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News < Back Compliance : Sarbanes Oxley : Auditing : Fraud Managing Investigative Due Diligence In Acquisitions Background Checks Led to Renegotiation, Withdrawal from Deals, Partnerships and Investments
As a result of FCPA concerns, 42 percent of survey respondents indicated their companies had renegotiated or cancelled a planned business relationship or acquisition. “Increasingly, nations are working together to crackdown on inappropriate payments in an effort to combat bribery, terrorist financing, money laundering, drug trafficking and the like,” said Wendy Schmidt, national leader of the Business Intelligence Services practice for Deloitte. “Without doing due diligence and background checks to help identify potential violations, companies could face a higher risk of FCPA fines and incalculable reputational damage in the future.” According to the survey, companies are most concerned about the potential for FCPA violations in Russia/Commonwealth of Independent States (94 percent), China (92 percent), Africa (91 percent) and the Middle East (91 percent). Across geographies, the most common bribery schemes reported were subcontractors who don’t add value (48 percent), fraudulent training and travel expenses (46 percent) and third-party foreign payers (45 percent). “Some regions are especially prone to specific corruption schemes,” said Joe Zier, partner in the FCPA Investigative and Consulting Practice for Deloitte Financial Advisory Services LLP. “Problem is, bribing government officials or government contractors for business gain is a criminal offense for U.S. companies, employees and agents. Timely due diligence can help identify dangers and risks before it’s too late.” The survey indicated that, as a result of background checks, more than half of executives renegotiated (59 percent) or pulled out (55 percent) of a potential investment. The most common reasons for renegotiations and deal withdrawals were lack of transparency in contracts (61 percent), unusual relationships with third parties (48 percent) and use of agents to obtain business (38 percent). Nearly one-third (31 percent of survey respondents) of companies do not always conduct background checks before committing to transactions outside of the United States. “Where there are FCPA risks in a particular transaction, it is prudent to research relationships with government officials, the political and charitable organizations to which they donate and international watch lists,” added Schmidt. To help maintain FCPA compliance, survey participants reported having clear corporate policies and procedures in place (72 percent), using appropriate financial and accounting procedures (60 percent) and appointing officials responsible for FCPA compliance in the organization (56 percent). Deloitte contracted Bayer Consulting to conduct a survey to assess how companies are managing investigative due diligence in acquisitions, investments and business relationships outside the United States. The survey was conducted online from May to October 2008 and was completed by 216 senior professionals. Senior professionals came from companies across a broad range of industries, with the greatest concentration in the financial services (26 percent), manufacturing (25 percent) and technology/telecommunications (12 percent). Regarding company size, 48 percent of respondents’ companies had annual revenues of $1 billion or more, 25 percent had $100 million to less than $1 billion and 27 percent had revenues of less than $100 million. 
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