The stepped-up enforcement of the Foreign Corrupt Practices Act (FCPA) has introduced a number of middle market companies to the vagaries of the language in the Act. It was written to cast a very wide net and intended to be a looming force over U.S. companies that do business in foreign markets.
In my previous post, I discussed the use of insurance to transfer FCPA-related risk. This blog focuses on treating FCPA-related risk within the company and, fortunately, mitigation can be accomplished through existing core practices of risk management. Here’s a thumbnail of these core practices:
Anti-corruption training is the best hedge against the most vexing of the FCPA’s aspects – its expansive definitions. For example:
- “Foreign officials” include staff, family, lower-level employees, candidates and candidates’ staff;
- “Agent,” “issuer,” and “domestic concern” are not so much discretely defined terms as they are, collectively, the catchall for anyone furthering your company’s business;
- “Anything of value” and “improper business advantage” are meant to subject to scrutiny anything that can be offered or gained in the course of doing business.
The systematic rollout of comprehensive, anti-corruption training can help cope with the Act’s expansiveness through education. The challenge is to constantly and consistently identify the employees, agents, third parties and consultants who need to be trained, and execute the training in a timely manner.
Due diligence enters the picture with FCPA considerations not only in the acquisition of a foreign entity, but also in the hiring of distributors, consultants or brokers; or in checking-up on potential business partners.
Foreign transaction advisory, often purchased as an external service, guards against risks of individual cross-border transactions, such as raw materials’ purchases. Advisement will cover such items as improper relationships among the owners and business partners of the company (or companies) you are dealing with. Think of foreign transaction advisory as the “due diligence” for individual, cross-border sales and contracts.
Internal controls bring to the surface transactions that require further examination, such as:
- Large payments;
- A series of similar small payments;
- A division using a ledger account that does not normally pertain to it;
- Contracts with non-standard wording.
Internal audit has the dual function of examining foreign transactions and operations; and assessing the effectiveness of the internal controls that are intended to foster FCPA compliance.
Finally, the pillars of strong governance – forceful policies and procedures, anti-corruption provisions in agreements, management and monitoring compliance by a senior person, consistent disciplinary measures and a whistleblower hotline – not only head-off violations – their existence and enforcement can mitigate the consequences if rogue activities result in an enforcement action.
Contact us if you need help with extending risk management to your foreign ventures.
