After all the due diligence on the sales agents and
representatives has been completed and they are ready to help you land that large
international contract, what is the role of compliance? I would argue that
compliance has as central a role to play in any international contract tender
process as any other support group in your company; be they legal, tax, HR or
another department. If you put compliance at the mix when preparing your
response to RFP your company will be much better served than calling them after
an issue arises during the contract execution. What are some of the areas that
compliance can be of use during contract negotiations?
Subcontractors
It certainly should not surprise anyone to be made aware
that your company is legally responsible for its subcontractors in the
execution of a contract. This is also true in the anti-corruption context,
whether under the Foreign Corrupt Practices Act (FCPA) or UK Bribery Act. This
means that any direct tier subcontractor, which your company might use to
complete an international contract, needs to be thoroughly vetted under your
compliance regime as a foreign business partner. The reason for this is the
same as an agent, subcontractors are acting on your company's behalf, and hence
your company is responsible for them. If you can perform due diligence on all
parties which your company will need to execute the contract in the pre-contract
phase, it will make things run more smoothly and efficiently after your company
is awarded the contract and moves into the execution phase.
Travel to Company Facilities
As a part of the tender process, your company may be
required to bring a foreign governmental official or group of officials to view
your US operations. This can occur for a number of legitimate reasons, yet care
must be followed under both the FCPA and Bribery Act. Your company can pay bona
fide and reasonable expenses that are directly related to either (1) the
promotion, demonstration or explanation of products or services; or (2) the
execution or performance of a contract. Bona fide promotional expenses may also
include trips to manufacturing facilities to observe your company's production
and quality control processes or to conduct inspection and testing called for
in a contract of sale. There can also be to facilities where the training
offers a legitimate opportunity to demonstrate products and services. There are
some guidelines that need to be followed and they are as follows:
- Any reimbursement for air fare will be for economy
class.
- Do not select the particular officials who will travel.
That decision will be made solely by the foreign government.
- Only host the designated officials and not their
spouses or family members.
- Pay all costs directly to the service providers; in the
event that an expense requires reimbursement, you may do so, up to a modest
daily minimum (e.g., $35), upon presentation of a written receipt.
- Any souvenirs you provide the visiting officials should
reflect the business and/or logo and would be of nominal value, e.g., shirts or
tote bags.
- Apart from the expenses identified above, do not
compensate the foreign government or the officials for their visit, do not
fund, organize, or host any other entertainment, side trips, or leisure
activities for the officials, or provide the officials with any stipend or
spending money.
- The training costs and expenses will be only those
necessary and reasonable to educate the visiting officials about the operation
of your company.
One of the keys is having any such travel approved by
your Compliance Department prior to the travel actually occurring. In addition
to the above guidelines there should be a written agenda, reviewed and approved
by the compliance representative before the travel occurs. Lastly, all costs
associated with the travel and entertainment must be recorded in the Company's
books and records as cost of sales and not an operating expense. The written
agenda approved by the compliance representative needs to be maintained and
verified by after-action reports so that the entire process is documented.
Testing and Evaluation
If your company manufactures a product, your international
customer may well ask to test and evaluate products as a part of the contract
tender process. These products may only be provided to support such
opportunities. The testing and evaluation of samples should only occur if
required by a public tender. Exceptions may be made if the samples are formally
requested in writing by the potential government customer in connection with a
legitimate contract opportunity. Care should be made so that any product
samples are delivered to the foreign governmental agency issuing the tender,
not to an individual employee or official, or to a third party. There should be
a formal written request identifying the specific number of samples to be
tested and evaluated from the potential government customer. The number of samples
requested should be reasonable in light of the overall potential contract. All
costs associated with the provisioning of sample products for testing and
evaluation must be recorded in the Company's books and records as cost of sales
and not an operating expense.
Evaluation of Compliance Risk
Just as other types of risk should be evaluated in any
internal contract review process, the compliance risks should also be
evaluated. What is the Transparency International - Corruption Perceptions
Index ranking of the country or government where the contract will be executed?
Are there other sources which can be accessed, such as World Check's Country Check rating, the Mintz
Group's heat map "Where the Bribes Are", or
the FCPA Database, which aggregates
several different types of information but specifically the national
anti-corruption and anti-bribery laws applicable to local jurisdictions across
the globe. Using these sources and perhaps others, you can put together not
only a risk evaluation plan but also a risk mitigation plan for management
which they can take into account when the decision of Bid/No Bid or pricing is
finalized.
The Compliance Department is more than simply the group
which performs the due diligence, trains on compliance and responds to
inquiries. It can, and should, play an active role in landing contracts. A
mature compliance program can be a great benefit for a company, not only in
evaluating risk from the compliance perspective but also preparing the
necessary steps so that if a contact is awarded, it can be executed in a time
efficient manner. But it must have a seat at the table.
Visit the FCPA Compliance and Ethics Blog,
hosted by Thomas Fox, for more commentary on FCPA compliance, indemnities and
other forms of risk management for a worldwide energy practice, tax issues
faced by multi-national US companies, insurance coverage issues and protection
of trade secrets.
This publication contains general information
only and is based on the experiences and research of the author. The author is
not, by means of this publication, rendering business, legal advice, or other
professional advice or services. This publication is not a substitute for such
legal advice or services, nor should it be used as a basis for any decision or
action that may affect your business. Before making any decision or taking any
action that may affect your business, you should consult a qualified legal
advisor. The author, his affiliates, and related entities shall not be
responsible for any loss sustained by any person or entity that relies on this
publication. The Author gives his permission to link, post, distribute, or
reference this article for any lawful purpose, provided attribution is made to
the author. The author can be reached at tfox@tfoxlaw.com.
© Thomas R. Fox, 2012
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