Hiring a third party to handle your overseas affairs doesn’t mitigate the risk of FCPA violations. In fact, it can make it worse. A recent court case, The US v. Bourke, showed us how bad a third-party relationship could go when not handled right. Keep in mind that whenever someone is acting as your agent, whether a full-time employee or just a third party, they open you up to risk. That’s why you must investigate third parties as thoroughly as—if not even more so—you investigate your own employees.

Conspiracy to violate the FCPA is a common charge with overseas vendors who aren’t subject to the FCPA. When a foreign vendor works for bribes, the FCPA is unable to hold them culpable. However, they can be held under other US statutes, which is why conspiracy is such a common charge. When they face the risk of that charge, they could choose to throw your company under the bus to mitigate their exposure. To prevent that, companies must take some additional measures to prove they did their due diligence.

What We Can Learn From the US v. Bourke

The US. V. Bourke stemmed from a case in a country many Americans may have never even heard of. In Azerbaijan a country bordered by the Caspian Sea, oil fields are plentiful. In this case, Fredrick Bourke wanted to purchase an interest in an oil field. He hired a third party to represent him and eventually, was convicted right alongside that third party. The oil field was a property of SOCAR, a government-owned company. In an effort to gain the sale, Bourke’s agent allegedly participated in bribing the president of the country as well as several high-ranking officials in the region.

It was never proven that Bourke had any knowledge that a bribe was occurring. He never paid any bribes directly. Rather, Bourke’s conviction all hinged on one simple fact: Bourke should have known that a third party was bribing others to secure the deal, and that it would be an FCPA violation. The court found that

  • Bourke paid $8 million in “investment funds” which did not buy land, but instead bought support
  • That corruption in a state-owned deal was likely
  • That red flags in the sale of the company were obvious
  • That Bourke knew or should have known that the sale was potentially an FCPA violation.

This goes to show us that ignorance is not bliss when it comes to high-value financial transactions overseas. The DOJ didn’t need direct evidence that Bourke knew his $8 million investment was likely to go into bribes. All they had to prove was that he should have known. His third-party agent who negotiated the sale on his behalf, Viktor Kozeny, was not responsible for Bourke’s lack of understanding of the deal.

In the end, Bourke was convicted and the deal was undone. While we’ll never know if Bourke intentionally tried to circumvent fair business dealings, what we do know is this—using a third party will not mitigate your damages if you make a mistake.

What The DOJ Expects Under the FCPA In Third Party Dealings

Bourke’s case wasn’t one of open malice. Instead, Bourke claimed that he had no idea what the third party he hired was doing behind his back. The Department of Justice did not consider this a mitigating factor. Specifically, they pointed out that any company using an overseas third party has the following responsibilities:

  • Know who you’re doing business with – If you’re doing business with a third party in a country you’re not familiar with, at the very least, you’re expected to run a background check. To cover all your bases, you should use Remote Risk Assessment (RRA) to determine if this third party really has your company’s best interest at heart.
  • Know the political climate – While the average American probably can’t find Azerbaijan on a map, anyone doing business there should know the country inside and out. Specifically, they should have known that Azerbaijan is considered a high corruption risk area.
  • Know if any of those involved parties are government entities – The fact that the government owned a private entity that Bourke was trying to buy should have been the first tip that something was wrong. While many countries have government-led private industries, those industries should always be approached with caution.
  • Know what the third party’s responsibilities are – Bourke gave blanket authority to his third party to negotiate on his behalf – then tried to mitigate the damage by claiming that the third party acted outside his authority. If you’re going to allow someone to do any business on your behalf, you need to make sure that you know exactly what their contract covers. Otherwise, when the DOJ comes calling, they’re going to come calling for you.

Using a third party doesn’t mitigate risk in a foreign country. If anything, it puts the burden of proof on you to show that you did your due diligence in hiring them. If the DOJ can prove you knew or should have known that third party was unethical, you will be the one held responsible.

Clearspeed offers Remote Risk Assessment as a tool for vetting third party vendors overseas. As we saw in Bourke, ignorance is no excuse when someone commits an unethical act on your behalf. Know who you’re dealing with by vetting your vendors ahead of time. For more information on RRA, contact us.