Corruption: Not Just for Government Officials Anymore
January 2010
IN THIS ISSUE
— How to Know the Devil You Think You Know: An FCPA Primer
— Learning the rules of the Road: Resources for Investigating Foreign Businesses
— In the next issue
GREETINGS!
Welcome to the January 2010 edition of our newsletter! in this issue, we’ll examine the perils of not conducting proper due diligence when working with foreign businesses, particularly when those groups are run by former government officials.
HOW TO KNOW THE DEVIL YOU THINK YOU KNOW: AN FCPA PRIMER
As we’ve mentioned in this space before, the globalized marketplace represents an ever-expanding buffet of opportunities for investors or businesses willing to take on the risks involved. But far too few look into how to really manage that risk, which often includes avenues of inquiry that don’t exist in the United States and other Western nations.
While “corruption” is an all-encompassing buzzword used by politicians when it’s convenient to appear outraged at how business is occasionally conducted, its implications are far more real for any business that may find itself involved in allegations of corruption, which can be poisonous to the mission of seeking new capital and customers.
While many government agencies tout their ability to be “tough on corruption” — take, for instance, President Obama’s pledge when taking office that recently resigned lobbyists would not serve in his administration, a pledge which has not been kept to a large degree — some governments pronounce their zeal quickly, only to have their effectiveness disappear just as quickly. take, for instance, the Philippines administration of Gloria Arroyo, who championed her Presidential Anti-Graft Commission years after she was accused of diverting federal funds to her presidential campaign. Her appointed anti-corruption czar, Constancia de Guzman, hired her son and his girlfriend as consultants — and de Guzman still has yet to investigate the allegations of Arroyo’s misuse of federal funds. “We could overlook such shenanigans, perhaps, if de Guzman were otherwise good at her job,” Ninez Cachao-Olivares said in the Daily Tribune. “But in this notoriously corrupt land, she hasn’t investigated one major official.” Indeed, in 2009 the Philippines ranked 104th in the Heritage Foundation’s Economic Freedom Index, with the organization noting that “[c]orruption is perceived as pervasive. The Philippines ranks 131st out of 179 countries in Transparency International’s Corruption Perceptions Index for 2007. A culture of corruption is long-standing. Enforcement of anti-corruption laws is inconsistent, and the public perception of judicial, executive, and legislative corruption remains high.”
LEARNING THE RULES OF THE ROAD: RESOURCES FOR INVESTIGATING FOREIGN BUSINESSES
Against this anarchic, Wild West backdrop, how can an American company take advantage of the promise of global investment without being pilloried as being associated, however unwittingly, with unsavory conduct overseas? While standard due diligence tools certainly apply – thorough analysis of news articles, litigation, third-party corporate record databases, to name but a few – a few other approaches may yield fruit, such as a thorough review of U.S., and intergovernmental “watch lists,” particularly of sanctioned exporters, contractors, and person or groups whose U.S. assets have been frozen by the U.S. Treasury.
Additionally, link analysis of a person’s business dealings will flesh out a picture of who they know and have known, and where their interests really lie. If a country’s former defense minister has partnered with several other government officials in forming a transportation company while that minister also partners with your company in a mining venture, you don’t want your first knowledge of the transportation company’s existence to be when your joint venture is billed by that company for services. bearing in ind that cultural norms and laws vary between nations – and such conduct may not be illegal or even frowned upon – knowing about the possible conflicts and risks ahead of time can help your client or company manage the public perception across multiple cultures and contexts. Our firm has performed hundreds of such inquiries before clients considered investment in foreign companies, avoiding embarrassment and maximizing our client’s return on its global investment.
IN THE NEXT ISSUE
In the February issue, as the Congress works toward passage of a unified health care bill, we’ll revisit the issue of health care fraud and abuse, and look at areas where the new legislation may create or increase opportunities for abuse.