January 27, 2009
While companies like Halliburton announce (prematurely) half-billion dollar settlements of wild-eyed bribery schemes, most companies continue to wrestle with very real, but far more mundane compliance challenges.
Today’s challenge refers not to creative officials trying to increase their illicit haul, but rather to those officials who – with full transparency and in compliance with local law – own or run businesses concurrent with their government service.
Do anti-bribery laws prevent multinational companies from working with government officials in this commercial capacity? According to Jeff Clark of Willkie Farr & Gallagher’s Washington office: not necessarily.
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For all its restrictions, the FCPA doesn’t prohibit doing business with foreign government officials. If you have operations in small, less-developed countries, you probably have encountered situations in which it is virtually impossible to avoid doing business with companies owned, at least in part, by government officials.
We talk to a lot of companies in this position. They don’t want to do business with government officials. They prefer to avoid the risks and headaches that go along with these relationships. But often the local goods or services they need are offered only -- or most competitively -- by a company in which a government official is a part owner. This is hardly surprising. In many countries, a small ruling elite overlaps substantially with the business elite. Businesses capable of providing goods or services with the quality and reliability needed are often owned by high ranking government officials or their family members.
Although doing business with these companies carries risk, it can be mitigated effectively to allow a company to achieve its legitimate business objective.
One large, multinational company doing business in a small African nation needed local personnel to staff its operations. With no realistic ability to locate, hire, and train qualified personnel on its own, the company needed the services of a personnel provider. The largest personnel provider in the country was majority-owned by an individual who was both a deputy minister of a ministry unrelated to the company’s business and the brother of the minister of the ministry with primary responsibility for regulating the company and its industry. By entering into this relationship, the company would be making payments, indirectly through the personnel provider, for the benefit of a foreign official (and the close relative of an official with the power to help or harm its business operations). By proactively addressing five key areas, the company was able to manage its risk and enter into the commercial relationship that made sense for its business.
· Adequate due diligence. Due diligence is key to providing an accurate picture of the true nature of any government official’s ownership or financial interest. The company obtained detailed ownership information, which was corroborated by corporate documentation so that the company was confident that it had the true picture of the ownership structure.
· Market-based terms. The business relationship should be governed by commercial, market-based terms. If the market rate is paid, there should be nothing “extra” available for a corrupt payment. In this case, the company put the contract out to bid. Three local companies met the minimum qualifications and bid for the contract. The personnel provider submitted the lowest bid. The company also established that the pricing in the winning bid was in line with that of comparable vendors in the region.
· Separation of official responsibilities and private business interests. The minister who was the majority owner of the personnel provider did not hold a government position from which he could benefit or harm the company’s business, but his brother did. The company required the personnel provider’s majority shareholder to certify that he would not have any dealings with any government officials on behalf of the company or in connection with the company’s business.
· Transparency. The company also took steps to ensure that its commercial dealings with the personnel provider were conducted in an above-board, transparent manner, including entry into a standard vendor services contract with anti-bribery compliance provisions and standard invoicing requirements.
· Compliance with local law. The company worked with local counsel to ensure that the contract relationship complied in all respects with local law.
As the experience of this company reflects, significant compliance challenges presented by prospective business relationships with government officials can be overcome with careful thought and planning.