U.S. companies doing business overseas are subject to the Foreign Corrupt Practices Act (FCPA), a U.S. law that prohibits bribes to foreign government officials as a way to obtain or retain business. Taking the following steps before starting a business venture will minimize a company’s corruption risks.
Assess Your Corruption Risk Profile
The U.S. company should determine the FCPA risk level (low, medium or high) and then conduct reasonable risk-based FCPA due diligence before entering into the transaction. Certain industries may lend themselves to a higher FCPA risk level (e.g., energy, pharmaceuticals, health care, defense). Certain geographic areas may also call for more stringent scrutiny if there is a history of FCPA-related investigations involving that country. One resource for measuring the perception of public-sector corruption in an emerging market is Transparency International, which ranks 178 countries by their Corruption Perceptions Index (CPI) score (www.transparency.org/policy_research/surveys_
Know How Business Is Done
Knowing how business is done, who the major players are in a particular industry or country and how business decisions are made is crucial to the success of the project. Evaluate whether a legal opinion from a local law expert is needed to ensure compliance with local law. Sometimes, the business climate can be further localized to a particular subregion within the country (e.g., business customs in northern Nigeria can differ from those in the southern parts of Nigeria).
Know with Whom You Are Doing Business
Review publicly available information on the proposed business partner, third-party agent or consultant. Do a background check; assess the new partner’s or agent’s business reputation; request and check references; find out whether they have government ties; and document all efforts and maintain those records for at least five years. If your key business partners and agents lack anti-bribery policies and codes of conduct, ask them to review and agree to abide by the FCPA (if a U.S. company is involved) and the U.S. company’s anti-corruption policies. Conduct anti-corruption training for key sales agents, distributors, suppliers, consultants and business partners. Require periodic anti-corruption certifications from them.
Conduct Reasonable Risk-Based Due Diligence
Anti-corruption-specific due diligence should be based on the company’s particular FCPA risk assessment or profile. Determine whether there is any government interest in any entity with which the prospective company will be doing business. Review the books and records of those parties it will do business with to assess whether there are any past or current corruption issues. Ask whether the company or person it will be doing business with has an understanding of the FCPA’s anti-bribery provisions or local equivalent anti-corruption regulations, and whether they agree to comply with these requirements.
Follow Up on Any Red Flags
Red flags do not necessarily mean that the transaction should be canceled. Terms of the contract can be renegotiated or canceled, depending on how these red flags are addressed and remedied. Red flags can include a history of corruption-related investigations in the region or industry; use of agents or third-party intermediaries without formal agreements; use “success fees”; high compensation paid to third parties; use of cash payments; third parties recommended by government officials, or who are former government officials; lack of transparency in the accounting/books and records; and failure to cooperate in the due-diligence process.
Have an Effective Compliance Plan in Place
A strong code of conduct or ethics policy should be implemented and made widely available. Train staff on corruption risks to look out for. Live trainings in the local language, conducted by local persons, are preferred. Take attendance and maintain those records for at least five years.
Have a Point Person for Compliance Matters
The point person should be responsible for monitoring the training and enforcement of the anti-corruption policies and communicating how policy violations should be reported. Establish a clear protocol on what people should do if they suspect an act of corruption has occurred.
Make Changes When Necessary
The compliance program should be reviewed periodically and modifications made as needed.
Obiamaka P. Madubuko, Esq., is a partner in the White Collar & Securities Defense Practice Group of McDermott Will & Emery L.L.P. The above is
an edited version of the article “Understanding Anti-Corruption Issues in Africa: An In-Depth Look at Recent Developments and Upcoming Trends,” ©2010 Thomson Reuters/Aspatore.