Crackdown on corruption

Any person seeking to do business abroad must resist the temptation to ease entry into the foreign market by means of bribery. Failure to comply with the Foreign Corrupt Practices Act as well as the laws of many countries could result in significant fines and/or imprisonment.

In a previous column I discussed the passage and provisions of the Foreign Corrupt Practices Act. This column will review some of the steps a company should take to avoid possible criminal and civil penalties that may be imposed for non-compliance. It will also review the actions taken abroad, mainly at U.S. insistence, to regulate bribes given to procure contracts for the sale of goods and services.

Understanding the act
There are exceptions to the act”™s prohibitions. It is not unlawful, for example, to make payments or give gifts or anything else of value if it is permitted under the foreign country”™s laws.

In addition, it is legal for the U.S. person to pay for the foreign official”™s lodging, travel and other expenses that are directly related to the promotion, demonstration or explanation of the U.S. person”™s product or services, or in connection with the execution or performance of a contract.

Also, payments to expedite routine governmental action ”“ obtaining permits and visas, providing police protection, phone service, scheduling inspections ”“ are not prohibited. The statute distinguishes between giving significant bribes to senior officials to obtain contracts from petty sums that often are necessary to speed up processes.

Ensuring compliance
There is a temptation to claim moneys were paid to a “consultant” third-party who, allegedly unbeknownst to the U.S. company, paid the bribe to the foreign government person. A covered person under the act would find it nearly impossible to justify this.

A company should establish an effective compliance program. There are many websites of firms offering compliance mechanisms, especially for small businesses. The Department of Justice recommends what such a program should contain. Among the suggestions is the need for a code of ethics establishing the core ethical values of the company, policies concerning specific areas affecting companies and a mechanism by which complaints of unethical or illegal conduct may be addressed.

There should be a clear policy prohibiting violations of the act as well as specific standards of behavior expected of all officers, directors, consultants, agents and employees concerned with foreign parties.

There are numerous other requirements, including penalties for noncompliance, statements of anti-corruption provisions in contracts, financial and accounting procedures to be followed, and the retaining of independent auditors and counsel to assure compliance.

Other areas that need to be addressed are the careful and specific delineation of expenses for travel, promotion, entertainment and alleged charitable donations,

Voluntarily disclosure?
An excellent compliance program may lead to the discovery of a violation of the act. The problem is that by revealing the violation, some prosecutors take the approach that you have confessed to a crime. Other prosecutors are more permissive and allow a company to have a subsidiary corporation take the guilty plea and absorb the fine, which could be significantly less than a fine resulting from non-disclosure.

Most criminal attorneys would counsel against self-revelation.

International cooperation
Anti-bribery enforcement led to significant losses of contracts by American companies compelled to obey the act. The U.S., as one of 30 members of the Organization of Economic Development and Cooperation, caused the organization to adopt an Anti-Bribery Convention in 1997 requiring each member state to adopt legislation essentially prohibiting the same conduct as the act.

There have been many other initiatives, including the United Nations Convention against corruption, the European Union Convention on the fight against corruption, and other similar conventions. The most vigorous statute that has been recently enacted is the United Kingdom”™s anti-bribery legislation.

The U.S. Department of Justice, which previously relied on self-disclosure, disgruntled competitors and whistleblowers to ascertain incidents of corruption is now initiating efforts to arrest bribe offerers by posing as foreign persons seeking bribes.

Fines are very significant as witnessed by Siemens AG, which agreed to pay $800 million for falsifying books and records regarding corrupt payments and failure to have proper internal controls.

Roy Girasa, J.D., Ph.D., a professor of law at Pace University”™s Lubin School of Business in Pleasantville. Reach him at rgirasa@pace.edu.