RED FLAGS

In order to unearth activities or transactions that

present risks from a FCPA perspective, focus should be
placed on relevant risk indicators.
Certain signs may suggest that improper payment
activity has occurred or may be occurring. The DOJ
provides examples of such indicators, which it terms as
red flags.
Standing alone these red flags certainly do not prove
the existence of illicit or improper activity. However,
they may suggest the need for further inquiry and
economic justification for the arrangements as well as
greater vigilance and audit activity during the
implementation stages.

Examples of red flags

Whether due diligence was performed in selecting
agents
Apparent lack of qualifications or resources on
part of the agent to perform the services offered
Whether the agent has been recommended by an
official of the potential governmental customer
History of corruption in countries the company
does business that Transparency International has
determined to be highly susceptible to corruption
Unusual payment patterns or financial
arrangements

 Above market commissions paid in the

ordinary course of business and lack of
proper authorization of such commissions
Unusually high management fees, gifts and
entertainment expenses
Requests for payments inconsistent with the
terms or purposes of underlying agreements
Lack of standard invoices
Lack of transparency in expenses or
accounting records

Reasonable and bona fide expenditures

The FCPA provides that it shall not constitute a
violation of the statute if
(i) the payment, gift, offer, or promise of anything
of value that was made, was lawful under the
written laws and regulations of the foreign
officials, political partys party officials, or
candidates country
(ii) the person charged can prove that the
payment in question constituted a reasonable
and bona fide expenditure, such as travel and
lodging expense, and that it was directly related
to
(a) the promotion, demonstration, or explanation of
products or services