• Are Third Party Agents Really Necessary To Conduct Business In A Foreign Country?
  • March 19, 2010 | Author: Lourdes Sanchez Ridge
  • Law Firm: Thorp Reed & Armstrong, LLP - Pittsburgh Office
  • 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.

    [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.