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The Tough Conversations You Need to Have Before Expanding Globally

While prosecutions involving the Foreign Corrupt Practices Act (FCPA) were down last year compared to 2011, the number of enforcements is still relatively high compared to the span of the 35-year-old law, according to law firm Gibson Dunn, and the Obama administration has been clear that FCPA is in the Department of Justice's sights. For that reason, corporate leaders who could be held on the hook for the FCPA still need to keep the law in mind when expanding to other countries. 

Even when doing business from the apparent safety of the United States, executives here could be held liable - either in terms of a lawsuit or their careers - if they do not tread carefully and keep internal controls in place that prevent their company from allowing the bribery of foreign officials to happen under their watch. 

The FCPA prohibits anything that is an attempt to sway a foreign official to get a leg up on the competition or get a business up and running outside the United States. 

Breaking the Law Can Result in Harsh Penalties
Organizations or rogue executives who try to bribe foreign officials and are caught will be subject to the long arm of the law. While presenting at Proformative's recent webinar titled "Managing Global Growth: Lessons Learned Around Compliance and Risk Mitigation," Alexander Koff, partner and co-chair of global practice at Whiteford, Taylor & Preston LLP, shared the penalties that can occur when violating the FCPA. He revealed individuals who are facing a criminal suit for corruption could be subject to a fine as high as $100,000 and could serve up to five years in jail, while a related lawsuit could result in a $2 million fine for organizations.

Businesses Must Ensure Their Executives Stay Clean
Many company leaders can talk for days about how they want to be able to expand into foreign markets without being corrupt, but, as with most things, it is easier said than done. During the same webinar, Mark McNamee, risk advisory partner at McGladrey LLP, talked about how organizations need to instill a particular "tone at the top," in which senior management sets an example of the right way to gain global business and expand the presence of the corporation. 

"This simply is not about senior leadership talking a good game," said McNamee. "It's really about embracing a corporate culture that is built around people doing the right things, people behaving ethically and being good corporate citizens. I think also think it's important that your company's policy against corruption is very clear and not full of exceptions."

Companies that are serious about compliance with the FCPA operate in a environment where there is a "zero tolerance" policy. McNamee shared an anecdote about when he was spending time with a chief compliance officer from one of the biggest corporations in the world. The official said he told a leader in a foreign market that he would rather shut down the facility than have a subsidiary pay a $5 bribe to a government official. This type of conversation - which every organization with a global reach should have - is known as establishing a "tone at the middle," in which leaders of particular businesses in global offices are adamantly against corruption.

Be Aware of the Risk Associated with Expanding into Global Markets
Doing business in different countries across the globe is much different than operating in local markets. There are certain practices that are acceptable in other areas in the world that simply don't fly in the United States. An article for Journal of Accountancy cited global research from Ernst & Young, which found more than one-third of CFOs believe bribery and corruption practices are commonplace in their country.

Some of the markets businesses should especially be conscious of are Brazil, the Czech Republic, Indonesia, Mexico, and Turkey, according to the E&Y research. CFOs who plan to do business in these markets must delegate their most trusted executives to forge working relationships with organizations in these countries. Being aware of the potential risks can make it easier to be prepared when put in an uncomfortable situation where bribery or corruption is brought up.

Before entering any situation, McNamee advised that senior management have a risk assessment done of the country they are attempting to expand into to get a better idea of what to expect. Here are some of the questions he suggested be a part of the conversation when identifying any potential threats:

  • What are the local business practices?
  • Which people within my organization will have direct interaction with foreign officials?
  • Who would be considered a foreign official within the specific context of the business?

Having the answers to these questions will allow CFOs and the rest of the C-suite to be able to begin strategic planning around how they plan to infiltrate a particular market. Organizations that have a sophisticated understanding of the potential issues and risks they may encounter will be able to take advantage of competitive strengths and successfully grow their corporations into new markets throughout the globe.

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