Most Foreign Corrupt Practices Act enforcement actions include, in whole or in part, allegations about various third parties and how they are used to facilitate things of value being provided to foreign officials.
The FCPA’s third-party payment provisions can result in a company being liable for the acts of third parties even in the absence of actual knowledge of the third party’s activities by including concepts such as willful blindness, conscious disregard etc.
Because of this, due diligence of third parties is an important component of FCPA compliance.
The term appears approximately 80 times in the DOJ/SEC issued FCPA Guidance including the following: “Risk-based due diligence is particularly important with third parties and will also be considered by DOJ and SEC in assessing the effectiveness of a company’s compliance program.”
Against this backdrop, it was interesting (perhaps shocking) to read this recent by the Office of the Special Inspector General for Afghanistan Reconstruction (SIGAR) an office created by the U.S. Congress “to provide independent and objective oversight of Afghanistan reconstruction projects and activities.”
SIGAR found that the U.S. State Department “could not demonstrate compliance with its partner vetting requirements on awards that disbursed at least $293 million in Afghanistan” and stated that “as State continues to spend U.S. taxpayer funds on programs intended to benefit the Afghan people, it is critical that State knows who is actually benefitting from this assistance in order to prevent the aid from being diverted to the Taliban or other sanctioned parties …”.
The SIGAR report begins:
“Since 2001, the Department of State (State) has used grants, contracts, and other funding vehicles to implement development and humanitarian projects to help achieve U.S. foreign policy and national security goals in Afghanistan. Under federal laws and regulations, U.S. agencies, including State, are prohibited from engaging in transactions with certain sanctioned individuals, entities, and jurisdictions, including those listed by the Department of the Treasury’s Office of Foreign Assets Control (OFAC).
State established internal guidance and policies to help ensure it complies with these prohibitions. State’s partner vetting process involves its bureaus using non-standardized methodologies to perform risk assessments and evaluate whether prospective implementing partners have ties to terrorists or terrorist-affiliated individuals and entities. For these risk assessments, State bureaus consider a variety of program and context specific risk factors and employ both public and nonpublic information sources to help mitigate the risk that State funds inadvertently benefit designated terrorist organizations. If a bureau’s risk assessment determines that there is a risk that department funds or department-funded activities may benefit terrorists or their supporters, the bureau may elect to use additional risk mitigating measures, such as Risk Analysis Management counterterrorism namecheck vetting, which State refers to as “RAM vetting.”
This audit’s objective was to assess the extent to which State adhered to applicable policies and procedures for vetting implementing partners conducting activities in Afghanistan.”
The report states:
“SIGAR found that three out of the five State bureaus that had active awards in Afghanistan from March 1, 2022, through November 30, 2022, had sufficient documentation to demonstrate they complied with State’s Foreign Affairs Manual (FAM) and other State implementing partner counterterrorism vetting requirements.
[…]
In total, State could not demonstrate compliance with its partner vetting requirements on awards that disbursed at least $293 million in Afghanistan.
[…]
Since its takeover in August 2021, the Taliban have sought to obtain U.S. funds intended to benefit the Afghan people through several means, including the establishment of nongovernmental organizations (NGOs). State officials told SIGAR in September 2023 that they were not aware of any instances in which potential implementing partners were identified as newly created Taliban-affiliated organizations. However, in that same month, U.S. Agency for International Development (USAID) officials told SIGAR that USAID had “heard reports that over 1,000 new national NGOs have registered with the so-called [Ministry of Economy], and there are rumors that many of these newly registered NGOs may have Taliban affiliations.” The risk of Taliban-founded NGOs, or other organizations that could funnel money to terrorist groups, benefiting from U.S. taxpayer funds underscores the importance of State complying with its own vetting and document retention requirements.”
According to the report:
“[SIGAR] provided a draft of this report to State for review and comment. We received written comments from State’s Director, Office of Afghanistan Affairs in the Bureau of South and Central Asian Affairs, which are reproduced in appendix III. In its comments, State acknowledged gaps in compliance with federal and internal document retention requirements. State committed to ensuring all program offices comply with applicable federal and FAM partner vetting requirements. State also agreed with this report’s conclusion and recommendation, noting that it takes vetting requirements seriously and works to ensure compliance with those requirements.”
The report ends with the following conclusion:
“As the U.S. government continues to provide assistance to the people of Afghanistan, it is vital that State complies with its partner vetting requirements intended to prevent the department from awarding U.S. taxpayer funds to individuals and entities with ties to terrorism. The Taliban’s control of governing institutions in Afghanistan and its reported attempts to establish or closely associate with Afghan NGOs, underscores the need for State to fully and consistently assess the risks posed by its implementing partners and to retain documentation demonstrating that it did so. To their credit, three State bureaus—PM/WRA, PRM, and SCA/PPD—complied with partner vetting requirements. However, two State bureaus—DRL and INL—could not demonstrate that they complied with State’s own partner vetting requirements. In total, State could not demonstrate its compliance with its partner vetting requirements on awards that disbursed at least $293 million in Afghanistan.”
By exercising due diligence through the vetting processes and by working to ensure potential implementing partners do not have ties to terrorism, PM/WRA, PRM, and SCA/PPD have helped prevent the diversion of U.S. taxpayer funds to the Taliban and its affiliates. In contrast, because DRL and INL could not demonstrate their compliance with State’s partner vetting requirements, there is an increased risk that terrorist and terrorist affiliated individuals and entities may have illegally benefited from State spending in Afghanistan. As State continues to spend U.S. taxpayer funds on programs intended to benefit the Afghan people, it is critical that State knows who is actually benefitting from this assistance in order to prevent the aid from being diverted to the Taliban or other sanctioned parties, and to enable policymakers and other oversight authorities to better scrutinize the risks posed by State’s spending.”
