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Corruption and Compliance

Legal Document Translation Services for FCPA

A look at the latest information on best practices for remaining compliant with the US Foreign Corrupt Practices Act.

We’ve blogged about certified legal document translation services for FCPA. At the end of 2012 the Foreign Corrupt Practices Act (FCPA) made headlines when the SEC alleged that the Eli Lilly and Company’s subsidiary in Russia used offshore “marketing agreements” to pay millions of dollars to third parties chosen by government customers or distributors, despite knowing little or nothing about the third parties beyond their offshore address and bank account information.

These offshore entities rarely provided any services and in some instances were used to funnel money to government officials in order to obtain business for the subsidiary. Transactions with offshore or government-affiliated entities did not receive specialized or closer review for possible FCPA violations. Paperwork was accepted at face value and little was done to assess whether the terms or circumstances surrounding a transaction suggested the possibility of foreign bribery.

In brief, the anti-bribery provisions of the FCPA make it unlawful for a US person, and certain foreign issuers of securities, to make a payment to a foreign official for the purpose of obtaining or retaining business for or with, or directing business to, any person. The FCPA also requires companies whose securities are listed in the United States to meet its accounting provisions. These accounting provisions, which were designed to operate in tandem with the anti-bribery provisions of the FCPA, require corporations covered by the provisions to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls.

According to SEC the allegation, when Eli Lilly became aware of possible FCPA violations in Russia it did not curtail the subsidiary’s use of the marketing agreements for more than five years. Lilly subsidiaries in Brazil, China, and Poland also made improper payments to government officials or third-party entities associated with government officials.

“When a parent company learns tell-tale signs of a bribery scheme involving a subsidiary, it must take immediate action to assure that the FCPA is not being violated,” says Antonia Chion, Associate Director in the SEC Enforcement Division. “We strongly caution company officials from averting their eyes from what they do not wish to see.”

The Increasing Need for Compliance Processes

In summary, Eli Lilly fell afoul of the FCPA by possessing a ‘check the box’ mentality when it came to third-party due diligence. So what can one do to not make these same mistakes?

For starters, companies cannot simply rely on paper-thin assurances by employees, distributors, or customers. They need to look at the surrounding circumstances of any payment to adequately assess whether it could wind up in a government official’s pocket.

This is particularly true as, according to a report by the international compliance consultancy Control Risks, there is an increasing level of extra-territorial all aimed at cracking down on business corruption. What this means for any business with operations in foreign countries is placing an even greater focus on compliance.

“What we are seeing is an extending reach of enforcement and a greater level of international cooperation being taken against both individuals and companies,” says the report. “On top of this you have to consider harsher penalties and the addition of peer policing.”

Although the focus currently seems to be on such high-risk sectors as oil and gas, medical and pharma, financial services and aerospace, one should take notice that no sector can afford to become complacent.

According to Control Risk, the costs of corruption is high and includes not only fines but also legal risks, damage to your reputation, commercial risks and sometimes even physical risks. “So what we advise our clients to do is to set up a process that starts from the top.”

What to Do

To protect oneself from liability, attorneys should advise companies to create a compliance process with the following components:

  1. Set the tone for compliance at the top
  2. Monitor and review regularly
  3. Conduct risk assessments
  4. Implement, educate and review internal policies
  5. Always conduct due diligence
  6. Communicate policies to all levels of corporation

The first step is to develop what is often referred to as Proportionate Procedures, meaning the actions you take should be proportionate to the risks you face and the size of your business. It is also essential to stress the importance of a ‘top level commitment’ where each level of a company has a senior champion for compliance issues.

After the procedures needed are defined, the next step is to conduct a risk assessment. The risk assessment should start by defining the scope and depth by bringing in key stakeholders and assessing risks across the business. An important question to ask is ‘what are your touch points with public officials?

It is further advised that due diligence be conducted on all third party relationships, including joint venture partners, sales agents and customs brokers. Successful compliance comes down to communication and monitoring, as you have to communicate your policies both internally and externally.

Finally, regular monitoring and review are key, meaning you should never become complicit but always go back to the beginning and do the entire process over again.

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