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Laws of the lands

How smart companies comply with the Foreign Corrupt Practices Act
INTERVIEWED BY ADAM BURROUGHS

nforcement of the Foreign Corrupt Practices Act (FCPA), which addresses the bribing of foreign officials, has increased significantly against both large multinational companies and small, private, domestic companies. If youve been hearing about the FCPA but havent addressed it fully, there is a reason to take the concern seriously from a reputational risk perspective and because you could face serious criminal and civil consequences if there is a breach, says Jason de Bretteville, a shareholder at Stradling Yocca Carlson & Rauth. There is also reason to be familiar with foreign laws. U.S. legislation, he says, only regulates bribes to foreign officials, which can include any employee of a governmentowned or controlled entity. Foreign legislation, including the U.K. Bribery Act, doesnt maintain this distinction and prohibits potentially corrupt payments to both foreign officials and private counterparties, highlighting the need for due diligence. Smart Business spoke to de Bretteville about ways to limit FCPA exposure. What are the highest areas of risk U.S. companies may tend to neglect? One area businesses often discount is the risk posed by foreign distributors. Companies tend to mistakenly assume that if their title transfers to a foreign distributor, there is no risk posed to them if the distributor engages in corrupt payments, and thats not the case. The lack of understanding of a counterpartys ownership structure is another risk. For example, in China and former Soviet-bloc countries, there is government ownership of what Westerners may assume are purely commercial entities. You may think youre engaging having
10 Smart Business Orange County | March 2013

JASON DE BRETTEVILLE Shareholder Stradling Yocca Carlson & Rauth (949) 725-4094 jdebretteville@sycr.com SOCIAL MEDIA Find Jason de Brettevilles profile on LinkedIn.

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a dinner or entertaining a private party but, in the view of U.S. regulators, youre entertaining a foreign official. One evolving risk area is engaging in co-operative research with academics. They may hold dual positions and privileges at foreign academic institutions that could render them a foreign official. What else is affecting the need to pay greater attention to FCPA? The merger and acquisition market is heating up, including more acquisitions of foreign companies. These foreign businesses may not have a compliance culture or the same policies as many U.S. companies. The acquirer may face difficult questions of whether to go through with the transaction, and when or whether to disclose any pre- or post-acquisition conduct to U.S. regulators. Further, reconciling U.S. policy with those in foreign jurisdictions can be difficult. For instance, the U.K. Bribery Act addresses not only foreign officials but also corrupt payments to private counterparties and does not allow an exemption for minor grease or facilitation payments. It has more expansive jurisdictional limits and would appear to allow for the prosecution of U.S. entities with a relatively small footprint in the U.K. How can companies best address this risk? First, conduct meaningful due diligence

on all business partners. Determine their potential to be viewed as a foreign official, understand who they are, their ownership structure and their shareholders. Second, determine an efficient and practical means of mitigating risk. Have the party commit to comply with your code of ethics and restrictions on corrupt payments, and have as much transparency as possible regarding what work theyre doing on your behalf that may involve foreign officials. Also, any payments to any officials made on your behalf need to be used for wholly legitimate purposes, and not to facilitate sales to government customers or obtain government approvals permits, licenses, customs clearances in inappropriate ways. How might compliance policies fail? T oo often, companies implement overly complex or one-size-fits-all compliance procedures that dont address specific risks in a way that allows for meaningful risk mitigation. Policies not designed in a way that is intelligible or useful to people in the field can invite non-compliance. An effective policy provides for simple ways to deal with concerns that may arise in the field and encourages people to find effective business solutions. Having an overly cumbersome policy on the shelf doesnt help anyone. In fact, it can hurt.