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Best Practices to Avoid Common FCPA Violations: Third-Parties

While the Foreign Corrupt Practices Act (“FCPA”) is an extremely complex act, there are two common FCPA violations of which automotive companies with international operations should be particularly sensitive. We recently discussed the challenges associated with providing gifts, meals, and entertainment to customers. In this post, we discuss another common issue: using third-parties abroad.

Third-Parties

FCPA violations are also frequently attributable to the practices of third-party agents. Accordingly, automotive companies should evaluate third-party contractors through a risk-based approach. In other words, an automotive company need not spend $200,000 on due diligence for a contract of the same value. Below are examples of the types of due diligence to consider when dealing with third-parties:

  • Conduct background checks;

  • Perform thorough investigations of the third-party and its principals;

  • Require the third-party to take FCPA training and certify they have taken such training;

  • Require the third-party to certify they will comply with anti-corruption laws and the FCPA;

  • Require the third-party to fill out questionnaires, requesting references and detailed information about their business, attached to an FCPA policy;

  • Incorporate contractual representations and warranties that (a) the foreign third-party agent is not owned or controlled by a foreign government and (b) no foreign official holds an ownership interest in the third-party agent; and

  • Require the third-party agent to annually certify compliance with the FCPA.

Under a risk-based approach, the automotive company should weigh the anticipated value of the contracts sought via a particular third-party versus the costs of due diligence and compliance efforts. So, when engaging a third-party agent to procure a $50,000 contract, background checks and contractual representations may be sufficient. However, if that same third-party agent procures a $1,000,000 contract, the automotive company’s contract with the third-party agent should require more elaborate due diligence, including a thorough background investigation, training, and annual certifications.

Even if an automotive company is unaware of a third-party’s wrongful conduct, that company could still face FCPA liability. The government may claim the automotive company turned a blind eye and therefore should be held accountable for the third-party’s actions. In past investigations and enforcement actions, prosecutors have pursued manufacturers that failed to identify “red flags,” such as the following:

  • Excessive commissions charged by the third-party;

  • Unreasonably large discounts promised by the third-party;

  • Vaguely-described services in third-party consulting agreements;

  • Third-party operating in different capacity than that for which it was engaged;

  • Third-party related to or closely tied to government officials;

  • Third-party became involved at the express request of the foreign official;

  • Third-party is a shell corporation incorporated in an offshore jurisdiction; and

  • Third-party requests payments to offshore bank accounts.

Regardless, relationships with third-parties should be memorialized in writing and explicitly address the FCPA-related requirements. In addition, payment mechanisms should be transparent and traceable, and commissions/payments should be reasonable and customary.

Of course, FCPA analyses depend on specific facts and circumstances, but automotive companies should be mindful of the foregoing guidelines. And automotive companies should contact counsel when dealing with potential FCPA problems or designing compliance programs and materials.

© 2020 Foley & Lardner LLPNational Law Review, Volume V, Number 348

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About this Author

Jaime Guerrero, White collar criminal defense attorney, Foley law firm
Partner

Jaime Guerrero is a partner and litigation lawyer with Foley & Lardner LLP. Mr. Guerrero focuses in the areas of government enforcement actions, white collar criminal defense, Foreign Corrupt Practices Act ("FCPA") investigations, accounting litigation, securities litigation, and partnership disputes. He represents companies and individuals in parallel civil and criminal proceedings initiated by regulatory and prosecuting agencies for a variety of alleged wrongdoing and business disputes. Mr. Guerrero has conducted internal investigations, in both English and Spanish...

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Associate

Nicholas Williams is an associate and litigator with Foley & Lardner LLP. His practice focuses on general commercial litigation, including non-compete, construction, white collar defense, and bankruptcy litigation. Mr. Williams has successfully obtained judgments and negotiated settlements for clients, including regional and national banks, in commercial disputes. He is a member of the firm's Legal Innovation Hub® for NextGen Manufacturers.

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