Due Diligence Will Always Be A Human Skill
Monday, April 23, 2018
by Scott Shaffer
In the recent Kinross FCPA case, the Securities and Exchange Commission stated that: “Kinross contracted
with a politically-well-connected third-party consultant to facilitate
contacts with high-level government officials without conducting the
heightened due diligence required by the company’s policies and
As I have stated in several posts over the years, the need for
enhanced due diligence is still critical when engaging high-risk
intermediaries. In a time where artificial intelligence and database
driven results are capturing the spotlight, there still lies an
essential level of due diligence only accessible outside the automation
that is being offered by companies who did not know what FCPA stood for
ten years ago.
I will concede that these systems offer a quick and relatively cost
effective means of instant access to basic information, but what are you
really learning through a cursory review of limited, dated and often
Due diligence, specifically related to investigations, is, and will
always be, a skill. Over the past 23 years, I have had the pleasure of
working alongside some of the best analysts in the industry, whose
ability to sift through an extraordinary amount of information to gather
the one nugget of information that leads to relevant secondary
discoveries is remarkable. This cannot be replicated by an automated
The more difficult challenge is determining when to get investigators
involved and what constitutes high risk vs. low risk? You will need to
develop a specific risk matrix for your company and your third parties,
taking into account government exposure, country risk, political
connectivity, and size of the engagement, among other factors. In the
above mentioned scenario in Mauritania, you would be hard-pressed to
find any risk rating guidance that would recommend any level of risk
less than high.
I have reviewed numerous adjudicated FCPA cases over the years, many
of which could have been avoided had thorough due diligence been
conducted before the engagement. However, we do not live in a vacuum.
Often times, the business decision, opportunity, and/or profitability of
the potential deal creates a challenging conundrum. When does the risk
outweigh the reward?
From an investigative standpoint, our analysis is fairly straight
forward. We present the “red flags,” but the challenge falls primarily
to our clients to make the real life decision of either moving forward
or terminating a potentially lucrative engagement.
Due diligence, done properly, can be a costly, time consuming
endeavor. However, the downside of not conducting proper risk-based due
diligence far outweighs the time and cost involved.