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3 Elements of an Effective International Background Check

Thinking about due diligence after a violation occurs is like closing the barn door after the horses are out.

Posted by Dawn Lomer on November 7th, 2011

The time to think about engaging experts to conduct due diligence background checks is before you get slapped with an FCPA, UK Bribery Act or CFPOA violation. Not only will thorough background checks protect you from associating with corrupt people and companies, but proof of adequate due diligence can work in your favor when it comes to sanctions if you do get into trouble, as we’ve seen in some recent cases.

With the enactment of new anti-corruption legislation and more vigilant policing of those already established, companies can’t get by with minimal checking on potential or current partners. And that’s why sometimes it’s better to get experts in to ensure you’ve done as thorough a job as possible.

Due Diligence Can Mean Lower Fines

“Probably 95 to 99 per cent of people in the world get up in the morning and try to do the right thing for themselves and their families. But there’s a small amount who mess it up for everybody else. And that small amount can really cause you a lot of trouble,” says John Twomey, Executive Vice President of the Kreller Group, an international investigations agency that specializes in global due diligence background checks, credit investigations and collection services.

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Companies are finding out very quickly that while you can outsource operations, you can’t outsource the corresponding liability. “A company hires a distributor in South Korea and the South Korean distributor is bribing the government to get the business and the headquarters in the US has no idea. The headquarters is still liable for that person’s action,” says Twomey. “But a strong internal due diligence program at that company will be a mitigating factor when they’re deciding the punitive actions the Department of Justice will take.”


Elements of Effective Screening

There are three parts to conducting effective due diligence on a prospective overseas partner or associate, says Twomey.

“The first thing would be a thorough vetting of the company and its principals for criminal activity to see if they’ve been involved in any bribery or corruption in the past,” he says. Although this sounds easy, criminal record information can be difficult to get in some countries and is sometimes incorrect even when it is found. “You’d want to see if they’ve ever been delisted, debarred from doing business on any stock exchanges all over the world, in any place in the world.”

Next, you would want to look at who their associations are, advises Twomey. “Are they, or have they been, known to associate with unsavory characters, terrorists, etc.” One thing that the Russians used to do was to set up a company that was extremely clean but everybody around it wasn’t,” he says.

The final step is the financial due diligence. “In many cases, the prosecutions that take place come from the books and records,” says Twomey. “You’d find in the company’s records that there’s money that you can’t account for. Or there’s a huge amount of money that just doesn’t look right.”

Feet on the Ground

To conduct this type of due diligence effectively in a foreign country, it requires what Twomey refers to as “feet on the ground.” Having well-connected local investigators in the country allows for deep searches and accurate feedback.

While this might be an expensive proposition for some companies, it can pay big dividends, much like insurance.

“Is it expensive to spend 250,000 dollars per year doing due diligence investigations to avoid a 40 million dollar fine?” asks Twomey. “No, that’s not expensive.”

Dawn Lomer
Dawn Lomer

Manager of Communications

Dawn Lomer is the Manager of Communications at i-Sight Software and a Certified Fraud Examiner (CFE). She writes about topics related to workplace investigations, ethics and compliance, data security and e-discovery, and hosts i-Sight webinars.

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