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An Anti-Bribery Checklist Can Limit Your Liability When Doing Business Abroad
By Jeffrey S. Johnston
The U.S. Foreign Corrupt Practices Act (FCPA) prohibits corrupt payments (i.e., bribes) to foreign government officials to obtain or retain business. A more stringent anti-bribery act is set to come into effect in April 2011 in the UK. The U.S. Department of Justice and the Securities and Exchange Commission both have increased their enforcement of the FCPA dramatically and prosecutors abroad, including in the UK, are starting to get more aggressive.
A few examples show that this is serious stuff: Titan Corp. ($28.5 million), Daimler ($93.6 million), and Technip ($338 million) all paid significant amounts to settle criminal and civil FCPA charges in recent years. International cooperation has increased too, resulting in fines in multiple countries; Siemens ($1.6 billion), for example, recently settled charges with the U.S. and Germany. The costs associated with an investigation of potential FCPA violations can be devastating as well. Avon Products, Inc. recently disclosed that it spent $35 million in 2009 for an FCPA investigation and its estimated costs for 2010 are between $85-95 million; Avon’s stock price dropped 20 percent following this disclosure.
Individuals have not fared any better: executives of Port Engineering Consultants (87 months and 37 months in prison), Alcatel-Lucent (37 months), and American Rice Company (37 months and 63 months) have all spent substantial time in prison for FCPA violations. Any company doing business internationally must pay special attention to the FCPA or risk joining this growing list of companies and executives making headlines.
While your employees should inherently understand that bribery is illegal, it may not always be clear when a gift, tip, facilitation payment, or “special fee” is, in reality, a bribe. Also, as many foreign governments operate state-owned businesses, it can be difficult to determine who is a “government official.” Rather than leaving your employees to their own judgments in the field, you should put in place a robust compliance program that gives detailed guidance and resources, and support that program with appropriate internal controls.
Avoiding FCPA liability starts with a risk-based assessment of the company’s business. Understanding where the risks are will allow a company to take the next step of designing a strong anti-bribery compliance program that addresses, among other things: gifts; hospitality, entertainment, and expenses; customer travel; political contributions; charitable donations and sponsorships; and facilitation payments.
The checklist below is a good first step to assist you in getting a handle on the FCPA risks that your company may face:
1. Do you do business internationally, and if so, where? Are any of these markets considered a high corruption risk, for example, per the Transparency International Corruption Perceptions Index?
2. Have you been subject to previous government scrutiny concerning anti-bribery issues?
3. Do you provide your employees with regular training on bribery and corruption issues? If not, you may not be giving your employees the right tools to operate in foreign markets.
4. Do you regularly rely on inspections or approvals from foreign government entities and officials (for example, on importation and customs issues, immigration, permits, licenses, and taxes)?
5. Do you do business with foreign governments (for example, state-run hospitals or oil companies), including joint ventures?
6. Do you rely on third-party agents, consultants, or sales representatives for your international commercial dealings? If so, are these third parties subject to a due diligence process?
7. Do your contracts with third parties and foreign partners include anti-corruption representations and warranties?
8. Do you provide gifts, travel, or entertainment expenses for foreign government officials?
9. Do you participate in social, community, or charitable programs in foreign locations?
10. Do you have an audit function for anti-bribery issues and do you have an on-the-ground legal function in your foreign locations?
While no set of guidelines can guarantee compliance with the relevant anti-bribery laws, added vigilance coupled with a robust compliance program can go a long way. An effective compliance program can give your employees the tools they need to operate in the global marketplace and help you avoid costly government investigations, large (and increasing) fines, and potential prison time.
Jeffrey S. Johnston is a partner in the Houston office of the law firm of Vinson & Elkins LLP. His practice focuses on complex business litigation, and he regularly assists clients in designing, implementing, and administering FCPA compliance policies. email@example.com
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