Besides the obvious lesson that the truth will always find its way out, Wal-Mart’s recent front-and-center position in the news offers the perfect platform for small businesses to learn about the Foreign Corrupt Practices Act should they ever decide to expandoverseas.
Wal-Mart’s Current Allegations
For those of you that might’ve missed it, David Barstow of The New York Times wrote an investigative piece, “Vast Mexico Bribery Case Hushed Up by Wal-Mart After Top-Level Struggle,” that was published Saturday and caused quite a stir.
The New York Times reports that in 2005 top Wal-Mart executives learned of rampant bribery by itsin Mexico and then sent an investigative team that confirmed the reports. Not only was bribery widespread, but the investigation also revealed that Wal-Mart de Mexico execs had knowledge of it and made an effort to conceal it from the company’s headquarters in Arkansas.
Wal-Mart executives then handed the internal investigation to Wal-Mart de Mexico’s general counsel, who supposedly approved the bribes and who proceeded to exonerate his colleagues.
Only in December, after Wal-Mart found out that the NYT was reporting on the subject, did the company alert the Department of Justice (DOJ) that it was conducting internal investigations into possible violations of America’s Foreign Corrupt Practices Act (FCPA).
For more details into the allegations, click here.
The Foreign Corrupt Practices Act was passed in 1977 and makes it illegal for American companies to bribe foreign officials. There are also books and records and internal control provisions included in the act, but we will focus on the bribery part today.
Avoiding bribery seems simple enough, but if you’re a small business owner that’s never had to deal with the FCPA, you might be wondering: What exactly is illegal?
“As a general matter, the anti-bribery provisions prohibit the corrupt payment of money or ‘anything of value’ to a ‘foreign official’ in order to ‘obtain or retain business,’” according to FCPA professor Mike Koehler.
He goes on to explain what a foreign official is:
The FCPA defines foreign official, as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.”
But the FCPA does not define department, agency, or instrumentality.
As a small business owner, if you’re considering conducting business in another country – especially one where bribery is prevalent – you need to first have a basic understanding of the FCPA (try reading The Lay Person’s Guide to the FCPA put out by the DOJ) and then make sure that you retain legal counsel to help you avoid any noncompliance with the act, especially since the DOJ has been handing out harsher enforcement penalties as of late.
The largest fine doled out under the FCPA has been $800 million, which Siemens AG had to pay. The next highest is Halliburton and KBR with $579 million.
Bottom Line: FCPA Compliance Is A Serious Matter
The takeaway from Wal-Mart’s situation is that FCPA compliance is a serious matter.
With press reports like the one from The Times, the attitude of “create a paper compliance program, but do not follow its rules” is something of the past. The days are gone when compliance efforts can be half-hearted. Unless management is fully committed, it runs massive risks under the law and with public relations. No executive wants his or her picture, like those at Wal-Mart, prominently displayed by a bribery headline. Compliance counsel would be wise to send The Times article to their management and boards as a precaution.
Keep this in mind: If you are planning to eventually sell your business and you operate in foreign countries where bribes are common practice, you can bet that potential buyers will closely scrutinize your compliance standards relating to payments of any kind. Be sure that your practices are in compliance with local and foreign laws long before you sit down to negotiate a deal with a buyer.
If you’re interested in seeing where most FCPA violations occur, The Mintz Group has created an interactive map breaking down FCPA fines by industry and identifying which countries are prone to FCPA violations. See it at fcpamap.com.
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