Study: Companies Often Don't Perform Due Diligence on Third-Party Agents

Third parties create a wide array of corruption risks for companies operating in the modern business environment. As a result, it is imperative for a company to learn as much as possible about all agents, consultants, brokers, advisors and others with whom it deals. This is known as performing “due diligence.”

According to a recent study by AlixPartners — which surveyed compliance officers, general counsels and senior executives at over 250 companies — only 43 percent of participants regularly performed due diligence on third-party agents. When asked to list some of the biggest impediments to due diligence, 65 percent listed staffing constraints and variations in local regulations. Another 58 percent noted that they skipped over the process because of overwhelming pressure to deliver operating results. The study further revealed that only 30 percent of companies have ceased doing business with a particular individual or entity because of concerns over corruption.

When researchers asked participants to list which areas were the riskiest to do business, the top five answers were —

  • Africa (56 percent);
  • Russia (53 percent);
  • Middle East (49 percent);
  • Central and South America (48 percent); and
  • Mexico (48 percent).

Before hiring an agent, a company should know with whom it is doing business and what he or she is doing to earn a fee. More specifically, a company should —

  1. Obtain a due-diligence questionnaire for all new agents and conduct a background check;
  2. Have a written contract with every agent that includes a certification that the agent will comply with all applicable anti-corruption laws and conventions; and
  3. Require the agent to be specific about the fee structure and services to be performed.

Topics:  Due Diligence, Third-Party Agents, Third-Party Risk

Published In: General Business Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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