Failure to check business partners puts companies at risk of breaking U.S. anti-bribery law, Deloitte poll shows
LONDON (TrustLaw) – The vast majority of companies are running the risk of breaking a U.S. anti-bribery law because they do not carry out enough checks on third party business partners, a poll by global accounting firm Deloitte has found.
While every enforcement action in 2011 brought under the U.S. Foreign Corrupt Practices Act (FCPA) involved a third party business partner, the majority of the 1,339 professionals surveyed only perform due diligence on a fraction of their partners, Deloitte said.
“The risk that these companies are facing is that they have 50,000 third parties that they do business with and any one of those could expose them to risk,” Joe Zier, a partner in Deloitte's FCPA practice, told TrustLaw.
Almost a quarter of companies polled said they conducted due diligence on less than 25 percent of their business partners while 13.4 percent said they conducted due diligence on between 75 and 100 percent of business partners. Five percent carried out no due diligence on business partners, Deloitte said.
The cost of carrying out due diligence was cited as the most common reason for not implementing a comprehensive due diligence programme, the poll found.
The FCPA – a 1970s-era law that bars U.S.-linked firms from bribing foreign officials – has seen a huge increase in enforcement over the past five years. The U.S. Department of Justice and the Securities and Exchange Commission initiated just five FCPA enforcement actions between them in 2004. By 2011, that number had risen to 48, according to the law firm Gibson Dunn.
“Similar with the UK (Bribery) Act, you have a defence. A defence is a good accounting system that prevents fraudulent and corrupt behaviour,” Zier said.
“What does that entail? A major element is understanding who your third party is that you’re doing business with and having some transparency into how they’re conducting business on your behalf. That’s critical and that’s where due diligence is the first stepping stone,” Zier added.
Over 1,220 professionals from a broad range of industries were polled in the Deloitte survey during a December 2011 webcast entitled “Third-Party Business Relationships: Emerging Issues and Regulatory Risks”.
Our Standards: The Thomson Reuters Trust Principles.
