When it comes to eliminating bribery and corruption from your supply chain, who is this “foreign public official” that you have to worry about?
The Foreign Corrupt Practices Act, enacted in 1977, bars companies from making payments to foreign officials “to assist in retaining or obtaining business” — in other words, bribes. The law sets no minimum amount for such payments, and penalties can be substantial.
Compliance with the law begins with the definition of “foreign public official.” Unfortunately, the Department of Justice’s guidelines are so broad as to be “open-ended,” says Charles Thomas, director of anti-bribery and corruption with LexisNexis Risk Solutions. They specify any official of a foreign political party, or candidate for public office in that country. In theory, that would include “joke” candidates such as those that occasionally pop up in British political campaigns. Must a company be diligent about avoiding suspicious payments to Lord Buckethead?
While regulators aren’t likely to pursue the most absurd cases, businesses still must exercise extreme care in dealing with individuals in foreign countries. The law can be interpreted as including relatives or close associates of a foreign official — say, the brother of a transport minister. The possibilities of stumbling on someone who wields even marginal influence over a country’s business affairs seem limitless.
Anyone working for or on behalf of a government can be viewed as a foreign public official. The definition “trickles down” to include representatives of businesses and organizations that aren’t directly controlled by the government, Thomas says.
The question of what constitutes a bribe would appear to be an easier one to answer. It’s essentially anything of value — but that term can also be stretched to ridiculous extremes. Thomas recalls the time he met with a client from a private company in Australia. Fearing the long arm of the FCPA as well as Australian law, the individual refused to allow Thomas to buy him a cup of coffee. That, he reckoned, was “an item of value.”
The real concern when it comes to ferreting out bribes relates to such perks as first-class air travel, luxury hotel accommodations and lavish meals. “A lot of it has to come down to common sense,” says Thomas. There’s a distinct difference between springing for pizza in a conference room and treating a whole group to a show and dinner at a fancy restaurant.
That said, what is a company to make of the FCPA’s stricture against “facilitation payments”? What about payments made to a customs agent to expedite the processing of a form? Sometimes that’s a legitimate expense, and sometimes not. It’s one of many gray areas that bedevil companies striving to comply with the law while doing business in foreign countries.
The key to applying the law in a sensible manner lies in good training and communications, Thomas says. It could be useful, for example, to examine air passenger manifests to determine whether an expensive upgrade was a gift to a foreign official (or a family member of that individual).
Certain countries and regions of the world present a higher risk of engaging in bribery. Those with a larger contingent of foreign public officials increase the number of interactions that might fall within the purview of the FCPA. In China, for example, there are millions of citizens who hold some official role in public affairs, not to mention hundreds of thousands of state-owned or controlled companies. The same holds true in Russia.
A second area of risk lies with industries that, by their nature, have a higher probability of encountering foreign public officials. Frequently those are businesses with heavy involvement in cross-border logistics. Then there are the producers of high-valued goods at low wages, such as oil, gold and other precious metals, and rare earths. Each stage of the supply chain, from acquisition of raw materials to processing, packaging and sale, presents another opportunity to interact with a government official.
A company’s efforts to police bribery should be in proportion to the risk posed, Thomas says. At the same time, it’s vital to identify foreign public officials or agents to the greatest extent possible, beginning with heads of state and proceeding to individuals in charge of local affairs.
“If you’re going to engage with a new supplier in China, a distribution agent in Nigeria, or a sales agent in France, you should be carrying out due diligence on all of those relationships to discover the level of governmental connection they might pose,” says Thomas.
The task becomes more complex where larger companies are involved, at which point it’s important to automate the process wherever possible, and specify individuals to oversee the effort. The ability to head off instances of bribery before they occur becomes especially crucial. “The Department of Justice and Securities and Exchange Commission look more favorably on those companies with people doing a properly assigned task,” Thomas says. “An ad hoc approach is not the best defense.”
Companies with global scope can’t be expected to keep close tabs on every single person who represents them around the world. But dissemination of a clearly laid out policy against bribery and corruption can help to protect senior management from punishment if it was unaware of a violation. That was the case in 2012, when a managing director of Morgan Stanley in China was found individually guilty of evading the company’s internal accounting controls.
“There’s only so much a company can do,” says Thomas. “But provided that it has compliance procedures in place, along with due diligence, training and communications, then it ultimately comes down to the act of a rogue individual.”
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