Chuck Connolly and Jonathan Poling Quoted in The FCPA Report on Anticorruption Issues in the Public Procurement Process
The FCPA Report, in its article “Detecting and Mitigating Corruption Risk When Participating in Public Procurements: Understanding the Procurement Process (Part One of Three),” quoted Akin Gump litigation partner Chuck Connolly and international trade partner Jonathan Poling in a story regarding anti-corruption issues in the public procurement process.
The article reports that according to the World Bank, governments in developing countries spend $820 billion a year on procurement. It’s a process that can vary both by country and within countries, depending on a government’s needs for a particular project.
In some situations, Poling said, government officials decide an award is so “unique and specific” that they opt not to put a project out for bidding. A government, he said “can write the specs in such a way that would only fit one company or two companies to thereby justify going out of the competitive bidding process.”
Once selection time comes, companies have been known to offer something of value in exchange for receiving a contract. That’s when Poling said there is a risk “that the process is going to be corrupted because the ‘fix is in,’ so to speak.” He cited the example of a company pairing “with a local agent who has a relationship with a government official and is kicking back something to the government official so that the company’s tender is going to be the one selected, even if it is not the lowest bid.”
For those companies seeking to use a third party during the bidding process, the article says they can pose a real danger. Connolly explained the real risk “is that the company picks the wrong person to walk it through that process because it does not have expertise in the local procurement process or government contracting process and that person is paying bribes.” He continued that when it’s revealed the local agent bribed a government official in order to curry favor for a particular company whose bid may not have been the lowest or whose proposal wasn’t as technically competent, “that will be an issue.”
Using local teaming partners, Connolly said, presents another risk for companies that stems from many countries having “a local agent requirement where they require U.S. companies or foreign companies to enter into a joint venture or partner with a local agent.” He added that even when they are not required, “companies often look to enter a joint venture relationship in order to get local expertise. That’s a real area, not only of risk, but of focus for the Department of Justice and enforcement officials in identifying potential areas where corruption may occur.”
In the second article in this series, “Detecting and Mitigating Corruption Risk When Participating in Public Procurements: Steps to Take Prior to Entering into a Procurement Process (Part Two of Two),” Connolly said companies should clearly set forth a list of red flags associated with corruption in the procurement process. The list, he added, should include a procedure for what employees should do when a concern is triggered and should clearly outline how an employee can elevate an issue and what needs to be done once such an issue is brought to management’s attention.
If a company is going to introduce such a procedure, Connolly said, it must ensure that its employees are abiding by it. If the company fails to do so, that can be problematic “from the company’s liability standpoint,” particularly if the government begins an investigation. Companies, he added, should seek to “balance the practical needs of the company with what is needed from a compliance perspective.”
Because the procurement process is different than a private transaction or a transaction where a government simply purchases a good or service without an official process, companies, according to the article, should have a clear understanding of what activities or circumstances constitute red flags in the procurement process. “Different government agencies and different international organizations publish all sorts of red flags regarding what constitutes a potentially suspicious type of conduct or activity in the procurement process,” said Poling.
Poling cited a list published by the World Bank of the most common red flags of fraud and corruption in procurement in bank financed projects. They include complaints from bidders, multiple contracts below procurement thresholds and unusual bid patterns, among others. “Compliance officers,” he said, “should focus on those risks as they’re conducting risk assessments.”
In the third article in the series, “Detecting and Mitigating Corruption Risk When Participating in Public Procurements: Seven Steps to Take During and After a Procurement Process (Part Three of Three),” Connolly and Poling addressed some of the measures to take during and after the procurement process.
Connolly discussed how to protect a company from a third-party risk and said, “There are fairly standard due diligence questions that companies need to ask and things that companies need to do.” That includes training company employees to identify issues during the diligence process—simple things, he explained, like if an agent “refuses to answer some of the due diligence questions, or it fails to certify compliance, or it refuses to sign certain contracts.” Any red flag should put a company on notice that it needs to do even more due diligence or investigation, he said.
Employees, Connolly said, should be trained to elevate concerns about third parties to the appropriate department within their company. “It should be a clearly understood process of notice,” he offered. “If the business folks become aware of these things, they have to make sure that the [chief compliance officer], depending on the size of the company, and the general counsel’s office is aware of this potential red flag.”
Poling talked about the need for consistent monitoring of one’s compliance program. “A company needs to have a process in place that feeds back into the actual policies, procedures and training,” he said. “If the compliance office doesn’t have a process in place to assess how the enterprise risk of the company has changed and understand [what poses] the greatest risk, then the compliance office might be dedicating limited resources and time to areas that are not the right areas anymore.”