I am attending the 2011
Global Ethics Summit this week in New York City. It is presented by Ethisphere and Thomson Reuters. This post will be first
of several based upon the comments of the panelists. In today's posting we will
discuss some of the issues faced in emerging markets, regarding anti-bribery
The panelist listed several characteristics that appear
across the spectrum in emerging markets. These markets usually have a large and
multi-leveled bureaucracy which can make many demands for permits, licenses and
other types of governmental approvals. In opening any new business in an
emerging market there are usually multi-governmental touch points where bribes
can be demanded. Due to these factors there is a culture of small time, almost
daily corruption in many emerging market which can often impact the attitude of
Another issued touched upon was that many US companies
may have a lack of a full understanding of just whom it is doing business with
when it goes into an emerging market. This includes not only the catch-phrase
of "Know Your Customer" but also "Know Your Agent" and "Know Your Supply-Chain
Vendor". As the FCPA applies to foreign government and their representatives, a
key issue in transactions in emerging markets is just who your customer is or
who they might be. In countries such as China, the reach of the government is
so great that it extends to most commercial enterprises. This means that a US
company may be dealing with an agency or instrumentality of a foreign
government and not appreciate that fact.
Douglas Nairne, Global Head of World Check discussed some of the
difficulties US companies face when attempting to perform due diligence on a
foreign business representative or supply chain vendor in an emerging market.
It is often difficult to obtain information similar to that available in the US
or other western country. Many times public records are not available online so
that a much more lengthy and detailed search protocol is required. This can
significantly lengthen your due diligence process. The situation can also exist
where certain records are simply not in the public realm. Lastly is the issue
of the quality of the records. Many times, such records are not updated on any
type of regular basis, such as annually. This is particularly true for
corporate filings which may list officers and directors so this can also
Cheryl Hug, an Ethics and Compliance Officer for
Hewlett-Packard discussed some of the cultural sensitivities that a US company
must demonstrate in emerging markets. Initially, she stated that US companies
must train their US employees who will relocate to or work with the emerging
markets on such cultural sensitivities. She also indicated that it was important
to understand how to deal with your company's service providers in such an
environment. Lastly she spoke to a theme of "reverse colonialization".
She said that when discussing compliance and ethics with those in emerging
markets, she attempt to stay away from citing to the FCPA but uses the broader
terms of anti-corruption and anti-bribery. Otherwise it may sound like the
rich, western nation is simply imposing its values on the former colony.
There was a lengthy discussion of when a US company
should walk away from a transaction in an emerging market. Mark Mendelsohn, partner
at Paul, Weiss stated that he viewed
transactional due diligence as more "art than science". He suggested that there
is no perfect answer to this question but each deal should be evaluated by a
variety of factors, which if they exist should cause your business to walk away
from a proposed transaction. The first factor was that the business is not
sustainable absence real or perceived corruption. The second was if the
cost to remediate any bribery situation is so great that it destroyed the
business value of the transaction. The third factor was lack of full
information which would allow a reasonable risk based analysis.
A related topic was that of joint ventures. Deirdre
Stanley, General Counsel for Thomson Reuters, discussed the issue of knowing
who you joint venture partners actually were. This is to ensure that you had no
government officials who might be receiving anything improper under the FCPA.
She also stressed key components were transparency in joint venture governance
and strong contractual anti-bribery and anti-corruption terms and conditions.
The group emphasized however that the problems were
manageable if you have time to navigate this bureaucratic system but if you
need something done in a hurry or at the last minute you are subject to being
squeezed for money. So good business planning is a definite key. Your company
should go into any venture in an emerging market with its eyes open and with a
robust business management plan in place.
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.
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© Thomas R. Fox, 2011
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