In terms of internal controls, inadequate due diligence of third parties is a critical theme that runs throughout the pleadings in the U.S. Department of Justice’s and the U.S. Securities and Exchange Commission’s (SEC) resolution with Parker Drilling Company, a listed, publicly-held U.S. company. At its core, the key facts underlying the violation relate to the activities of an agent retained by the outside law firm for Parker Drilling for the purpose of addressing pending fines related to what may be more generically described as a form of customs violations.
Purported to be an individual with political influence in Nigeria, the agent was retained by executives of Parker Drilling after meeting with him and without conducting any additional due diligence. The agent’s resume failed to “indicate any experience handling customs issues.” Nor did the engagement letter “specify the amount or basis for calculating [the] Nigerian Agent’s fees and expenses, other than requiring an initial retainer of $50,000 and an unexplained ‘success fee.’”
Later, executives of Parking Drilling authorized large payments without receiving any invoices. These same executives are alleged to have been involved with instructing that the payments be recorded with vague descriptions. Indeed, the financial records of Parker Drilling “did not reflect the fact that Nigeria Agent used Parker Drilling’s funds to ‘entertain’ Nigerian officials.” When invoices were subsequently requested, none of them included descriptions relating to “entertainment” or had “supporting documentation.”
Given the level of cooperation and remediation on the part of Parker Drilling, the Justice Department agreed to a deferred prosecution agreement. Similar factors led to the resolution with the SEC. Yet, in the complaint associated with the SEC’s resolution, violations of the FCPA’s anti-bribery provisions as well as the record-keeping and internal controls provisions were alleged.
In addition to the value of cooperation and enhanced remediation, the resolution in Parker Drilling re-affirms the importance of adequate internal controls, particularly as they relate to compliance programs that focus on conducting adequate due diligence on third parties and as to ensuring the accuracy of record-keeping associated with third parties. Consistent with the guidance issued by authorities in the United States and United Kingdom, internal controls and related compliance programs require special attention to be given to third parties in higher risk settings. This special attention includes conducting enhanced due diligence and ensuring the completeness and accuracy of records associated with third parties.