At the recently concluded Compliance Week 3rd Annual Third-Party Risk Management Conference, Kara Brockmeyer, former head of the Securities and Exchange Commission FCPA unit and now partner at Debevoise & Plimpton, said that if there is no business reason to contract with a third party, this is more than indicia of a red flag from a compliance perspective—it is also bad business. She added that if there is no commercial reason to structure a transaction in a certain manner or the deal does not make sense from a business perspective, it is also problematic.

But isn’t it common sense that you should have a business justification to hire or use a third party? If that third party is in the sales chain of your international business, it is important to understand why you need to have a particular third party represent your company. This concept is enshrined in the FCPA guidance, which says: “companies should have an understanding of the business rationale for including the third party in the transaction. Among other things, the company should understand the role of and need for the third party and ensure that the contract terms specifically describe the ser­vices to be performed.”

The Internal Revenue Service also considers a business justification to be an important part of any best practices anti-corruption compliance regime. Clarissa Balmaseda, former IRS special agent and now VP at Credit Suisse, has previously noted that a lack of business justification could be a red flag, which could signify some possible indicia of corruption. When former regulators from the SEC and IRS both stress the importance of a business justification, it is clear this is something companies should incorporate into their compliance programs.