Third party due diligence

We can define a third party (TP) as an intermediary that is a person or an entity acting on behalf of, or in the interest of, an company (including subsidiaries). Third parties can provide a wide range of services; examples include but are not limited to: agency, representation, brokerage, consultancy services, market studies, and or technical support. Some Risk Indicators relevant are:

Selection of the TP:

• The country where the work will be carried out: If it is known for corrupt payments and has a low score on a publicly available source such as the Transparency International Corruptions Perception Index (CPI), or a similar indicator, this will determine an initial risk rating for the third party and whether enhanced due diligence is required.

• The business proposes the third party be retained without any business reason or an insufficient business reason as to why this third party is needed.

• The third party appears at a late stage in a tender process and proposes itself as being indispensable or critical to the successful outcome of the bid.

• Customer request to use a specific third party.

• Third party guarantees success.

• Third party asks for anonymity and prefers verbal agreements instead of written agreements.

• Third party has close ties to decision makers (customer / Public Official).

Compensation of the TP:

• Unusual compensation request by third party, such as a request to pay fees into a country unrelated to the area of work or location of the Third Party or where it has no business or offices or to an offshore location.

• The fee is based on success.

• The fee is unreasonable in market terms.

• A cash request is made by the third party either before or during the engagement.

Unusual structure of third party

• The company exists on paper only, without an established set-up.

• The ultimate ownership of the third party is not known.

• The company has only been established recently (less than 12 months).

Lack of business rationale for use of third party

• Reference checks reveal a flawed background or reputation of the third party or a key person.

• To be influence over public officials or claims to ‘know the right people’.

• The third party’s business license does not cover the activities in the country where the services should be rendered.

• The third party lacks the capacity, qualifications and resources to render the requested services.

To finish, I recommend that the risk indicators identified above must be mitigated and are therefore committed to undertaking compliance due diligence on third parties. In conducting due diligence, issues might be identified that present risks that could range from prohibited conditions to minor risks (the system for the identification of “third party” is based on risk).

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