Welcome to Episode 6 of Compliance Man Chooses the Target with Tim Khasanov-Batirovseries of podcasts. Our goal is to highlight matters that should be on agenda of practitioners that deploy compliance programs in industries or countries of active FCPA enforcement. In this episode, we will target three specific matters that you might like to address in the course of implementation of your compliance program. Today we will focus on Due Diligence in high risk markets.
Target #1: How to Avoid Problems?
Any company that has to follow FCPA rules must conduct due diligence. Technically, this procedure should cover third parties that represent interests of the company in dealings with government or similar cases. On practice, sometimes companies have no clear understanding whom and for what purpose they screen. Mixing compliance with both local and US rules they check with same level of scrutiny (or the same level of negligence) all business partners as suppliers, thirds parties, and buyers. Is that a right approach? As long as you have a vision why you do that (for instance, your company goes beyond FCPA to ethics) that is fine. Otherwise you might want to reconsider your DD policy.
Target #2: Risk Assessment in DD of Third Parties.
Based on experience there is another serious issue, which might arise on the final stage of DD. Let’s imagine you have found some negative information about certain TPI, or news about breach of certain laws (for instance, local legislation) by this entity. Should we ban planned cooperation? Who should take this decision? Violation of what laws are critical considering that any global company has a record of court cases, and minor or huge fines from state bodies? We recommend you to have answers to these questions in order to ensure effectiveness of the DD process.
Target #3: Collaboration between Legal and Compliance in DD process.
Here I would like to remember two contradictory examples in my practice. In the first example, there was a big tension between in house legal and compliance teams. Both teams were involved in different parts of the DD procedure. In the second case due to clear allocation of duties between Legal and Compliance along with good communications between them DD procedure worked well. I would think the main bottleneck in first scenario was absence of understanding why Compliance asked for additional documents from the counterparty.
Thus, Compliance function has to train, communicate, and collaborate with internal partners (i.e. Legal) in order to bring attention to corruption threats in addition to purely legal risks during DD procedure. We will talk more about teamwork in our next episode.
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