Vetting partners: a key compliance element.

• Author: Marinelli, Michael X.
• Position: ETHICSCORNER

Vetting vendors and other partners is a critical element of a comprehensive export compliance program.

The recent upswing in Foreign Corrupt Practices Act [FCPA] prosecutions and much greater penalties for export control violations increases the importance of rigorous due diligence for all companies doing business with partners.

Following a thorough and well-documented due diligence process invariably will prove worthwhile, both in avoiding prosecution, and, if prosecuted, in providing protection in the face of charges predicated upon alleged violations by agents or distributors.

As a starting point, even basic diligence can be revealing. In this internet age, a wealth of public media can be reviewed in a short time, and may provide actionable information. More than one company has found that a quick Google search will reveal enough information to avoid engaging an unscrupulous agent. A thorough vetting process should strengthen confidence that channel partners will not he a source of business or compliance exposure.

Under the FCPA and U.S. export control and International Traffic in Arms Regulations and Export Administration Regulations, liability for the actions of a channel partner can be established if the company knew or had reason to know of those actions. The government can establish knowledge by showing that a company: had positive or affirmative knowledge of the improper behavior; had knowledge of facts that make it highly likely that the improper behavior has occurred or will occur; or was willfully blind, meaning that it disregarded obvious indicators of a potential problem.

Increasingly, the government is taking the position that failure to conduct adequate due diligence on partners equates to willful blindness, which it in turn equates to "knowledge" of the partner's bad acts.

Government investigations of export and FCPA violations frequently work up the chain from the actions of an agent or distributor. Often, occurrence of an illegal act is apparent, and the only question is whether the U.S. exporter was aware of it. Absent a "smoking-gun" e-mail or damning chain of circumstantial evidence, the course of the investigation will turn on the existence of disregarded red flags and the quality of the company's due diligence.

Government investigators generally start with the proposition that a company knew what was going on. What this means is that the government will demand proof that a company...