Appropriate Third Party Due Diligence Procedures for Multinational Corporations

Almost every multinational corporation engages third party agents to assist in winning government contracts, obtaining permits, or conducting business. In the United States, under the Foreign Corrupt Practices Act (FCPA), a company can face liability for the corrupt actions of its employees and a third party’s actions when that third party acts on its behalf. [1] For example, in 2015, the Securities and Exchange Commission (SEC) charged a global resources company, BHP Billiton, with violating the FCPA when it sponsored the attendance of foreign government officials at the 2008 Summer Olympics. [2] BHP Billiton invited 176 government officials to attend the Games at the company’s expense, and paid for 60 guests and some of their spouses. [3] Sponsored guests enjoyed three- and four-day hospitality packages that included event tickets, luxury hotel accommodations, and sightseeing excursions valued at $12,000 to $16,000 per package. [4] According to Andrew Ceresney, Director of the SEC’s Division of Enforcement, BHP Billiton footed the bill for foreign government officials who were in a position to help the company with its business or regulatory endeavors. [5] In response to these charges, BHP Billiton agreed to pay $25 million in penalties. [6]

Small gifts, such as reasonable meals, entertainment expenses, or promotional items from a company are commonplace and are appropriate for business people to show their respect for one another; such expenses are unlikely subject to enforcement actions by the Department of Justice (DOJ) or SEC. [7] However, larger, more extravagant gifts, including sports cars or other luxury items, are likely to raise the suspicion of enforcement agencies. [8] One major criticism BHP Billiton faced was that it failed to provide employees with any specific training on how to evaluate the bribery risks of the invitations. [9] From a regulatory perspective, neither the DOJ nor the SEC provides specific guidance on the components of an effective third-party due diligence program. [10]

So, how can companies ensure that all of their employees are complying with local and international laws? The U.S. Sentencing Commission voted unanimously on April 7, 2010, to modify the Federal Sentencing Guidelines for organizations; these guidelines include provisions that set forth the attributes of an effective compliance and ethics program. [11] They suggest that management should establish standards and procedures to prevent and detect criminal conduct. [12] Firstly, management should help foster a “culture of compliance” and include in the company’s employee handbook mechanisms for detecting and reporting violations. [13] Secondly, companies should train all employees on their anti-bribery policies and enforce the programs with appropriate incentives for proper performance. [14] For third parties with higher risk rankings, a company should require heightened scrutiny, additional written contract protections or an enhanced monitoring strategy. [15] While these compliance measures may be expensive, noncompliance can cost even more.

This post is a student blog post and in no way represents the views of the Fordham International Law Journal.