China DollI was recently in New York and was able to see the theater production of the new David Mamet play China Doll. It stars Al Pacino and it is probably worth it simply to see Pacino on stage. As you might expect from any Mamet script, it is about rapid-fire language. I was a tad apprehensive when I read the show’s reviews, which said that Pacino could not or had not learned his lines well enough to recite them without the use of a teleprompter and even an earpiece in which he was fed his lines.

I am happy to report that the production works. Although the Opening Night was moved from November 19 to December 4 to continue the previews, it was still a very good show. There were two laptops strategically placed on the set and it did appear that occasionally Pacino would scan the screens to get some lines. A large part of the play occurs while Pacino’s character was on the phone so some lines could have been fed to him in that manner. Finally he did take several pauses but it was never clear to me if he was fumbling a line or it was a dramatic pause.

The saving grace is that it was Pacino. From time-to-time, he was that cool controlled Pacino who graced us as Michael Corleone. More rarely he was Tony (let me introduce you to my little friend) Montanze from Scarface. For either of those moments the play was worth it. If you have the chance to see it, I heartily suggest you check it out.

If you have made it this far in this blog post and want to see the play be prepared for a SPOILER ALERT. If you are not going to see the play, no worries however a significant plot device turns on, of all things, the Foreign Corrupt Practices Act (FCPA). Imagine my utter shock when Pacino’s character was told he would be charged with violating the FCPA because a company in his Supply Chain (SC) had paid a bribe to have Pacino’s financé perform design work on an airplane that Pacino had custom ordered. So, first we had a movie (Syriana), television show (House of Cards) and now a Broadway theater production, which all prominently feature the FCPA as a show element. When art begins to imitate life, it certainly speaks to the ubiquitousness of the issue.

China Doll also reminded me that one of the areas many companies do not focus on is possible corruption in their SC for goods and services provided on a company’s behalf. The FCPA risks can be just as great through those entry points as it can be through the sales side of an organization. You need to know who your company is doing business with through the SC as much as you need to know your agents seeking business opportunities on your behalf.

This determination of the level of due diligence and categorization of a supplier should depend on a variety of factors, including, such factors as whether the supplier is (1) located, or will operate, in a high risk country; (2) associated with, or recommended or required by, a government official or his or her representative; (3) currently under investigation, the subject of criminal charges, or was recently convicted of criminal violations, including any form of corruption; (4) a multinational publicly traded corporation with a recognized exemplary system of compliance and internal controls, that has not been recently investigated or convicted of any corruption offense or that has taken appropriate corrective action to remedy such conduct; or (5) a provider of widely available services and products that are not industry specific, are offered to the public at large and do not fall under the definition of Minimal Risk Supplier, such as wide circulation newspapers, magazines, florists, daily limousine and taxi, airline and food delivery (including coffee shops, pizza parlors and take out) services. You should note that any supplier, which has foreign government touch points, should move up into the high level of scrutiny. 

A High-Risk Supplier is an individual or an entity that is engaged to provide non-project specific goods or services to a company. It presents a higher level of compliance risk because of the presence one or more of the following factors: (a) It is based or operates in a country (including the supply of goods or services to a company) that poses a high risk for corruption, money laundering, or commercial bribery; (b) It supplies goods or services to a company from a high-risk country; (c) It has a reputation in the business community for questionable business practices or ethics; or (d) It has been convicted of, or is alleged to have been involved in, illegal conduct and has failed to undertake effective remedial actions. Finally, it presents one or more of the following factors, in which case the Chief Compliance Officer (CCO) should be consulted for further direction: (1) It is located in a country that has inadequate regulatory oversight of its activities; (2) it is in an unregulated business; (3) Its ultimate or beneficial ownership is difficult to determine; (4) the company has an annual spend of more than $100,000 with the supplier; (5) It was established or registered in a jurisdiction where ownership is not transparent or that permits ownership in the form of bearer shares; (6) It is registered or conducts business in a jurisdiction that does not have anti-corruption, anti-money laundering (AML) and anti-terrorism laws comparable to those of the US and UK; or (7) It lacks a discernable and substantial business history.

A Low-Risk Supplier is an individual or a non-publicly held entity that conducts business such as a sole proprietorship, partnership or privately held corporation, located in a Low-Risk Country. Some indicia include that it (1) supplies goods, equipment or services directly to a company in a Low-Risk Country; (2) a company has an annual spend of less than $1,000,000 with the supplier; and (3) the supplier is not involvement with any foreign government, government entity, or Government Official. However, if the supplier has other indicia of lower risk such that it is a publicly-held company, it may be considered a Low-Risk Supplier because it is subject to the highest disclosure and auditing and reporting standards such as those under the US Securities Exchange Act of 1934, including those publicly traded on a reputable and highly regulated stock exchange, such as the New York or London exchanges, and are, therefore, subject to oversight by highly regarded regulatory agencies.

Below the high and low risk categories I would add two other categories of suppliers that present very low compliance risks. The first is ‘Minimal-Risk Suppliers’ which generally provide to a company goods and services that are non-specific to a particular project and the value of the transaction is USD $25,000 or less. Some examples might be for the routine purchase of fungible items and services, including, among others: Office supplies, such as paper, furniture, computers, copiers, and printers; Industrial or factory supplies, including cleaning materials, solvents, safety clothing and off-the-shelf equipment and parts; Crating and other standard materials for packing products for shipping; Leasing and rental of company cars and other equipment; and Airline or other travel tickets or services. It may also include legal services from professional firms that are approved and overseen by a company’s Legal Department; Investigative services from professional firms that are approved and overseen by a Legal Department and that do not interact with government agencies on behalf of a company; and Accounting and financial services from professional firms that are approved and overseen by a company Finance Department or Audit Committees and that do not interact with government agencies on behalf of a company.

Finally, are the category of third parties that provide widely available services and products, ‘Common Product and Services’, that are not industry specific, are offered to the public at large and do not fall under the definition of Minimal-Risk Supplier. These include, among others, wide circulation newspapers, magazines, florists, daily limousine and taxi, airline and food delivery (including coffee shops, pizza parlors and take out) services. These third parties raise even less than Minimal Risk to a company, especially when their services and products are provided in a non-high risk country. Suppliers in this category require no FCPA due diligence.

In China Doll, Pacino’s character bemoans that not only did he not authorize any bribe payments made to facilitate the construction and delivery of his airplane but that he did not even know bribes were paid to help construct his product. As a political fixer, he should have been better versed in the law and acted accordingly. For the rest of us, you need to risk rank your third parties which your company might engage through your SC for FCPA exposure.

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, 2015

Supply ChainOn this day we celebrate the greatest upset in the history of the NCAA Basketball Tournament, when Villanova beat Georgetown for the 1985 national championship. Georgetown was the defending national champion and had beaten Villanova at each of their regular season meetings. In the final the Wildcats shot an amazing 79% from the field, hitting 22 of 28 shots plus 22 of 27 free throws. Wildcats forward Dwayne McCain, the leading scorer, had 17 points and 3 assists. The Wildcats’ 6’ 9” center Ed Pinckney outscored 7’ Hoyas’ center, Patrick Ewing, 16 points to 14 and 6 rebounds to 5 and was named MVP of the Final Four. It was one of the greatest basketball games I have ever seen and certainly one for the ages.

I thought about this game when I read an article in the most recent issue of Supply Chain Management Review by Jennifer Blackhurst, Pam Manhart and Emily Kohnke, entitled “The Five Key Components for SUPPLY CHAIN”. In their article the authors asked “what does it take to create meaningful innovation across supply chain partners?” Their findings were “Our researchers identify five components that are common to the most successful supply chain innovation partnerships.” The reason innovation in the Supply Chain is so important is that it is an area where companies cannot only affect costs but can move to gain a competitive advantage. To do so companies need to see their Supply Chain third parties as partners and not simply as entities to be squeezed for costs savings. By doing so, companies can use the Supply Chain in “not only new product development but also [in] process improvements”.

I found their article resonated for the compliance professional as well. It is almost universally recognized that third parties are your highest Foreign Corrupt Practices Act (FCPA) risk. What if you could turn your Supply Chain from being considered a liability under the FCPA to an area that brings innovation to your compliance program? This is an area that not many compliance professionals have mined so I think the article is a useful starting point. The authors set out five keys to successful innovation spanning Supply Chain partners. They are: “(1) Don’t Settle for the Status Quo; (2) Hit the Road in Order to Hit Your Metrics; (3) Send Prospectors Not Auditors; (4) Show Me Yours and I’ll Show You Mine; and (5) Who’s Running the Show?”

Don’t Settle for the Status Quo

This means that you should not settle for simply the status quo. Innovation does not always come from a customer or even an in-house compliance practitioner. Here the key characteristics were noted to be “cooperative, proactive and incremental”. The authors emphasize that “you need to be leading the innovation change rather than catching up from behind.” If a company in your Supply Chain can suggest a better method to do compliance, particularly through a technological solution, it may be something you should well consider.

Hit the Road in Order to Hit Your Metrics

To truly understand your compliance risk from all third parties, including those in the Supply Chain, you have to get out of the ivory tower and on the road. This is even truer when exploring innovation. You do not have hit the road with the “primary goal to be the inception point for innovation” but through such interactions, innovation can come about “organically”. There is little downside for a compliance practitioner to go and visit a Supply Chain partner and have a “face-to-face meeting simply to get to know the partner better and more precisely identify that partner’s needs.”

Send Prospectors Not Auditors

While an audit clause is critical in any Supply Chain contract, both from a commercial and FCPA perspective, the authors believe that “Too often firms use supply chain managers as auditors when they are dealing with supply chain partners.” The authors call these types of managers “innovation partners.” Every third party should have a relationship manager, whether that third party is on the sales side or the Supply Chain side of the business. Moreover, the innovation partners are “able to see synergies where [business] partners can work together for the benefit of everyone involved.”

Show Me Yours and I’ll Show You Mine

Here the authors note, “Trust plays an extremely important role in supply chain innovation. Firms in successful innovations discussed a willingness to share resources and rewards and to develop their partners’ capabilities.” The authors believe that “Through the process of developing trust, firms understand their partner’s strategic goals.” I cannot think of a more applicable statement about FCPA compliance. Another way to consider this issue is that if your Supply Chain partner has trust in you and your compliance program, they could be more willing to work with you on the prevent and detect prongs of compliance regimes. Top down command structures may well be counter-productive.

Who’s Running the Show?

I found this point particularly interesting as for the authors, this prong means “who is doing what, but also what each firm is bringing to the relationship in terms of resources and capabilities.” In the compliance regime it could well lead to your Supply Chain partner taking a greater role in managing compliance in a specific arena or down a certain set of vendors. Your local Supply Chain partner might be stronger in the local culture, which could allow it to lead to collaborations by other vendors in localized anti-corruption networks or roundtables to help move the ball forward for doing business in compliance with the FCPA or other anti-corruption laws such as the UK Bribery Act.

The authors ended by remarking, “we noticed that leveraging lean and process improvement was mentioned by virtually every firm.” This is true in the area of process improvement, which is the essential nature of FCPA compliance. Another interesting insight from the authors was that utilization can increase through such innovation in the Supply Chain. Now imagine if you could increase your compliance process performance by considering innovations from your Supply Chain third parties? The authors conclude by stating that such innovation could lead to three “interesting outcomes 1) The trust and culture alignment is strengthened through the partnership innovation process leading to future innovations and improvement; 2) firms see what is needed in terms of characteristics in a partner firm so that they can propagate the success of prior innovations to additional partners; 3) by engaging supply chain partners as innovation partners, both sides reap rewards in a low cost, low risk, highly achievable manner.” With some innovation Villanova coach Rollie Massimino led his team over the prohibitive favorite Georgetown, and you may be able to tap into a resource immediately available at your fingertips, your Supply Chain.

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, 2015

The Last EmpireI recently read a book review in the Times Literary Supplement (TLS) by Archie Brown, entitled “One into fifteen”, where he reviewed the book “The Last Empire” by author Serhii Plokhy. Plokhy’s book is about the dissolution and final days of the Soviet Union. One of the more interesting precepts from the book is end of the Soviet Union as announced on Christmas Day, 1991, by then Communist Party Secretary Mikhail Gorbachev. Brown wrote, “All too often the dissolution of the Soviet Union is conflated with the end of Communism and with the end of the Cold War. But the book points out that the Politiburo had ceased to be the ruling body of the USSR in March of 1990 and thus it was “entirely fallacious to speak of either Communism or the Cold War as having ended in December 1991. The transformation of the system was a precondition for the demise of the state, with the latter being an unintended consequence of the former. But these were distinctive, albeit interconnected processes.””

I considered ‘interconnected processes’ when I saw the Compliance Insider, Illustrative Case Study Series, entitled “Supplier Risk Management”, in which The Red Flag Group laid out in a visual format how a company can effectively identify and manage risks in its supply chain. The process is dubbed ‘Report, Review and Improve’ and consists of six steps.

Step 1 – Collect information on the suppliers. This step begins with a review and assessment of your own Vendor Master files to make an initial determination if a new or indeed other supplier is needed. If there is a business justification for bringing the supplier into a commercial relationship with your company, then you should gather performance data on the proposed vendor. The article suggests that a technological solution can help to provide risk-rated questionnaires to facilitate the process by building workflows and approvals directly into your questionnaires.

Step 2 – Validate the collected information. This is the investigative step. You should take the information provided to you by the proposed supplier and test it. You can check on references. You should also engage the supplier directly by interviewing the internal staff of the proposed supplier and review documents and records as appropriate. When necessary, you may also wish to consider the use of outside experts or internal consultants for recommendations or validations. This step should end with the creation of a risk score of the data you have gathered. Here a technological solution can assist by automating your analysis of completed questionnaire with a risk-based scoring of the answers to facilitate the validation process.

Step 3 – Rate the risk of the supplier. This is the analysis step where you should “compare the risks against your complete knowledge of the proposed supplier.” You should also compare your assessed risks against industry data and the risk-rank the proposed supplier or suppliers. A technological solution can also help to crunch large amounts of numbers or other data to give a first pass on your risk-ranking which can be further refined if required.

Step 4 – Implement risk management controls. The article posits that this step should include the conducting of background due diligence and integrity analysis by screening against known watch lists, sanctions lists and those of politically-exposed-persons (PEPs). A technological solution can help this step by managing the request and delivery of due diligence reports, aid in the reviewing, approving and tracking of completed reports and ensure ongoing compliance with automated daily reviews of such lists. Another suggested component of this step is to meet with your internal and external stakeholders to convey expectations. From this point you should be ready to enter the contracting phase, with appropriate compliance terms and conditions. To the extent required, you should also create and manage your compliance policy for the supplier at this stage as well.

Step 5 – Assess and monitor the supplier. In any relationship with a third party in the compliance world, this step is where the rubber hits the road and you have to manage the relationship. The article discusses custom eLearning that can allow you to quickly and efficiently create training programs for your suppliers based upon your compliance regime and not hypothetical training based on legal standards. A technological solution can also assist you in obtaining online certifications to certify that your supplier is in compliance with your company’s business requirements and internal controls. Finally such a solution can help to automate the process going forward to ensure that certification updates are provided, executed and tracked. But more than the ongoing certifications and training, you will need to monitor the transactions you engage in with a supplier. This may entail reviewing a large amount of data through transaction monitoring but it may also entail going to visit a supplier and going through the deep dive of an audit.

Step 6 – Continuous reporting, review and monitoring. All of this information you obtained must be fully documented. Of course, it must be documented to produce to a regulator if the government comes calling. However, this information can also be used to improve the supplier relationship and perhaps even your vendor system. One of the most interesting suggestions was to create a ‘Virtual Data Room’ dedicated to your suppliers. Not only would the creation of such a stored environment enable you to call up information requested by a regulator on short notice, you would also have it in an accessible format for supply chain process improvements. The article suggests trying such techniques as implementing performance incentive programs which can push compliance culture and behavior changes based upon the data you collect. Interesting the clothing company Levi Strauss instituted just such a policy for suppliers in the area of corporate social responsibility, it announcing it earlier this week.

If you do not subscribe to The Red Flag Group’s Compliance Insider publication, I suggest that you do so. It is one of the very best periodicals around on the building blocks of compliance. The six steps it has laid out for process of identifying and managing your supplier compliance risks under the Foreign Corrupt Practices Act (FCPA) or UK Bribery Act demonstrates the thesis of Plokhy’s book reviewed in the TLS; that it is interconnected processes which usually mark change and management. In the case of the former Soviet Union, it may be been drawn by more human factors but there are now a variety of technological tools available to assist your facilitation of this process under any anti-bribery or anti-corruption compliance regime.

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, 2014

7K0A0014-2One question often posed to me is how to think through some of the relationships a company has with its various third parties in order to reasonably risk rank them. Initially I would break this down into sales and supply chain to begin any such analysis. Anecdotally, it is said that over 95% of all Foreign Corrupt Practices Act (FCPA) enforcement actions involve third parties so this is one area where companies need to put some thoughtful consideration. However, the key is that if you employ a “check-the-box” approach it may not only be inefficient but more importantly, ineffective. The reason for this is because each compliance program should be tailored to an organization’s specific needs, risks and challenges. The information provided below should not be considered a substitute for a company’s own assessment of the corporate compliance program most appropriate for that particular business organization. In the end, if designed carefully, implemented earnestly, and enforced fairly, a company’s compliance program—no matter how large or small the organization—will allow the company, generally, to prevent violations, detect those that do occur, and remediate them promptly and appropriately.

Sales Side

I tend to view things in a straightforward manner when it comes to representatives on the sales side of your business. I believe that third party representatives you might have, whatever you might call them, i.e. sales reps, sales agents, sales agents, commissioned sales agents, or anything else, are high risk and therefore they should receive your highest level of scrutiny. This is also true with any party that might be called, charitably or not, ‘a partner’ whether that is a joint venture (JV) partner, plain old partner, Teaming Partner or another monickered ‘partner’. However, under this approach you should also consider the perception of corruption in the geographic area that you will use the third party. I recognize that you can overlay a financial threshold but the reality is that if a sales representative generates such a small amount of money for your business you probably do not need them as representative.

At least with distributors, I have seen merit in more sophisticated approaches such as that set out by David Simon, a partner at Foley & Lardner LLP, who advocates a risk analysis should more appropriately based on the nature of a company’s relationships with their distributors. The goal should be to determine which distributors are the most likely to qualify as agents; for whose acts the company would likely to be held responsible.  He argues that it is a continuum of risk; that is, on the low-risk end are distributors that are really nothing more than re-sellers with little actual affiliation with the supplier company. On the high-risk end are distributors who are very closely tied to the supplier company, who effectively represent the company in the market and end up looking more like a quasi-subsidiary than a customer.

Simon looks at agency principles to guide his analysis of whether a distributor qualifies as an agent for FCPA purposes. He argues that factors to consider include:

  • The volume of sales made to the distributor;
  • The percentage of total sales of the distributor’s total business the principal’s product represents;
  • Whether the distributor represents the principal in the market, including whether it can (and does) use the company trademarks and logos in its business; and

Whether the principal company is involved in the running of the distributor’s business (such as by training the distributor’s sales agents, imposing performance goals and objectives, or providing reimbursement for sales activity).

Once a company segregates out the high-risk distributors that likely qualify as agents and potentially subject the company to FCPA liability from those that are mere re-sellers and pose less FCPA risk, FCPA compliance procedures can be tailored appropriately. For those distributors that qualify as “agents” and also pose FCPA risk, full FCPA due diligence, certifications, training and contract language are imperative. For those that do not, more limited compliance measures that reflect the risk-adjusted potential liability are perfectly appropriate.

Supply Chain

This determination of the level of due diligence and categorization of a supplier should depend on a variety of factors, including, but not limited to, whether the supplier is (1) located, or will operate, in a high risk country; (2) associated with, or recommended or required by, a government official or his or her representative; (3) currently under investigation, the subject of criminal charges, or was recently convicted of criminal violations, including any form of corruption; (4) a multinational publicly traded corporation with a recognized exemplary system of compliance and internal controls, that has not been recently investigated or convicted of any corruption offense or that has taken appropriate corrective action to remedy such conduct; or (5) a provider of widely available services and products that are not industry specific, are offered to the public at large and do not fall under the definition of Minimal-Risk Supplier detailed below.

A High-Risk Supplier is an individual or an entity that is engaged to provide non-project specific goods or services to a company. It presents a higher level of compliance risk because of the presence of one or more of the following factors: (a) It is based or operates in a country (including the supply of goods or services to a company) that poses a high risk for corruption, money laundering, or commercial bribery; (b) It supplies goods or services to a company from a high-risk country; (c) It has a reputation in the business community for questionable business practices or ethics; or (d) It has been convicted of, or is alleged to have been involved in, illegal conduct and has failed to undertake effective remedial actions. Finally, it presents one or more of the following factors,: (1) It is located in a country that has inadequate regulatory oversight of its activities; (2) it is in an unregulated business; (3) its ultimate or beneficial ownership is difficult to determine; (4) the company has an annual spend of more than $100,000 with the supplier; (5) it was established or registered in a jurisdiction where ownership is not transparent or that permits ownership in the form of bearer shares; (6) it is registered or conducts business in a jurisdiction that does not have anti-corruption, anti-money laundering and anti-terrorism laws comparable to those of the United States and the United Kingdom; or (7) it lacks a discernable and substantial business history.

A Low-Risk Supplier is an individual or a non-publicly held entity that conducts business such as a sole proprietorship, partnership or privately held corporation, located in a Low-Risk Country. Some indicia include that it (1) supplies goods, equipment or services directly to a company in a Low-Risk Country; (2) a company has an annual spend of less than $100,000 with the supplier; and (3) the supplier has no involvement with any foreign government, government entity, or Government Official. However, if the supplier has other indicia of lower risk such that it is a publicly-held company, it may be considered a Low-Risk Supplier because it is subject to the highest disclosure and auditing and reporting standards such as those under the US Securities Exchange Act of 1934, including those publicly traded on a reputable and highly regulated stock exchange, such as the New York or London exchanges, and are, therefore, subject to oversight by highly regarded regulatory agencies.

Below the high and low risk categories I would add the category of ‘Minimal-Risk Suppliers’ who generally provide to a company goods and services that are non-specific to a particular project and the value of the transaction is $25,000 or less. Some examples might be for the routine purchase of fungible items and services, including, among others: Office supplies, such as paper, furniture, computers, copiers, and printers; Industrial or factory supplies, including cleaning materials, solvents, safety clothing and off-the-shelf equipment and parts; Crating and other standard materials for packing products for shipping; Leasing and rental of company cars and other equipment; and Airline or other travel tickets or services. This category would also include those third parties that provide widely available services and products that are not industry specific, are offered to the public at large. Here you might think of periodicals, florists, daily limousine and taxi, airline and food delivery (including coffee shops, pizza parlors and take out) services.

Last, but certainly not least, is the category of Government Service Providers, which includes entities that generally come into a company through the supply chain, who interact with a foreign government on behalf of your company. Examples might be customs brokers, providers who obtain and process business permits, licenses, visas, work permits and necessary clearances or waivers from government agencies; perform lobbying services; obtain regulatory approvals; negotiate with government agencies regarding the payment of taxes, tax claims, and tax audits. These third parties present some of your highest risks so they need to have not only the highest level of scrutiny but post contract-signing management as well.

The risk ranking of third parties is one of the areas that seems to continue to cause confusion, if not outright bewilderment. The manner in which the articulated risk rankings presented herein is not to be the ‘be-all and end-all’. As the FCPA Guidance reminds us, “An effective compliance program promotes “an orga­nizational culture that encourages ethical conduct and a commitment to compliance with the law.”…A well-constructed, thought­fully implemented, and consistently enforced compliance and ethics program helps prevent, detect, remediate, and report misconduct, including FCPA violations.” If you think through your risk rankings and can articulate a reasonable basis for doing so followed by documentation, I think your own risk ranking system will survive regulatory scrutiny.

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, 2014