USA – FLORIDA Trends and Developments Contributed by: Wifredo A. Ferrer, Barbara A. Martinez, Marcelo J. Ovejero and Oscar Alejandro Quiroz-Chávez, Holland & Knight LLP
tion volumes or patterns, particularly following news of enforcement actions or cartel conflicts, may also signal problematic relationships. Behavioural red flags in business interactions can pro - vide crucial warning signs. These include evasiveness or inconsistency when providing routine business information, unusual urgency without clear business justification, attempts to circumvent normal compli - ance procedures, and threats or intimidation during negotiations. Implementing robust third-party due diligence controls The complexity of cartel operations, which often involve networks of legitimate-appearing front com - panies, makes third-party due diligence one of the most critical elements of an effective compliance programme. Companies must implement controls designed not only to identify direct cartel connections but also ‒ and when warranted under a risk-based approach ‒ to understand the ultimate destination and use of their products and services. The pre-relationship due diligence process should begin with comprehensive information gathering from key third parties. Companies should require prospective business partners to provide detailed documentation establishing their legal existence, ownership structure, and business operations. This includes corporate registration documents, identifi - cation of beneficial owners, descriptions of primary business activities and key suppliers/customers, and financial information demonstrating legitimate sources of funding. For higher-risk relationships, companies may need to require additional information such as bank references, customer references from known legitimate businesses, and site visit reports confirm - ing physical operations. Screening procedures must cast a wide net to identify potential cartel connections. At a minimum, compa - nies should screen key third parties against OFAC’s Specially Designated Nationals list, other US gov - ernment sanctions and terrorism lists, and relevant international sanctions databases. However, given that many cartel-connected entities may not appear on official lists, screening should extend to adverse
media searches, review of court records and litigation databases, and/or consultation of local law enforce - ment or regulatory bulletins where available. Contractual protections play a vital role in the due dili - gence framework. All contracts should include robust representations and warranties regarding non-involve - ment with cartels or other sanctioned entities. These provisions should be crafted carefully to create ongo - ing obligations throughout the relationship, not merely point-in-time representations. Contracts should also include audit rights allowing the company to inves - tigate suspicious activities, immediate termination rights for violations of anti-terrorism laws or discovery of cartel connections, and indemnification provisions protecting against losses resulting from counterparty violations. The importance of ongoing monitoring cannot be overstated. Cartel infiltration of legitimate businesses can occur after relationships are established, and ownership or control changes may introduce new risks. Companies should implement systematic pro - cedures for periodic re-screening of existing business partners, monitoring for changes in ownership or busi - ness activities, and reviewing transaction patterns for emerging anomalies. This ongoing monitoring is par - ticularly important for long-term relationships where complacency may develop over time. The response to any red flags detected through due diligence must be swift and systematic. Companies should establish clear escalation procedures that balance the need for thorough investigation with operational efficiency. Initial responses might include enhanced due diligence, requests for additional docu - mentation, or consultation with outside experts. Where red flags cannot be satisfactorily resolved, companies must be prepared to decline or terminate business relationships, even when doing so may result in lost revenue or operational disruption. Establishing effective internal investigation protocols Despite best preventive efforts, companies operating in high-risk environments will likely encounter situa - tions requiring investigation of potential cartel connec - tions. The ability to respond quickly and effectively to such incidents is key to avoiding enforcement action.
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