As every compliance practitioner is well aware, third parties still present the highest risk under the FCPA. The 2020 Update devotes an entire prong to third-party management. It begins with the following:
Prosecutors should also assess whether the company knows the business rationale for needing the third party in the transaction, and the risks posed by third-party partners, including the third-party partners’ reputations and relationships, if any, with foreign officials. For example, a prosecutor should analyze whether the company has ensured that contract terms with third parties specifically describe the services to be performed, that the third party is actually performing the work, and that its compensation is commensurate with the work being provided in that industry and geographical region. Prosecutors should further assess whether the company engaged in ongoing monitoring of the third-party relationships, be it through updated due diligence, training, audits, and/or annual compliance certifications by the third party.
This clearly specifies that the DOJ expects an integrated approach that is operationalized throughout the company. This means you must have a process for the full life cycle of third-party risk management. There are five steps in the life cycle of third-party risk management, which will fulfill the DOJ requirements as laid out in the 2020 FCPA Resource Guide and in the Hallmarks of an Effective Compliance Program. They five steps in the lifecycle of third-party management are:
- Business Justification by the Business Sponsor;
- Questionnaire to Third-party;
- Due Diligence on Third-party;
- Compliance Terms and Conditions, including payment terms; and
- Management and Oversight of Third Parties After Contract Signing.
Three key takeaways:
- Use the full 5-step process for third party management.
- Make sure you have business development involvement and buy-in.
- Operationalize all steps going forward by including business unit representatives.