Companies across the globe are becoming more aware of the inherent risks they encounter through their supply chains and interactions with third parties. Third parties and intermediaries may not operate with the same standards as the business and may be used by corrupt employees as channels for bribery. Bribes may be disguised as consultancy fees, technical advice fees, hospitality services, sponsorship, charity donations and educational funds, to name a few. Risk increases as companies move into new markets and place more of their operations into the hands of third parties. In this alert, our lawyers explain how the Foreign Corrupt Practices Act (FCPA), UK Bribery Act, French and German criminal codes apply to a company’s or individual’s dealings with third parties.
This is the second alert in the From the FCPA to the UK Bribery Act – Your key questions about global anticorruption laws answered series. Over the next few weeks, members of our global regulatory & investigations team will answer your most important questions about anticorruption laws in the U.S., UK, France, Germany and Greece. Next up, we will explore whether the FCPA, UK Bribery Act, French and German criminal codes make your company liable for the acts of your subsidiaries and employees.
What does the FCPA mean for my dealings with third parties?
- U.S. companies conducting business abroad often need to rely on the assistance of third parties, such as agents, consultants, subcontractors, and distributors.
- However, companies may be held liable under the FCPA if these third-party partners solicit or facilitate corrupt payments to foreign officials. Enforcement authorities will charge companies based on the conduct of their third-party partners under traditional agency principles or theories of authorization and direct or indirect knowledge.
- During their investigations, the Department of Justice and Securities and Exchange Commission often look for specific red flags present within a third-party relationship, including excessive payments or commissions, vaguely defined services, and a third party’s close association with foreign officials.
- Because of this, companies should thoroughly evaluate, train, and monitor third-party partners. Companies should analyze the risks inherent to the third-party agreement, scrutinize the third party’s background and prior experience, and probe any ties to foreign officials. Companies should conduct due diligence to identify high-risk relationships and adopt more robust procedures with regard to these individuals or entities. Additionally, companies should ensure that a third party’s contract states with particularity the legitimate services to be performed and includes a reasonable fee structure.
- Finally, companies should periodically train and closely monitor all third-party partners. When red flags arise during a relationship with a third party, they should be promptly investigated.
What does the UK Bribery Act mean for my dealings with third parties?
- Many of the settled cases in the UK (Deferred Prosecution Agreements) and other convictions have involved intermediaries paying bribes to public officials and/or private individuals.
- Sections 1 and 6 of the Act expressly prohibit bribes made through third parties.
- Section 7 makes companies liable for bribery intended to benefit them by associated persons, defined as persons who perform services for or on behalf of the company.
- This definition is broad. Section 8 provides that the capacity in which a person performs services for or on behalf of the organization does not matter, so employees (who are presumed to be performing services for their employer), agents and subsidiaries are included. An associated person can be an individual or an unincorporated body.
- Five of the bribery-related enforcement actions for the section 7 offense involve the use of intermediaries (in addition to company employees) who helped win contracts by paying bribes to government officials and/or private individuals.1
- Companies should undertake comprehensive risk-based due diligence when it comes to the appointment and monitoring of third parties.
- The jurisdiction and sector in which they operate should be considered as well as other background information.