The limits of the commoditized public record approach are well understood by sophisticated companies – so, when third party risk is elevated, they ask for ‘deep dive’ due diligence based on ‘human source’ information. The growth of confidential source inquiries based on intelligence methodologies was initially a logical response to FCPA due diligence, given the limits of overt interviews and reference checks in detecting corruption, which is by its nature covert and hidden. Here, however, pricing pressure is just as severe, and ‘boots on the ground’ information-gathering has suffered from a decline in quality and rigor as a result. In many developing countries, business communities are small, and market rumors about the access and integrity (or otherwise) of potential third parties are easy to come by. A thriving industry of professional information brokers has grown up to service demand for reputational information. But while this can be a good way to measure risk, it is too often used to recycle local gossip for easy money, and the lack of transparency in reporting findings means that clients are often unable to evaluate the information, which means they can’t use it.This lack of rigor has become a concern, and company legal counsel have grown increasingly demanding about understanding the professional role of the confidential source and the provenance of the information, especially in sensitive transactions where the cost of the due diligence can run to several thousand dollars.

Source: Rethinking FCPA Due Diligence in a Hyper-Transparent Environment – Insights

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