United States: Beyond The Checklist: Seven Keys To Effective Trade Due Diligence

Anti-corruption due diligence can be vexing even in the best of conditions; it is often made more complicated by time and business pressures that arise in the context of a merger or acquisition or an urgent sales opportunity.  Anti-corruption compliance is always fact-intensive, and due diligence is no exception, requiring many judgment calls about what issues to prioritize and how to deploy limited resources.  This article aims to provide a basic outline of seven key steps to consider in anti-corruption due diligence.

Background.  As many readers know, the Foreign Corrupt Practices Act ("FCPA") is a U.S. anti-corruption statute that prohibits U.S. persons from bribing or offering to bribe non-U.S. government officials.  The law contains anti-bribery provisions and, for Issuers on U.S. stock exchanges, books and records and internal controls provisions.  The FCPA is aggressively enforced by both the U.S. Securities and Exchange Commission ("SEC") (for "Issuers") and the U.S. Department of Justice ("DOJ").  In recent years, monetary penalties for FCPA violations have been severe, regularly exceeding $100 million.

In this environment, it is essential to consider elements like the following:

1.  Pursue a Risk-Based Strategy

The U.S. government has explicitly recognized (for example, in the FCPA Resource Guide (the "Guide") that the DOJ and SEC published jointly in November 2012) that companies have finite time and resources to expend on anti-corruption compliance due diligence. Thus, as a first step – and before commencing the actual diligence review – companies should think critically and holistically about factors such as general corruption risk in the relevant geographic area; the types and frequency of interactions the proposed transaction partner has / has had with government officials; the extent of the compliance program maintained by the potential transaction partner; and the importance of the prospective partner to the company's bottom line or future development plans.  The due diligence plan and team – more on that below – should reflect those risks.

2.  Establish a Team

In many cases, companies that have a well-developed legal and/or compliance department can conduct due diligence internally.  In certain situations, however, outside counsel can play an important role in, or even manage, the diligence exercise.  For example, outside counsel can help overcome resource limitations or provide support such as geographic expertise.  In addition, outside counsel can serve as independent, impartial reviewers, which can give the review additional credibility if it ever is questioned, and cloak the diligence review in the attorney-client privilege.

3.  Make a Plan

A plan should be clear about the steps needed, with the understanding that additional steps may be warranted depending on what is learned during the diligence.  The plan establishes what is expected of team members and provides evidence that the company followed a well-defined, risk-driven process to conduct the diligence.  That evidence may be the best defense the company has if the U.S. government ever asks about why a particular diligence step was or was not taken.

4.  Collect Information

Information about the proposed transaction partner should be collected and analyzed from public records searches, reference checks, interviews, reviewing the proposed partners' records, and other such steps.  But not every due diligence step is necessarily productive in every situation.  Thus, steps taken should, where possible, address the risks posed by a given transaction and set parameters for a productive future relationship.  You don't want to win the battle (conduct robust diligence) but lose the war (so alienate an ethical potential business partner that you lose the chance of developing a relationship).

5.  Address Red Flags

The goal of due diligence is to identify and address potential red flags.  Red flags may be self-explanatory, but in many cases a red flag can create real questions.  How to address these shades of pink, burgundy, or other variations of red is probably the hardest judgment of all to make in due diligence.  Analysis of red flags requires a thoughtful, adult analysis about exactly what the risk is and the level of risk tolerance that your company has, and whether the benefits of the transaction outweigh its financial and logistical drawbacks.

6.  Craft a Commensurate Response

The appropriate response to a red flag will vary depending on the risk presented.  In targeting compliance measures, it is crucial to accurately understand the source of the issue so that an appropriate response can be developed.  First and foremost are measures to ensure that ongoing problems can be stopped immediately after the transaction; if not, the transaction should almost certainly not proceed, as problems identified through due diligence that are not subsequently stopped would be the basis for a knowing violation of law. After that, companies should consider whether the issue presented is individual or systemic, and respond accordingly.

7.  Follow Through

It is important to review whether the compliance measure introduced is in fact effective by conducting a follow-up review or audit.  In addition to formal reviews, personnel should be instructed to be vigilant in monitoring that the compliance measure really has worked.  This step can be difficult to implement without a structured format to facilitate review, as follow-up is generally conducted without the high-level attention given to major events like a merger or starting a significant agency relationship.

Due diligence can be challenging, particularly because it requires personnel to make subjective judgments of risk, and to leverage business decisions that respond to those compliance-based determinations.  But effective due diligence has real benefits.  The U.S. government has suggested that, for both mergers and agency relationships, in the event that due diligence misses problems because of willful misrepresentation by the target, but the diligence process is otherwise sound, companies will not themselves be held liable.  Taking the steps outlined here can help to facilitate that process.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
17 Jan 2019, Webinar, Los Angeles, United States

It’s a familiar story lately – you found the best and brightest to help you grow your company.

31 Jan 2019, Other, Los Angeles, United States

Invites you to join us for a private cooking class hosted by Parties that Cook!

31 Jan 2019, Conference, Los Angeles, United States

The Southern California Association of Corporate Counsel's In-House Counsel Conference

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions