Global Business and Corruption: Significance of FCPA Trends

February 2015

IN THIS ISSUE

— Shared Rewards, Uneven Risks? Conducting Business Under FCPA
— Doing the Right Homework: Researching Companies for FCPA Due Diligence

GREETINGS!

Welcome to the February edition of our newsletter! In this issue, we’ll examine what recent fines and other actions concerning U.S. Foreign Corrupt Practices Act (“FCPA”) violations could mean for you and your clients.

SHARED REWARDS, UNEVEN RISKS? CONDUCTING BUSINESS UNDER FCPA

Since its inception in the late 1970s, the FCPA has been meant to promote ethical conduct by U.S. businesses who work with overseas parties. Part of this process often necessitates U.S. firms researching the backgrounds of the individual operating the overseas parties, as well as the reputation, litigation history and other elements of the non-U.S. company itself.

Recent cases have shown the importance of that due diligence, which is often a combination of public records research, interviews with management (and former employees) and, often, a review of relevant books and records. The U.S. Securities and Exchange Commission recently levied a fine of more than $15 million against a major manufacturer for FCPA violations, stating in part that the company had failed to properly research suppliers it used in sub-Saharan Africa, who had received more than $3 million in payments from the U.S. company’s subsidiaries in the region.

DOING THE RIGHT HOMEWORK: RESEARCHING COMPANIES FOR FCPA DUE DILIGENCE

In that case, regulators said that when the U.S. company acquired one of the local African subsidiaries, it had failed to properly investigate the manner in which the subsidiary conducted business. One trait used by the subsidiary prior to the U.S. company acquiring it in 2007 was the giving of payments to local government officials, or of private companies, in order to obtain business. The U.S. company, which had obtained a minority interest in one of the African subsidiaries in 2002, did not put a stop to the practice until 2011 and fully divested itself of the subsidiary in 2013, according to regulators.

The opportunities for U.S.-based businesses outside of the country’s borders are vast, but so are the risks associated with them. By taking the time and effort to fully understand how an acquisition target operates, and by understanding the people who operate it, your clients can be better prepared to avoid risky transactions altogether, and to put in place the internal controls to manage difficult situations if they do arise.