At a time when private equity executives are worried about portfolio company liability, compliance professionals (of potential target companies) are predicting an increase in bribery and corruption risks over the next two to three years, according to Kroll and Compliance Week’s 2015 Anti-Bribery and Corruption Benchmarking Report.
The reason for the increase is primarily due to companies expanding into new markets or engaging more third parties, the report noted. Although companies conduct due diligence on potential third parties, only 27 percent of the 242 survey respondents said that they train their third parties at least once a year on anti-bribery and corruption; 24 percent said they train less than that and 48 percent said they never train on anti-bribery and corruption issues.
This lack of third-party monitoring shows that companies “are not taking advantage of the solutions that are out there to the extent that they probably could, and frankly should be expected to, based on potential regulatory scrutiny,” noted Kroll managing director Robert Huff.
The FCPA, which bars bribery of foreign officials, requires buyout firms and their portfolio companies to establish well-documented internal FCPA compliance procedures. The procedures must show evidence GPs carried out due diligence to weed out corruption concerns during deal making.
Recently, the US Securities and Exchange Commission and the Department of Justice have been increasingly investigating the majority stakeholders of companies suspected running afoul of anti-corruption laws. However, a number of buyout firms have had difficulty implementing effective compliance programs because the nature of “appropriate” due diligence has not been clearly defined by regulators.
Respondents to the Kroll survey differed on what kinds of corruption the CCO is responsible for policing, but most define it as a mix of terms including bribery, money laundering, bid-rigging and price fixing, while fewer survey respondents include conflict minerals or human trafficking under the umbrella of CCO-monitored corruption.
Despite predicting a general increase in risk, 84 percent of the CCOs surveyed said they are somewhat confident to very confident that their financial controls will catch any books-and-records violations of the Foreign Corrupt Practices Act (FCPA).