But lets start at the beginning here. What is the purpose of a due diligence inquiry? What is the legal standard? How should such examinations be conducted?
Due diligence is not an evidentiary inquiry requiring a finding beyond a reasonable doubt, clear and convincing evidence, or even by a preponderence of the evidence. Due diligence in the FCPA context has been defined as requiring a company to make "reasonable inquiries." But that is not where it stops. If in making those inquiries a suspicious set of facts are uncovered, so called red flags, then further inquiry is needed. All of this must be done in the context of answering one question: what is the risk that the agent, consultant, distributor or other third party, or even joint venture partner will commit a bribe in violation of the FCPA?
Once defined, the inquiry then should be conducted to determine the likelihood of such conduct occuring. In a later post, we will get into the details of what a due diligence inquiry should include.
But the overall goal is to document every steps of the inquiry, all of the information gathered, and provide a summary of the examination. In doing so, the responsible party should include factual and credibility determinations, or include an analysis of why certain facts were not so significant. In fact, the due diligence inquiry should include a detailed recitation of the analysis used to reach a determination of whether the third party would not create a significant risk, and/or what measures may be needed to reduce the risk to a satisfactory level. In some cases, a determination to go forward should include a review of a proposed contract which includes provisions aimed at reducing the risk of bribery, and a condition that such provisions be included in the contract with the third party.
But again keep in mind that a company cannot eliminate all risk -- the use of third party agents is inherently risky. However, a company should take reasonable steps to reduce such risk to a satisfactory level. And remember that does not mean satisfying a standard of proof beyond a reasonable doubt. Reasonable inquiries means reasonable inquiries.