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31 Days to More Effective Compliance Programs

One Month to a More Effective Compliance Program for 3rd Parties – The How Question in Due Diligence

What is satisfactory due diligence under the FCPA? That question seems more important after the story on Unaoil S.A.M. and the subsequent release of the Panama and Paradise Papers. However, both events largely focused on the “who” part of due diligence and the need to know with whom you are doing business in the future. However, another important question that does not come up as often in due diligence is how?

How does a third party perform its services with or for your company? How can a third party help you make sales if it is on the sales side? If a third party comes through the supply chain, how do their products or services meet the needs of your company? Suppose the third party has a closer business relationship, such as a JV, teaming agreement, or similar arrangement. In that case, you may need a much deeper understanding of how this third party does business because the relationship may become so close you will be intertwined with the party. It may mean more than how their product works, but how does this third party conduct themselves and their business?

 Three key takeaways:

1. The how question can be as critical as the who question.

2. The more integrated a third party is into your operations, the more important this question becomes.

3. Incorporate a how-to question into your due diligence and ongoing monitoring and auditing after the contract is signed.

Categories
31 Days to More Effective Compliance Programs

The “how” question in due diligence


What is satisfactory due diligence under the FCPA? That question seems to be more important after the story on Unaoil S.A.M. and the subsequent release of the Panama and Paradise Papers. However, both events largely focused on the “who” part of due diligence and the need to know with whom you are doing business with going forward. However, there is another important question which does not come up as often in due diligence, which is how?
How does a third-party perform its services with or for your company? If it is on the sales side of things, howcan a third-party help you make sales? If a third-party comes through the supply chain, how do their products or services meet the needs of your company? If the third-party has a closer business relationship, such as a JV, teaming agreement or other similar arrangement, you may well need a much deeper understand of how this third-party does business because the relationship may well become so close you will be intertwined with the party. It may mean more than simply how does their product work but how does this third-party conduct themselves and their business?
Under the FCPA, most companies understand the need to know with whom they contract for sales or vendor services. They also understand the need to know why they should do business with a proposed third-party (i.e., a business justification). However, the need to perform an investigation into how the third-party can actually deliver the contracted services is equally important.
Three key takeaways:

  1. The how question can be as critical as the who question.
  2. The more integrated a third-party is into your operations the more important this question becomes.
  3. Incorporate a how question into not only your due diligence but also your ongoing monitoring and auditing, after the contract is signed.