonnell received from a political donor.  The former Governor has adopted a unique defense strategy, claiming that his marriage was too unhappy and disjointed for either partner to have conspired with the other to accept bribes.
  1. More Whistleblowers Come Forth in GSK Bribery Investigation: Starting in China, bribery claims against British drug maker GlaxoSmithKline have surfaced in other countries as well over the past year, including Poland, Iraq, Jordan and Lebanon. This month, allegations emerged that the company paid bribes to Syrian doctors, dentists, pharmacists and government officials to win tenders and to obtain improper business advantages.


A Royal Mess, Pt. 2: Non-Profits, Charitable Contributions and the FCPA 1

In our previous post, we discussed the ongoing corruption case against Princess Cristina of Spain and her husband, Duke Iñaki Urdungarin. Urdangarin, a former

[Courtesy of Flickr]

[Courtesy of Flickr]

Olympian, is accused of using his position to skim money from government contracts.  Princess Cristina, for her part, has been charged with tax fraud and money laundering.

Look past the headlines and you will see a risky scenario faced by many companies doing business abroad: contributing to foreign charities. The organization at the center of the Spanish case, Instituto Nóos, is a not-for-profit organization with extensive ties to public officials – including Spain’s Royal Family. Allegedly, Urdungarin channeled funds from corporations bidding on government contracts through the non-profit.  Charities and not-for-profits with connections to public officials raise significant concerns under the U.S. Foreign Corrupt Practices Act (FCPA), as donations to these organizations can be used to buy influence – for example, by funneling funds or donating to an officials’ favorite charity or cause.

Key Cases

The cases of Schering-Plough and Eli Lilly show that the risk of a FCPA violation is not limited to charities that funnel money to public officials, but extends to bona fide, legitimate charities as well. Both companies, while negotiating product sales with Polish government officials, made donations to the Chudow Castle Foundation, allegedly at the request of the foundation’s founder and president, who was also the Director of the Silesian Health Fund and in a position to influence the negotiations. The SEC alleged that the donations had been made to influence the public official and win contracts.

As detailed in the SEC’s complaint, Schering-Plough donated approximately USD 76,000 and notably lacked a policy requiring due diligence of charitable entities. In 2004, in an agreement with the SEC, Schering-Plough agreed to increase their due diligence efforts and pay a USD 500,000 civil penalty for their actions. According to the SEC Complaint regarding Eli Lilly, the company donated USD 39,000 and failed to properly oversee and investigate the relationship between the foundation, the negotiations, and the contributions. It’s notable, however, that in both cases it was not alleged that any money was transferred to the public official, or that the non-profit was illegitimate. Rather, the donations allegedly violated the FCPA because they were made to influence an official by donating to a cause the official was associated with and apparently cared about.

How Companies Can Protect Themselves

There are several practices companies can employ to protect themselves from the risk of violating the FCPA while making charitable donations.  As outlined in More…

A Royal Mess, Pt. 1: Spanish Princess Charged with Corruption 1

Protesters in Madrid last month, protesting the Spanish monarchy.  [Courtesy of Flickr:]

Protesters in Madrid last month, advocating an end to the Spanish monarchy. [Courtesy of Flickr]

If there are perks to being a member of the Spanish royal family (undoubtedly there are), immunity from corruption prosecutions is not one of them. Last month, on June 25th, Princess Cristina of Spain was charged with tax fraud and money laundering, casting a pall over the recent crowning of her brother, King Felipe VI, and testing his promise of a new, transparent government. The allegations provide a timely example of the corrupt behavior that has frustrated the Spanish public.  The royal family’s reaction will certainly also provide insight into the type of monarchist King Felipe VI is going to be.

Princess Cristina’s charges relate to a 3-year investigation of her husband, Duke Iñaki Urdangarin. Mr. Urdungarin, a former Olympic handball player and member of the Spanish Olympic Committee, married the Princess in 1997. Between 2004 and 2006, Mr. Urdungarin was president of the Instituto Nóos, a non-profit sports consultancy and event organization where Princess Cristina served on the board. Mr. Udrungarin and Princess Cristina also co-owned a real estate company called Aizoon.

Trouble started for the royal couple in 2011, when Mr. Urdungarin’s tenure at Instituto Nóos came under scrutiny. Instituto Nóos was accused of skimming money from government contracts, and Mr. Urdungarin was accused of profiting from funds that had been channeled through the non-profit and real-estate company co-owned with Princess Cristina. Mr. Urdungarin allegedly used his royal connections to win contracts that were either over-budgeted or never completed at all. After an investigation by the Spanish Anticorruption Bureau found that Mr. Urdungarin sent money from the contracts to accounts in Belize and the UK, the Royal Household banned Urdungarin from Royal Family activities, and in January 2013, removed him from their website.

For two years, Princess Cristina avoided implication in the corruption scandal, surely to the relief of the Royal Family, who has been trying to repair their damaged public image. But that changed in April 2013 when, despite efforts by her husband to protect her from the case, the Princess was named a suspect by the judge overseeing the investigation, prompting her to move to Switzerland with her children.

Initially the prosecutor appealed the decision, resulting in a revocation of the summons for lack of evidence; but in January 2014, the Princess was summoned again on charges of tax fraud and money laundering. In February, the Princess appeared in court for questioning, and formal charges of fraud were filed on Wednesday, June 25th, creating the unprecedented possibility that Princess Cristina could spend 11 years in jail. Currently those charges are under appeal. More…