In our last post, we talked about Wal-Mart's potential exposure under the Foreign Corrupt Practices Act (FCPA), thanks to allegations of bribes paid by its Mexican subsidiary to Mexican government officials. Now, let's turn our attention to the role of an organization's employees in FCPA compliance efforts.
In most cases, it is employees' actions that lead to FCPA-related problems and it is employees' actions that help companies to uncover and address these problems. Companies can use the latter role to their advantage.
Perhaps the most important thing to emphasize with executives and employees about FCPA compliance is that ignoring or missing the signs of a violation is no defense should the U.S. Securities and Exchange Commission or the U.S. Department of Justice launch an investigation.
"You cannot simply ignore suspicions or stick your head in the sand," says Robert A. McTamaney, a partner with law firm Carter Ledyard & Milburn LLP in New York. "In the U.S., the U.K. and other countries, the ostrich defense does not exist. You have to respond to logical red flags." For example, he notes that if a company that simply ignores the signs of a situation involving questionable payments, the company and the individuals involved could be charged as if they had actual knowledge of an improper payment being made.
Therefore, one of the most important elements of FPA compliance is training employees to recognize red flags. The U.S. Department of Justice offers a "layperson's guide" to the FCPA, including red flags that could signal potential corruption among business partners. The British government has also cracked down on foreign corruption and the UK Serious Fraud Office offers these "corruption indicators."
Other resources can also help executives and employees with compliance and due diligence. For example, it is an unfortunate reality that levels of corruption vary from country to country. Employees and executives operating in a less corrupt country may not encounter as many situations where bribery might occur as individuals operating in a more corrupt country. "You take more care in more corrupt countries than if you are doing business in New Zealand or Denmark, which are two of the very cleanest countries in the world," says McTamaney. One good resource in this regard is Transparency International's survey, which rates 183 countries based on their perceived levels of public sector corruption.
Employee awareness is the key here. If employees see potential wrongdoing, they must understand the implications of that, why they should act and how they can act. For example, when a movie production encountered a local official in an eastern European country who demanded that the studio hire a relative to gain access to specific locations, the employees involved had the presence of mind to contact legal counsel to see if the situation could be handled in a way that was legal, says Susan Kohn Ross, International Trade Counsel with law firm Mitchell Silberberg + Knupp LLP in Los Angeles. "There are some very practical procedures that can be put in place to deal with these types of situations," she says. The important element is having employees who recognize when these procedures are required.
In our final post, we will look at ways to help employees develop this awareness.