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Third Party Risk Due Diligence - Feb 2012

The document discusses the importance of third-party due diligence in fighting corruption within the supply chain, highlighting the financial ramifications and reputation risks of non-compliance. It outlines a structured approach to due diligence involving risk assessments, monitoring, and various compliance checks on third parties. The text emphasizes the significance of aligning due diligence processes with technology and the need for consistent governance to prevent bribery and corruption.

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Fighting corruption in the supply chain Implementing effective third-party due diligence Mark Dunn Market Planning Manager LexisNexis Risk 29th February, 2012 LexisNexis Proprietary & Confidential: For internal office use only 1
LexisNexis: Who we are and what we do Anti-Money Laundering Anti-Bribery & Corruption Sanctions Screening Know Your Know Your Know Your Know Your Customer Supplier Employee Customer’s Customer AML Corporate Procurement Fraud Security Human Strategy Resources Compliance Legal Credit 2
Third-Party Due Diligence Why is it important? 3
Third Party Due Diligence Why is it important? US Department of Justice: Daimler AG and Three Subsidiaries Resolve Foreign Corrupt US Department of Justice: Innospec Agent Pleads Practices Act Investigation and Agree to Pay Guilty to Bribing Iraqi Officials and Paying $93.6 Million in Criminal Penalties; Combined Kickbacks Under the Oil for Food Program Criminal and Civil Penalties of $185 Million to M2 PressWIRE, June 28, 2010 be Paid M2 PressWIRE, April 5, 2010 Chinese Court Hands Jail Terms to Rio Tinto Mabey & Johnson to pay £6.6m for bribing Employees on Bribery and Secret Theft Charges officials and UN breaches Global Insight, March 29, 2010 Construction News, September 28, 2009 Pfizer To Pay About $60 Mln To Settle Bribery Probe Wall Street Journal November 20th, 2011 Halliburton to pay $559 million to settle bribery investigation WALL STREET JOURNAL, January 27, 2009 Tuesday Alstom fined $42 mln in Swiss bribery probe Reuters - November 22, 2011 LexisNexis Proprietary & Confidential: For internal office use only 4
Effective Third Party Due Diligence Why is it important? Financial fallout of non- compliance Prerequisite for conducting Impact Business reputation business Business efficiency LexisNexis Proprietary & Confidential: For internal office use only 5
Third-Party Due Diligence Process overview 6
Third-party due diligence Process Overview • Risk assessment determines extent of due diligence required • Approach to due diligence covers three stages: Conduct Monitor health check 5. Conduct health check third-parties Update records on existing third-parties Third-Party 8. Manage incoming checks Conduct due diligence on new third-parties Due Diligence 11. Monitor third-parties Conduct spot checks and periodic reviews Manage Arrow 2 incoming checks 7
Third-party due diligence Process Overview Identify Review Risk Due Diligence Communication Assessment Monitor High Level And Training Process Audit Verify 8
Third-Party Due Diligence Risk Assessment 9
Anti-Corruption Risk Assessment Common External Risks • Country risk This is evidenced by perceived high levels of corruption, an absence of effectively implemented anti-bribery legislation and a failure of the foreign government, media, local business community and civil society effectively to promote transparent procurement and investment policies • Sectoral risk Some sectors are higher risk than others. Higher risk sectors include the extractive industries and the large scale infrastructure sector • Transaction risk Certain types of transaction give rise to higher risks, for example, charitable or political contributions, licences and permits, and transactions relating to public procurement • Business opportunity risk Such risks might arise in high value projects or with projects involving many contractors or intermediaries; or with projects which are not apparently undertaken at market prices, or which do not have a clear legitimate objective • Business partnership risk Certain relationships may involve higher risk, for example, the use of intermediaries in transactions with foreign public officials; consortia or joint venture partners; and relationships with politically exposed persons where the proposed business relationship involves, or is linked to, a prominent public official Source: UK Ministry of Justice: Guidance about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing (section 9 of the Bribery Act 2010) LexisNexis Proprietary & Confidential: For internal office use only 10
Anti-Corruption Risk Assessment Common Internal Risks • Deficiencies in employee training, skills and knowledge • Bonus culture that rewards excessive risk taking • Lack of clarity in the organisation’s policies on, and procedures for, hospitality and promotional expenditure, and political or charitable contributions • Lack of clear financial controls • Lack of a clear anti-bribery message from the top-level management Source: UK Ministry of Justice: Guidance about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing (section 9 of the Bribery Act 2010) LexisNexis Proprietary & Confidential: For internal office use only 11
Third-Party Due Diligence What information do you need? 12
Third-party due diligence What type of checks are conducted? To identify and verify Sources The business partner’s full, legal name, registered address •Business partner questionnaire and company number or equivalent •Checks of local company registers Details of the business partner’s shareholdings and •Business partner questionnaire shareholders, including wholly and partly owned •Checks of local company registers subsidiaries or parent companies A list of the business partner’s directors and officers, and •Business partner questionnaire any other employees who will be carrying out services for •Checks of local company registers the organisation, including providing CVs, proof of •Media searches citizenship, relationships with any politically exposed persons, references where appropriate and details of other companies in which they are involved Details of other clients of the business partner, or parties •Business partner questionnaire with whom they regularly do business (especially public •Media searches officials and government bodies), and how the business •Checks with local business groups and was obtained embassies •Watchlists and PEP databases Source: Extracts from Due diligence: know your business partners (Reed Smith): Serious Economic Crime: A boardroom guide to prevention and compliance (UK Serious Fraud Office)
Third-party due diligence What type of checks are conducted? To identify and verify Sources Financial information, including accounts and annual •Business partner questionnaire reports as well as details of any history of insolvency of the •Checks of company registers business partner and any of its directors. •Media searches Details of any legal proceedings or regulatory •Business partner questionnaire. investigations involving the business partner or any of its •Litigation records. key personnel, with particular focus on matters involving •Media searches allegations of corruption. The precise nature of the intended relationship with the •Business partner questionnaire business partner, what services it intends to provide, how •Contract documentation and by whom these services will be provided, and how it is going to calculate what remuneration it receives for doing so. What, if any, anti-bribery and corruption policies and •Business partner questionnaire procedures the business partner has in place, and what due diligence it carries out on third parties with which it does business. Source: Extracts from Due diligence: know your business partners (Reed Smith): Serious Economic Crime: A boardroom guide to prevention and compliance (UK Serious Fraud Office)
ABC Third-Party Due Diligence High Level Process Overview Third-Party Collect documents from third- Identify party (incorporation docs etc) Risk Assessment Simplified Due Diligence Enhanced Due Diligence (Low Risk) (High Risk) Company Check Person Check Company Check Person Check Key company data ID verification Key company data ID verification Sanctions & watchlists PEPs Sanctions & watchlists PEPs Senior executives Sanctions & watchlists Negative news Associates Person Checks on all Sanctions & watchlists directors Directorships Person Checks on key Shareholdings shareholders Negative news Audit Monitoring and Review 15
Third-Party Due Diligence Sources of information 16
Risk assessment and due diligence resources High Outsourced Risk Advisors Aggregated Subscription Risk Services Assessment Individual Subscription Services Low High Due Diligence Resources 17
Due diligence resources Google Benefits • Free content • Global coverage • Easy to access • Prerequisite for due diligence and screening / complements other research Things to consider: • Archival data increasingly requires subscription • Difficult to achieve consistency as data sources change daily • Difficult to audit as source data sometimes hard to verify • Lack of security (IP tracing) • No support or guarantees 18
Due diligence resources Individual Subscription Services Benefits: • Enables selected content to be purchased to meet specific requirement (i.e. country company data) • Content maintained, up to date and accurate • Access secure Things to consider: • Additional subscription services may be required over time to cover changing business requirements • Requires users to learn different search interfaces which impacts consistent process and time efficiency • Requires users to combine multiple search results into standard reports • Requires company to maintain multiple contracts with information providers 19
Due diligence resources Aggregated Subscription Services Benefits: • Consolidates all key data via single service for consistent process • Single interface also helps users speed up due diligence process • Content maintained, up to date and accurate • Access secure • Single contract easier to manage Things to consider: • Ensure content required is in line with risk-based approach (e.g. Country coverage, depth of content) • Availability of local language content and interfaces 20
Due diligence resources Outsourced Risk Advisors Benefits: • Due diligence done for you • Able to conduct investigations on the ground particularly in high risk markets • Secure and trusted Things to consider: • High costs for basic due diligence research reports • Impractical for high volumes of simplified due diligence • Time lag in receiving information • Reports received may need further validation after review 21
Risk assessment and due diligence resources Align your risk-based approach to third-party due diligence with your technology purchasing: Simplified or enhanced due diligence determines what content you need to search: • Do the third-parties include individuals? • Are the third-party companies: public or private? • Are the third-parties based in the UK or overseas? • Are the third-parties in developed or emerging markets? • Are the third-parties in selected countries or many countries? • Determines use of ‘free’ content resources versus paid content services? • Determines use of niche content providers versus aggregators? 22
Risk assessment and due diligence resources Number of third-parties determines how you may prefer to use and pay for technology services: • How many new third-parties do you take-on? • How many existing third-parties do you need to screen? • How often do your monitor existing third-parties? • How many people are conducting due diligence checks? • Do you need single search or batch search? • Do you need several niche content providers or a content aggregator? What payment approach do you take? • Do you pay based on search volumes or number of seats? • Do you pay on a transactional or subscription basis? • Do you receive volume based, multiple product or multi-year discounts? • Do providers enable flexible overuse or cut off system access? What IT approach do you take? • For example: Do you want to access batch services via web or behind your company firewall? • What in-house IT resources do you have available? 23
Due Diligence Evaluating existing resources 24
Evaluating existing due diligence resources • Opportunity to: • Review existing internal systems that may be used • Consider how the new products you purchase may also be used by other parts of the company • Benefits of a consistent approach: • Delivers greater ROI to the business through: • Improved process efficiencies (training, account admin, headcount) • Improved customer service (saves time, reduces number of times client has to be contacted) • Cost savings through companywide discounts • Consistent approach helps demonstrate robust compliance • Develops enterprise risk management approach Due diligence is firmly established as an element of corporate good governance and it is envisaged that due diligence related to bribery prevention will often form part of a wider due diligence framework Source: The Bribery Act 2010: Guidance about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing (section 9 of the Bribery Act 2010) (Ministry of Justice) 25
Evaluating existing due diligence resources AML Fraud Audit Strategy Procurem Corpora Corporate Credit AML Fraud Audit Strategy Procurement Credit ent te Security Security Company M&A Employee due diligence ID due diligence screening Credit verification reference List Supplier Investigations checking Reputation due diligence checks Transaction Country monitoring Conflicts risk checking 26
Adopting a consistent and more efficient process AML Fraud Audit Strategy Procurem Corpora Corporate Credit AML Fraud Audit Strategy Procurement Credit ent te Security Security AML Fraud Corporate Security Group Security Function 27
Third-Party Due Diligence The LexisNexis approach 28
How we help clients realise a consistent process Simplified Due Diligence Company or individual Ongoing Monitoring Investigations across: Automated checks Yes Sanctions and Watch Lists Business ID verification data Report Approval PEP checks Sanctions and Watch Lists Proprietary watchlists PEP checks Negative Media Proprietary watchlists No Low / Med Alert Third New Risk Party Interest Yes Identified? No Med / High Ultra High Enhanced Due Diligence Media Monitoring Perform in-depth checks Automated monitoring of across: global entities: Media and Negative News Lexis Content Company Information Ultra High “of Special Interest” Web Sources Legal Case History Social Media Paid Subscription Services 29
How we help clients realise a consistent process Yes Bridger Insight™ XG Business Approval Bridger Insight™ XG Report No Low / Med Alert Third New Risk Party Interest Yes Identified? No Med / High Ultra High Lexis®Diligence LexisNexis Analytics Ultra High “of Special Interest” 30
Third-Party Due Diligence Running a LexisNexis search example 31
Third-Party Due Diligence Further Reference 42
Global Corruption Further Reference • US Department of Justice Foreign Corrupt Practices Act (FCPA) Page http://www.justice.gov/criminal/fraud/fcpa/ • US Department of Justice FCPA Lay-Person’s Guide http://www.justice.gov/criminal/fraud/fcpa/docs/lay-persons-guide.pdf • US Department of Justice FCPA Related enforcement actions http://www.justice.gov/criminal/fraud/fcpa/cases/2010.html • Transparency International Includes Corruption Perceptions Index and Bribe Payers Index http://www.transparency.org.uk/working-with-companies/adequate-procedures • United Nations Fighting Corruption in the Supply Chain report http://www.unglobalcompact.org/docs/issues_doc/Anti-Corruption/Fighting_Corruption_Supply_Chain.pdf 43
UK Bribery Act 2010 Further Reference • UK Ministry of Justice Bribery Act 2010 guidance http://www.justice.gov.uk/guidance/making-and-reviewing-the-law/bribery.htm • Transparency International Adequate Procedures - Guidance to the UK Bribery Act 2010 http://www.transparency.org.uk/working-with-companies/adequate-procedures • UK Serious Fraud Office Corruption indicators http://www.sfo.gov.uk/bribery--corruption/corruption-indicators.aspx Prosecution guidance http://www.sfo.gov.uk/press-room/latest-press-releases/press-releases-2011/bribery-act-prosecution-guidance-pu Serious Economic Crime: A boardroom guide to prevention and compliance http://www.seriouseconomiccrime.com/ 44
Principle 4: Due Diligence UK Ministry of Justice Guidance: Case Study 9 - Due diligence of agents A small UK company (‘N’) relies on agents in country (‘P’) from which it imports local high quality perishable produce and to which it exports finished goods. The bribery risks it faces arise entirely as a result of its reliance on agents and their relationship with local businessmen and officials. N is offered a new business opportunity in P through a new agent (‘Q’). An agreement with Q needs to be concluded quickly. N could consider any or a combination of the following: Conducting due diligence and background checks on Q that are proportionate to the risk before engaging Q; which could include: • making enquiries through N’s business contacts, local chambers of commerce or business associations, or internet searches • seeking business references and a financial statement from Q and reviewing Q’s CV to ensure Q has suitable experience. • Considering how best to structure the relationship with Q, including how Q should be remunerated for its services and how to seek to ensure Q’s compliance with relevant laws and codes applying to foreign public officials • Making the contract with Q renewable annually or periodically • Travelling to P periodically to review the agency situation. Source: Extracts: Guidance about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing (UK Ministry of Justice) 45
Principle 4: Due Diligence UK Ministry of Justice Guidance: Case Study 6 - Due diligence of agents A medium to large sized manufacturer of specialist equipment (‘G’) has an opportunity to enter an emerging market in a foreign country (‘H’) by way of a government contract to supply equipment to the state. Local convention requires any foreign commercial organisations to operate through a local agent. G is concerned to appoint a reputable agent and ensure that the risk of bribery being used to develop its business in the market is minimised. G could consider any or a combination of the following: • Compiling a suitable questionnaire for potential agents requiring for example, details of ownership if not an individual; CVs and references for those involved in performing the proposed service; details of any directorships held, existing partnerships and third party relationships and any relevant judicial or regulatory findings. • Having a clear statement of the precise nature of the services offered, costs, commissions, fees and the preferred means of remuneration. • Undertaking research, including internet searches, of the prospective agents and, if a corporate body, of every person identified as having a degree of control over its affairs. • Making enquiries with the relevant authorities in H to verify the information received in response to the questionnaire. • Following up references and clarifying any matters arising from the questionnaire or any other information received with the agents, arranging face to face meetings where appropriate Source: Extracts: Guidance about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing (UK Ministry of Justice) 46
UK Bribery Act 2010 vs. US Foreign Corrupt Practices Act Provisions UK Bribery Act 2010 US Foreign Corrupt Practices Act Extra-territorial Yes, persons are liable for sections 1, 2 or 6 offences committed Yes, the FCPA applies to violative acts by US issuers, domestic application outside the UK if they have a ‘close connection’ with the UK. concerns and their agents and employees that occur wholly outside US The territory, and to acts by US citizens or residents, wherever they occur. ‘failure to prevent bribery’ offence applies to: (i) UK entities that conduct business in the UK or elsewhere; and (ii) any corporation, wherever formed, which carries on business or part of a business in the UK (section 7(5)). Third parties Yes, liability for acts of associated persons who perform services Yes, the FCPA prohibits corrupt payments through intermediaries. It is for or on behalf of the company. unlawful to make a payment to a third party, while knowing that all or a portion of the payment will go directly or indirectly to a foreign official. The term ‘knowing’ includes conscious disregard and deliberate ignorance. Intermediaries may include joint venture partners or agents. Failure to keep Covered by other legislation. Yes. Accurate books and records Criminal penalties Individuals: up to ten years sentence and unlimited fines; Corporations and other business entities are subject to a fine of up to $2,000,000 per violation. Officers, directors, stockholders, employees Companies: Unlimited fines. and agents are subject to a fine of up to $250,000 per violation and imprisonment for up to five years. Under the Alternative Fines Act, the actual fine may be up to twice the benefit that the defendant sought to obtain by making the corrupt payment. Fines imposed on individuals may not be paid by their employer or principal. Source: The UK 2010 Bribery Act Adequate Procedures (Transparency International) 47
UK Bribery Act 2010 vs. US Foreign Corrupt Practices Act Provisions UK Bribery Act 2010 US Foreign Corrupt Practices Act Bribery of foreign Yes (section 6). Yes, the FCPA applies only to bribery of foreign officials. public officials (15 U.S.C. §§78dd-1(a) and (f)(1)). Private-to-private Yes, the main provisions of the Bribery Act apply to the private No. bribery sector as well as the public sector except for the FPO offence. Receipt of a bribe Yes (section 2). No. Intent Mixed. Intention is required for some ‘cases’ of the section 1 and In alleging violations of the bribery provisions of the FCPA, the 2 offences. No ‘corrupt’ or improper ’ intent is required in the FPO government must show that the defendant had the requisite state of offence, section 7. mind with respect to his actions i.e., negligence, recklessness, intent (15 U.S.C. § 78dd-1(f)(2).). Facilitation The Act does not permit an exception for facilitation payments. Permitted under very limited circumstances when paid to foreign officials payments in order to expedite or secure the performance of a ‘routine governmental action’. This excludes a decision by a foreign official to award new business or to continue business with a particular party e.g., to obtain a license or be granted a concession (15 U.S.C. §78dd- 1(b) and §78dd-1(f)(3)). Promotional The Act makes no specific provision for promotional expenses. Yes, affirmative defence if they are reasonable and bona fide business expenses expenses that are directly related to the promotion, demonstration or explanation of products or services (e.g., demonstration or tour of a pharmaceutical plant) or in connection with the execution of a particular contract with a foreign government. Source: The UK 2010 Bribery Act Adequate Procedures (Transparency International) 48
Consolidate workflow and data to drive ROI Search global sources including web and print publications, criminal records, sanctioned party and politically exposed persons…using LexisNexis or similar platforms. All such searches, whether conducted internally or by an external firm, should be conducted not only on the supplier, but also on the names of its verified owners, directors, officers and partners Fighting Corruption in the Supply Chain (United Nations) 49
Summary 50

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Third Party Risk Due Diligence - Feb 2012

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    Fighting corruption inthe supply chain Implementing effective third-party due diligence Mark Dunn Market Planning Manager LexisNexis Risk 29th February, 2012 LexisNexis Proprietary & Confidential: For internal office use only 1
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    LexisNexis: Who weare and what we do Anti-Money Laundering Anti-Bribery & Corruption Sanctions Screening Know Your Know Your Know Your Know Your Customer Supplier Employee Customer’s Customer AML Corporate Procurement Fraud Security Human Strategy Resources Compliance Legal Credit 2
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    Third Party DueDiligence Why is it important? US Department of Justice: Daimler AG and Three Subsidiaries Resolve Foreign Corrupt US Department of Justice: Innospec Agent Pleads Practices Act Investigation and Agree to Pay Guilty to Bribing Iraqi Officials and Paying $93.6 Million in Criminal Penalties; Combined Kickbacks Under the Oil for Food Program Criminal and Civil Penalties of $185 Million to M2 PressWIRE, June 28, 2010 be Paid M2 PressWIRE, April 5, 2010 Chinese Court Hands Jail Terms to Rio Tinto Mabey & Johnson to pay £6.6m for bribing Employees on Bribery and Secret Theft Charges officials and UN breaches Global Insight, March 29, 2010 Construction News, September 28, 2009 Pfizer To Pay About $60 Mln To Settle Bribery Probe Wall Street Journal November 20th, 2011 Halliburton to pay $559 million to settle bribery investigation WALL STREET JOURNAL, January 27, 2009 Tuesday Alstom fined $42 mln in Swiss bribery probe Reuters - November 22, 2011 LexisNexis Proprietary & Confidential: For internal office use only 4
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    Effective Third PartyDue Diligence Why is it important? Financial fallout of non- compliance Prerequisite for conducting Impact Business reputation business Business efficiency LexisNexis Proprietary & Confidential: For internal office use only 5
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    Third-party due diligence ProcessOverview • Risk assessment determines extent of due diligence required • Approach to due diligence covers three stages: Conduct Monitor health check 5. Conduct health check third-parties Update records on existing third-parties Third-Party 8. Manage incoming checks Conduct due diligence on new third-parties Due Diligence 11. Monitor third-parties Conduct spot checks and periodic reviews Manage Arrow 2 incoming checks 7
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    Third-party due diligence ProcessOverview Identify Review Risk Due Diligence Communication Assessment Monitor High Level And Training Process Audit Verify 8
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    Anti-Corruption Risk Assessment CommonExternal Risks • Country risk This is evidenced by perceived high levels of corruption, an absence of effectively implemented anti-bribery legislation and a failure of the foreign government, media, local business community and civil society effectively to promote transparent procurement and investment policies • Sectoral risk Some sectors are higher risk than others. Higher risk sectors include the extractive industries and the large scale infrastructure sector • Transaction risk Certain types of transaction give rise to higher risks, for example, charitable or political contributions, licences and permits, and transactions relating to public procurement • Business opportunity risk Such risks might arise in high value projects or with projects involving many contractors or intermediaries; or with projects which are not apparently undertaken at market prices, or which do not have a clear legitimate objective • Business partnership risk Certain relationships may involve higher risk, for example, the use of intermediaries in transactions with foreign public officials; consortia or joint venture partners; and relationships with politically exposed persons where the proposed business relationship involves, or is linked to, a prominent public official Source: UK Ministry of Justice: Guidance about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing (section 9 of the Bribery Act 2010) LexisNexis Proprietary & Confidential: For internal office use only 10
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    Anti-Corruption Risk Assessment CommonInternal Risks • Deficiencies in employee training, skills and knowledge • Bonus culture that rewards excessive risk taking • Lack of clarity in the organisation’s policies on, and procedures for, hospitality and promotional expenditure, and political or charitable contributions • Lack of clear financial controls • Lack of a clear anti-bribery message from the top-level management Source: UK Ministry of Justice: Guidance about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing (section 9 of the Bribery Act 2010) LexisNexis Proprietary & Confidential: For internal office use only 11
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    Third-Party Due Diligence Whatinformation do you need? 12
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    Third-party due diligence Whattype of checks are conducted? To identify and verify Sources The business partner’s full, legal name, registered address •Business partner questionnaire and company number or equivalent •Checks of local company registers Details of the business partner’s shareholdings and •Business partner questionnaire shareholders, including wholly and partly owned •Checks of local company registers subsidiaries or parent companies A list of the business partner’s directors and officers, and •Business partner questionnaire any other employees who will be carrying out services for •Checks of local company registers the organisation, including providing CVs, proof of •Media searches citizenship, relationships with any politically exposed persons, references where appropriate and details of other companies in which they are involved Details of other clients of the business partner, or parties •Business partner questionnaire with whom they regularly do business (especially public •Media searches officials and government bodies), and how the business •Checks with local business groups and was obtained embassies •Watchlists and PEP databases Source: Extracts from Due diligence: know your business partners (Reed Smith): Serious Economic Crime: A boardroom guide to prevention and compliance (UK Serious Fraud Office)
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    Third-party due diligence Whattype of checks are conducted? To identify and verify Sources Financial information, including accounts and annual •Business partner questionnaire reports as well as details of any history of insolvency of the •Checks of company registers business partner and any of its directors. •Media searches Details of any legal proceedings or regulatory •Business partner questionnaire. investigations involving the business partner or any of its •Litigation records. key personnel, with particular focus on matters involving •Media searches allegations of corruption. The precise nature of the intended relationship with the •Business partner questionnaire business partner, what services it intends to provide, how •Contract documentation and by whom these services will be provided, and how it is going to calculate what remuneration it receives for doing so. What, if any, anti-bribery and corruption policies and •Business partner questionnaire procedures the business partner has in place, and what due diligence it carries out on third parties with which it does business. Source: Extracts from Due diligence: know your business partners (Reed Smith): Serious Economic Crime: A boardroom guide to prevention and compliance (UK Serious Fraud Office)
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    ABC Third-Party DueDiligence High Level Process Overview Third-Party Collect documents from third- Identify party (incorporation docs etc) Risk Assessment Simplified Due Diligence Enhanced Due Diligence (Low Risk) (High Risk) Company Check Person Check Company Check Person Check Key company data ID verification Key company data ID verification Sanctions & watchlists PEPs Sanctions & watchlists PEPs Senior executives Sanctions & watchlists Negative news Associates Person Checks on all Sanctions & watchlists directors Directorships Person Checks on key Shareholdings shareholders Negative news Audit Monitoring and Review 15
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    Risk assessment anddue diligence resources High Outsourced Risk Advisors Aggregated Subscription Risk Services Assessment Individual Subscription Services Low High Due Diligence Resources 17
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    Due diligence resources Google Benefits • Free content • Global coverage • Easy to access • Prerequisite for due diligence and screening / complements other research Things to consider: • Archival data increasingly requires subscription • Difficult to achieve consistency as data sources change daily • Difficult to audit as source data sometimes hard to verify • Lack of security (IP tracing) • No support or guarantees 18
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    Due diligence resources Individual Subscription Services Benefits: • Enables selected content to be purchased to meet specific requirement (i.e. country company data) • Content maintained, up to date and accurate • Access secure Things to consider: • Additional subscription services may be required over time to cover changing business requirements • Requires users to learn different search interfaces which impacts consistent process and time efficiency • Requires users to combine multiple search results into standard reports • Requires company to maintain multiple contracts with information providers 19
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    Due diligence resources Aggregated Subscription Services Benefits: • Consolidates all key data via single service for consistent process • Single interface also helps users speed up due diligence process • Content maintained, up to date and accurate • Access secure • Single contract easier to manage Things to consider: • Ensure content required is in line with risk-based approach (e.g. Country coverage, depth of content) • Availability of local language content and interfaces 20
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    Due diligence resources Outsourced Risk Advisors Benefits: • Due diligence done for you • Able to conduct investigations on the ground particularly in high risk markets • Secure and trusted Things to consider: • High costs for basic due diligence research reports • Impractical for high volumes of simplified due diligence • Time lag in receiving information • Reports received may need further validation after review 21
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    Risk assessment anddue diligence resources Align your risk-based approach to third-party due diligence with your technology purchasing: Simplified or enhanced due diligence determines what content you need to search: • Do the third-parties include individuals? • Are the third-party companies: public or private? • Are the third-parties based in the UK or overseas? • Are the third-parties in developed or emerging markets? • Are the third-parties in selected countries or many countries? • Determines use of ‘free’ content resources versus paid content services? • Determines use of niche content providers versus aggregators? 22
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    Risk assessment anddue diligence resources Number of third-parties determines how you may prefer to use and pay for technology services: • How many new third-parties do you take-on? • How many existing third-parties do you need to screen? • How often do your monitor existing third-parties? • How many people are conducting due diligence checks? • Do you need single search or batch search? • Do you need several niche content providers or a content aggregator? What payment approach do you take? • Do you pay based on search volumes or number of seats? • Do you pay on a transactional or subscription basis? • Do you receive volume based, multiple product or multi-year discounts? • Do providers enable flexible overuse or cut off system access? What IT approach do you take? • For example: Do you want to access batch services via web or behind your company firewall? • What in-house IT resources do you have available? 23
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    Evaluating existing duediligence resources • Opportunity to: • Review existing internal systems that may be used • Consider how the new products you purchase may also be used by other parts of the company • Benefits of a consistent approach: • Delivers greater ROI to the business through: • Improved process efficiencies (training, account admin, headcount) • Improved customer service (saves time, reduces number of times client has to be contacted) • Cost savings through companywide discounts • Consistent approach helps demonstrate robust compliance • Develops enterprise risk management approach Due diligence is firmly established as an element of corporate good governance and it is envisaged that due diligence related to bribery prevention will often form part of a wider due diligence framework Source: The Bribery Act 2010: Guidance about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing (section 9 of the Bribery Act 2010) (Ministry of Justice) 25
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    Evaluating existing duediligence resources AML Fraud Audit Strategy Procurem Corpora Corporate Credit AML Fraud Audit Strategy Procurement Credit ent te Security Security Company M&A Employee due diligence ID due diligence screening Credit verification reference List Supplier Investigations checking Reputation due diligence checks Transaction Country monitoring Conflicts risk checking 26
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    Adopting a consistentand more efficient process AML Fraud Audit Strategy Procurem Corpora Corporate Credit AML Fraud Audit Strategy Procurement Credit ent te Security Security AML Fraud Corporate Security Group Security Function 27
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    Third-Party Due Diligence TheLexisNexis approach 28
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    How we helpclients realise a consistent process Simplified Due Diligence Company or individual Ongoing Monitoring Investigations across: Automated checks Yes Sanctions and Watch Lists Business ID verification data Report Approval PEP checks Sanctions and Watch Lists Proprietary watchlists PEP checks Negative Media Proprietary watchlists No Low / Med Alert Third New Risk Party Interest Yes Identified? No Med / High Ultra High Enhanced Due Diligence Media Monitoring Perform in-depth checks Automated monitoring of across: global entities: Media and Negative News Lexis Content Company Information Ultra High “of Special Interest” Web Sources Legal Case History Social Media Paid Subscription Services 29
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    How we helpclients realise a consistent process Yes Bridger Insight™ XG Business Approval Bridger Insight™ XG Report No Low / Med Alert Third New Risk Party Interest Yes Identified? No Med / High Ultra High Lexis®Diligence LexisNexis Analytics Ultra High “of Special Interest” 30
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    Third-Party Due Diligence Runninga LexisNexis search example 31
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    Global Corruption Further Reference • US Department of Justice Foreign Corrupt Practices Act (FCPA) Page http://www.justice.gov/criminal/fraud/fcpa/ • US Department of Justice FCPA Lay-Person’s Guide http://www.justice.gov/criminal/fraud/fcpa/docs/lay-persons-guide.pdf • US Department of Justice FCPA Related enforcement actions http://www.justice.gov/criminal/fraud/fcpa/cases/2010.html • Transparency International Includes Corruption Perceptions Index and Bribe Payers Index http://www.transparency.org.uk/working-with-companies/adequate-procedures • United Nations Fighting Corruption in the Supply Chain report http://www.unglobalcompact.org/docs/issues_doc/Anti-Corruption/Fighting_Corruption_Supply_Chain.pdf 43
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    UK Bribery Act2010 Further Reference • UK Ministry of Justice Bribery Act 2010 guidance http://www.justice.gov.uk/guidance/making-and-reviewing-the-law/bribery.htm • Transparency International Adequate Procedures - Guidance to the UK Bribery Act 2010 http://www.transparency.org.uk/working-with-companies/adequate-procedures • UK Serious Fraud Office Corruption indicators http://www.sfo.gov.uk/bribery--corruption/corruption-indicators.aspx Prosecution guidance http://www.sfo.gov.uk/press-room/latest-press-releases/press-releases-2011/bribery-act-prosecution-guidance-pu Serious Economic Crime: A boardroom guide to prevention and compliance http://www.seriouseconomiccrime.com/ 44
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    Principle 4: DueDiligence UK Ministry of Justice Guidance: Case Study 9 - Due diligence of agents A small UK company (‘N’) relies on agents in country (‘P’) from which it imports local high quality perishable produce and to which it exports finished goods. The bribery risks it faces arise entirely as a result of its reliance on agents and their relationship with local businessmen and officials. N is offered a new business opportunity in P through a new agent (‘Q’). An agreement with Q needs to be concluded quickly. N could consider any or a combination of the following: Conducting due diligence and background checks on Q that are proportionate to the risk before engaging Q; which could include: • making enquiries through N’s business contacts, local chambers of commerce or business associations, or internet searches • seeking business references and a financial statement from Q and reviewing Q’s CV to ensure Q has suitable experience. • Considering how best to structure the relationship with Q, including how Q should be remunerated for its services and how to seek to ensure Q’s compliance with relevant laws and codes applying to foreign public officials • Making the contract with Q renewable annually or periodically • Travelling to P periodically to review the agency situation. Source: Extracts: Guidance about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing (UK Ministry of Justice) 45
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    Principle 4: DueDiligence UK Ministry of Justice Guidance: Case Study 6 - Due diligence of agents A medium to large sized manufacturer of specialist equipment (‘G’) has an opportunity to enter an emerging market in a foreign country (‘H’) by way of a government contract to supply equipment to the state. Local convention requires any foreign commercial organisations to operate through a local agent. G is concerned to appoint a reputable agent and ensure that the risk of bribery being used to develop its business in the market is minimised. G could consider any or a combination of the following: • Compiling a suitable questionnaire for potential agents requiring for example, details of ownership if not an individual; CVs and references for those involved in performing the proposed service; details of any directorships held, existing partnerships and third party relationships and any relevant judicial or regulatory findings. • Having a clear statement of the precise nature of the services offered, costs, commissions, fees and the preferred means of remuneration. • Undertaking research, including internet searches, of the prospective agents and, if a corporate body, of every person identified as having a degree of control over its affairs. • Making enquiries with the relevant authorities in H to verify the information received in response to the questionnaire. • Following up references and clarifying any matters arising from the questionnaire or any other information received with the agents, arranging face to face meetings where appropriate Source: Extracts: Guidance about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing (UK Ministry of Justice) 46
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    UK Bribery Act2010 vs. US Foreign Corrupt Practices Act Provisions UK Bribery Act 2010 US Foreign Corrupt Practices Act Extra-territorial Yes, persons are liable for sections 1, 2 or 6 offences committed Yes, the FCPA applies to violative acts by US issuers, domestic application outside the UK if they have a ‘close connection’ with the UK. concerns and their agents and employees that occur wholly outside US The territory, and to acts by US citizens or residents, wherever they occur. ‘failure to prevent bribery’ offence applies to: (i) UK entities that conduct business in the UK or elsewhere; and (ii) any corporation, wherever formed, which carries on business or part of a business in the UK (section 7(5)). Third parties Yes, liability for acts of associated persons who perform services Yes, the FCPA prohibits corrupt payments through intermediaries. It is for or on behalf of the company. unlawful to make a payment to a third party, while knowing that all or a portion of the payment will go directly or indirectly to a foreign official. The term ‘knowing’ includes conscious disregard and deliberate ignorance. Intermediaries may include joint venture partners or agents. Failure to keep Covered by other legislation. Yes. Accurate books and records Criminal penalties Individuals: up to ten years sentence and unlimited fines; Corporations and other business entities are subject to a fine of up to $2,000,000 per violation. Officers, directors, stockholders, employees Companies: Unlimited fines. and agents are subject to a fine of up to $250,000 per violation and imprisonment for up to five years. Under the Alternative Fines Act, the actual fine may be up to twice the benefit that the defendant sought to obtain by making the corrupt payment. Fines imposed on individuals may not be paid by their employer or principal. Source: The UK 2010 Bribery Act Adequate Procedures (Transparency International) 47
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    UK Bribery Act2010 vs. US Foreign Corrupt Practices Act Provisions UK Bribery Act 2010 US Foreign Corrupt Practices Act Bribery of foreign Yes (section 6). Yes, the FCPA applies only to bribery of foreign officials. public officials (15 U.S.C. §§78dd-1(a) and (f)(1)). Private-to-private Yes, the main provisions of the Bribery Act apply to the private No. bribery sector as well as the public sector except for the FPO offence. Receipt of a bribe Yes (section 2). No. Intent Mixed. Intention is required for some ‘cases’ of the section 1 and In alleging violations of the bribery provisions of the FCPA, the 2 offences. No ‘corrupt’ or improper ’ intent is required in the FPO government must show that the defendant had the requisite state of offence, section 7. mind with respect to his actions i.e., negligence, recklessness, intent (15 U.S.C. § 78dd-1(f)(2).). Facilitation The Act does not permit an exception for facilitation payments. Permitted under very limited circumstances when paid to foreign officials payments in order to expedite or secure the performance of a ‘routine governmental action’. This excludes a decision by a foreign official to award new business or to continue business with a particular party e.g., to obtain a license or be granted a concession (15 U.S.C. §78dd- 1(b) and §78dd-1(f)(3)). Promotional The Act makes no specific provision for promotional expenses. Yes, affirmative defence if they are reasonable and bona fide business expenses expenses that are directly related to the promotion, demonstration or explanation of products or services (e.g., demonstration or tour of a pharmaceutical plant) or in connection with the execution of a particular contract with a foreign government. Source: The UK 2010 Bribery Act Adequate Procedures (Transparency International) 48
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    Consolidate workflow anddata to drive ROI Search global sources including web and print publications, criminal records, sanctioned party and politically exposed persons…using LexisNexis or similar platforms. All such searches, whether conducted internally or by an external firm, should be conducted not only on the supplier, but also on the names of its verified owners, directors, officers and partners Fighting Corruption in the Supply Chain (United Nations) 49
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Editor's Notes