The term “due diligence” is bandied about among compliance professionals. Let’s stop a moment and consider the different contexts. Anti-money laundering “due diligence” is a lot different than FCPA “due diligence.”
The legal context for an FCPA violation and money laundering violation are somewhat close – hinging off “knowing” violations. AML due diligence requirements are defined by specific federal regulations. They often include basic and enhanced due diligence procedures. In addition, AML due diligence can trigger specific reporting requirements with the filing of Suspicious Activity Reports.
FCPA due diligence is much more amorphous. There are no specific regulations and there is no reporting requirement.
Red flags for FCPA and AML due diligence often overlap but have different substantive impact. For example, a third party agent may have been accused of bribery in the past. In an FCPA due diligence inquiry that is a very significant red flag. The same fact is significant but has a little less weight in the AML context. On the other hand, an allegation that an individual is a drug trafficker is more significant to AML due diligence than FCPA due diligence.
For each inquiry, whether AML or FCPA, the touchstone is a risk-based approach. The AML focus is on the risk that a customer will engage in money laundering or that a specific transaction involves tainted funds. A risk-based approach for AML compliance will depend on the financial institution’s lines of business, product lines, customer base and geographic location. It also will need to focus on the risks presented by different foreign financial institution and private banking customers, the jurisdictions in which they operate, and the types of transactions for which the accounts are used.
The FCPA due diligence inquiry is also “predictive” in nature which focuses on the prospective risk that the third party will bribe a foreign official. To examine that risk, a number of factors are weighed, some of which are similar to the AML factors listed above, such as the line of business/industry, geographic location, and customers. But most of the factors examined in the FCPA context are different.
With these substantive differences, there are fewer opportunities to leverage the joint use of resources for AML and FCPA due diligence procedures. Of course, there are general principles which should be equally applied such as documentation and transparency. In the end, due diligence, as defined as “reasonable inquiries,” should be conducted with a different substantive focus.