Strategic Due Diligence - Active Engagement

Strategic Due Diligence - Active Engagement

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March 03, 2016

spotlight Compliance Champion Spotlight

What is a Compliance Champion? A Compliance Champion is an individual or organization committed to fostering and raising the standards of anti-bribery compliance. TRACE Trends will include posts featuring Compliance Champions from time to time.

We hope you enjoy the following entry from this week’s Compliance Champion, and TRACE Partner Law Firm!

Guillermo Jorge and Fernando Basch are partners at Governance Latam, a Buenos Aires-based boutique law firm that specializes in anti-bribery and anti-money laundering compliance, and in asset tracing and recovery. Governance Latam is the TRACE Partner Law Firm in Argentina, and is actively consulted by international organizations, governments, and multinational companies operating in Latin America.


 For decades, multinational companies turned a blind eye to third party corruption in their global operations. Now, confronted with the regulatory pressure of performing due diligence on  business partners, many multinationals have ended up adopting a “detached approach,” for example, relying on strict contractual termination clauses in case of suspected bribery.  As a result, to avoid potentially losing their clients, third parties often “take care” of bribery risks in the dark, rather than disclosing those risks to the principals and designing a collective strategy to combat corruption. In many cases, third parties incorrectly picture themselves as a good business partner for coming to a resolution without concerning their principals. In short, the “detached approach” does not lead to strong, sustainable relationships with business partners.

To better promote third party compliance in challenging business environments, companies must depart from the “detached approach” and engage in strategic due diligence, as described in our previous post; that is, instead of simply attempting to avoid working with corrupt business partners, companies must help their local business partners avoid corruption.  Multinationals must encourage third parties to share their bribery risks and concerns and promote collective action by developing joint strategies to resist corruption. The main implication of this shift, which must be expressed in new contractual agreements, is that companies financially share the costs of resistance – i.e., if business is delayed or obstructed due to the rejection of an improper request, principals and agents should share the resulting costs. 

Multinationals can further help business partners avoid bribery risks and resist extortion by requiring their compliance with local labor and tax regulations. In environments with high rates of informality, like those of Latin America, widespread non-compliance with tax and labor regulations is usually the link targeted by regulators or even labor union leaders to extort improper payments. By helping with their third parties’ “formalization” processes, companies are, at the same time, reducing the margins of extortion in their value chain.  

Future posts will continue to discuss the concept of strategic due diligence by introducing additional tools to further this approach. 

For more on this topic, please see the following resources:

Argentina: Strategic Due Diligence
Facilitation Payments in Customs & Ports – Part 2
South America’s Culture of Graft
TRACE Compendium – Olympus
TRACE Compendium – Biomet, Inc.
TRACE Compendium – BJ Services

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