While the need to conduct due diligence on international business partners is clear, there is no regulatory guidance specifying the depth to which companies need to investigate the background of third parties. However, Securities and Exchange Commission (SEC) and Department of Justice (DOJ) judgments in Foreign Corrupt Practices Act (FCPA) cases in which U.S. companies have been fined for not performing sufficient due diligence on third parties indicate that a cursory approach will no longer suffice. Increasingly, companies will be expected to conduct a deeper, more systematic investigation of potential international business agents and partners that involves collecting information from the business partner, verifying the data and following up on identified red flags.
Common due diligence pitfalls
3. Failing to act on identified red flags.The DOJ has also opined on the need for companies to act on risk factors identified during the due diligence process. In a case cited above, the DOJ faulted a company for failing to follow up on what were considered obvious red flags identified when hiring a consultant in Honduras for work in the telecommunications industry.