Anti-bribery Regulations: Their Impact on Global Business

The crusade against corruption, which has been going on worldwide for many years, has become more extensive and aggressive in recent years.

For a long time, double ethical standards coexisted with this fight. Certain multinationals headquartered in developed countries acted differently abroad than they did in their home countries.  The practice of making illegal payments to obtain business abroad was not only tolerated, but under certain circumstances such payments were even tax deductible in the home country.

When the Foreign Corrupt Practices Act (FCPA) was enacted in 1977, making it unlawful for any U.S. person and certain issuers, to make corrupt payments to a foreign official for the purpose of obtaining or retaining business, US companies feared that they were going to be at a competitive disadvantage, compared to other companies not subject to similar constraints, and they may have been, for some time. 

However, since the OECD Convention on Combating Bribery of Foreign Officials in International Business Transaction was adopted in 1998, OECD countries have committed to enact legislation to fight bribery of foreign public officials, and many such countries already have such legislation in place.  For example, new legislation, such as the UK Anti-Bribery Act of 2010, imposing standards that make a person liable if they cannot prove that they have taken all reasonable measures to prevent illegal conducts has been recently enacted and will become effective in April 2011.

National laws, together with the European Union’s Convention on the Protection of European Communities’ Financial Interests, The Organization of American States Inter-American Convention Against Corruption, the United Nations’ Convention Against Corruption, and policies instituted by the World Bank and the International Monetary Fund constitute a tight net and are part of a broad international agenda to combat bribery.

More stringent construction of local rules, enhanced enforcement, such as have been shown in the US in recent times, increased international cooperation and parallel investigations in several countries with respect to certain companies or industries, highlights the top priority that many governments are giving to the subject.

Such a change of paradigm makes it increasingly advisable for companies to take a proactive approach, since threats are manifold: companies may be confronted with illegal requests, or with competitors, partners or suppliers acting corruptly or employees violating the company’s code of conduct. Such threats should be taken seriously, to avoid them becoming crises which may demolish a company’s reputation.

While in many cases the chances of getting caught may be small, the consequences may be enormous, both from a reputational perspective, as well as from a stock market viewpoint.  Not least, the company may be liable for punitive damages, and its officers and directors may be criminally liable in their home countries.

Arguably, a typically international company doing business in multiple jurisdictions may have difficulties implementing serious anti-bribery policies with respect to all its business.

When comprehensive action is unfeasible, the respective importance of each of the markets where a company operates compared to total business should be determined and the risk of the respective countries assessed, to establish priorities. A company will be well advised to focus its actions on the basis of level of activity and perceived risk. Abandoning certain markets may sometimes become the only solution.

In any event, companies should ensure that their international controls are reasonably designed to deter and detect improper payments. These programs should be tailored to address the risks faced, based on the respective company’s line of business, its customers and the geographical regions in which it operates. The lists prepared by organizations such as Transparency International may shed light as to the level of risk in the relevant countries.

This new paradigm also impacts purely Argentine companies that do business with foreign companies, their local subsidiaries or non-residents, either as joint venture partners, suppliers, providers of services or which are targets for potential acquisitions or portfolio investments by foreign companies.

Such local companies should anticipate that they may be subject to screening procedures with respect to their own attitude toward bribery, pursuant to the standards applied by the jurisdiction of the foreign party with which they plan to do business.

In this respect, policies in place to avoid illegal conducts would probably be scrutinized.  Not only having a code of conduct prohibiting such practices, but having adopted and enforced an anti-bribery culture, through training of  personnel, periodic compliance assessments, appropriate remuneration systems and similar practices.

Because its own laws may impose on the foreign company the obligation to know its partners and agents in foreign countries and understand what they are paying them in exchange for what, the local companies may anticipate that, apart from having anti-bribery policies in place, contracts with the foreign party may impose anti-corruption representations and undertakings, with audit  and  termination rights in a wide array of agreements, to ensure compliance with such foreign company’s anti-corruption laws. Also, investigations as to their local partners’ integrity may be expected before entering into contracts.

A new chapter in standard due diligence proceedings investigating potential illegal payments should not take local companies by surprise, particularly when the local target’s clients include the state or state-owned companies, when such target is involved in joint ventures with government entities, and when government approvals or licenses are needed to carry out the local company’s business. The local company’s relationships with third party agents and consultants who interact with government officials on behalf of the local company, including selection criteria, scope of services and payments will probably be closely scrutinized also.

Inquiries from customers and other business partners as to the evolution of criminal investigations to which a local company or its constituents may be subject may also be expected in the context of due diligence investigations or on a regular basis.

Recent cases in the international arena, stated policies and opinions by enforcement authorities from countries active in this crusade may shed some light on what to expect next. Practical guidelines as to do’s and don’ts developed by commentators may be a good starting point to avoid headaches.