Forget the Typical Euphemisms
A few months ago, I was in Southeast Asia. Twenty-five minutes into a business meeting, my prospect announced that he was fairly certain he could successfully execute as our intermediary, but success would require "cash under the table."
I was stunned.
Not so much that corruption might figure in the transaction, but rather, at the brazenness of it all. The otherwise heavily accented and halting English gave way to a fluency in delivering that colloquial phrase which was clear and direct. Not like the more common hints and "genteel" talk around bribes. And all this occurred, unapologetically, in the presence of the US Commercial Service consular representative who had accompanied me.
Let's level expectations quickly. Corruption is:
- Endemic - in private transactions, and, to a much larger degree, in the public sector
- Global - it's a fact. Certainly, there are varying degrees, but where people have the authority to approve or veto commercial transactions, there is a temptation and corruption will exist
- Institutionalized and culturally embraced in many areas - in India I have found that government officials often list their "Private Residence" address and telephone on the reverse side of calling cards (hint hint...)
Targeting Corruption: the FCPA
Corruption may be rampant worldwide, but it is being targeted by many governments for increased enforcement and regulation.
In the US, the Foreign Corrupt Practices Act (FCPA) was established in 1977. Its stated top-level goal is to prohibit "payments to foreign government officials to assist in obtaining or retaining business." The UK analog is the Bribery Act of 2010, and the recent announcement by the Obama administration concerning harmonization of regulations to "level the trade playing field" broadens the potential reach of these regulations.
If you have personal or business interests in the US, it is therefore vital that you understand the risks involved here.
In the Crosshairs
Although the FCPA has been "on the books" for a number of years, investigations and prosecutions have been reserved for particularly large or egregious infractions.
However, with the recent appointment of Lanny Breuer as Assistant US Attorney General for the Criminal Division of the Department of Justice, enforcement actions have increased significantly. In fact, Breuer spoke with the NY Times in March about how he was "expanding his staff - and his range of potential targets."
Now, I realize you may be saying to yourself, "So what? I don't pay bribes. What's it got to do with me?"
Buckle up - it's got a lot to do with you!
Here's just a sampling of some of the draconian elements the FCPA includes:
- Personal criminal liability for company officers and directors
- Liability for actions of 3rd parties (e.g. distributors, customs brokers, etc.)
- Assumed liability for any historical violations by any acquired entity
- Exposure in markets other than your headquarters or in a market where the violation occurred (for instance, the German company Siemens was fined in the US under the FCPA for corruption in unrelated markets. Similarly, under the UK act, if you conduct business in the UK you face potential exposure as an American company for suspected corrupt practices in other markets)
So businessmen beware.
It might be reasonable to assume that if you negotiate your deals cleanly for orders, licenses, approvals, etc., you'll be fine. Wrong. In fact, the majority of FCPA investigations stem from customs-related violations.
A typical scenario is that a company wins a deal "cleanly." It then manufactures product and ships it to their foreign customer - often against a time-definite "Letter of Credit" (L/C). Some factor (often specious) will then trigger a customs inquiry. Working through their logistics team, the company is then assured prompt release upon provision of some requested documents. But the release isn't forthcoming. Suddenly, they face expiration of the L/C. Cash constraints and pressure mounts. And they may even engage the Department of Commerce to assist. And then suddenly... relief. The shipment clears and it's back to important business. But... unbeknownst to them, the release was only obtained by their agent who, disgusted with their lack of appreciation of 'how business is done here,' negotiated favorable terms, paid a modest bribe, and obtained the release. In most cases, nothing further results. But the growing team at the Department of Justice is intent on ferreting out more of these instances.
In many markets, this sort of payment is "business as usual." Government officials are compensated with an expectation of consideration payments... almost as waiters/waitresses are accorded a lower minimum wage in anticipation of tips.
But remember, if your agent/distributor, etc. engages in corrupt practices on your behalf - even without your knowledge and contrary to your instructions - you are liable!
There are, however, steps you can take to reduce your risk exposure. Egregious violations won't be excused, but by following prudent business practices and reinforcing policies with training and documentation, you will generally mitigate exposure to 3rd party violations.
Here are some things to keep in mind:
- Don't create unrealistic demands of employees that might lead to corrupt practices (like Walmart's recently publicized store opening targets)
- Ensure that all employment and channel agreements clearly outline an expectation of FCPA compliance
- Consistently apply defined consequences for violations
- Conduct regular (semi-annual is probably appropriate) FCPA training for all employees with international-related responsibilities... and document that training
- Conduct similar training for all 3rd parties, similarly documented
- Use the US Department of Commerce's resources to background check potential channel and other 3rd parties
The bottom line is that corruption is everywhere. That's not going to change. However, clear personal and corporate philosophies are the foundation upon which your compliance will rest. But just being personally committed to "doing the right thing" isn't enough. As with any risk, you must understand your exposure and find folks with the expertise to help you reasonably mitigate the risk. Don't ignore this risk and don't settle for comforting assurances. Do it right.
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Ed Marsh has in-depth experience on a number of continents, in various capacities and industries. He founded and managed a start-up in India; successfully built channels throughout Latin America; leveraged his German birth and marriage to a German national in his extensive work in Western Europe and has deep cultural experience with Vietnam. Ed's B2B and B2G pan-global experience has involved a variety of products and services including capital equipment, industrial automation, distribution services and homeland security and defense technology. He is a Founder and Principle at Consilium Global Business Advisors.