Distributor due diligence, a double dose of say what, news from the World Bank, and an FCPA-related sentence reduced. It’s all here in the Friday roundup.
Distributor Due Diligence
David Simon and Alex Kramer (Foley & Lardner – here and here) recently authored “Here’s How U.S. Companies Can Practically Manage FCPA Risks That Come With Global Distribution Networks” in Bloomberg BNA, Prevention of Corporate Liability, Current Report.
The authors note as follows. “While in some areas of the law selling a product to a distributor may insulate a company from liability, the same cannot be said for the FCPA. When a distributor purchases a product, title technically shifts, but if the distributor is seen as acting as a representative of the company whose goods it sells in foreign countries, and that distributor engages in bribery of foreign officials, FCPA liability may very well attach to the company. Consequently, companies need to be careful when working with distributors to ensure they do not engage in corrupt conduct that may wind up costing a company millions in fines and penalties and investigation and defense costs.”
The article next states as follows. “Many companies employ vast distributor networks, sometimes including hundreds, if not thousands, of distributors around the world. Many distributors are more like customers than agents; they merely purchase a product and resell it to others, often in conjunction with other products purchased from other manufacturers. Is it really practical and necessary to conduct full FCPA due diligence on every one of those distributors? Do the U.S. companies in these situations even have the leverage to insist on FCPA representations and warranties in the written agreements, to demand audit rights, and to require certifications by and training of these distributors? The question thus arises whether U.S. companies are faced with a difficult choice either to accept substantial FCPA risk or to devote disproportionate resources to running an FCPA compliance program that fully vets all distributors. We think the answer to this question is ‘‘no’’ and that there is a practical way to minimize the FCPA risk associated with a global distributor network without devoting an unreasonable and disproportionate amount of resources to compliance.”
The practical way?
The authors suggest as follows. “We recommend that companies following a risk-based approach take this risk analysis a step further and focus on the nature of their relationships with their distributors. The goal should be to determine which distributors are the most likely to qualify as agents, for whose acts the company can be held responsible. Think about this as a continuum of risk. On the low-risk end are distributors that are nothing more than resellers with little actual affiliation with the supplier company. On the high-risk end are distributors who are very closely tied to the supplier company, who effectively represent the company in the market and end up looking more like a quasisubsidiary than a customer. [...] Once a company segregates the high-risk distributors that likely qualify as agents and potentially subject the company to FCPA liability from those that are mere resellers and pose little FCPA risk, FCPA compliance procedures can be tailored appropriately. For those distributors that qualify as ‘‘agents’’ and also pose FCPA risk, full FCPA due diligence, certifications, training, and contract language are imperative. For those that do not, more limited compliance measures that reflect the risk adjusted potential liability are perfectly appropriate.”
Say What? (1)
A recent op-ed in the Minneapolis Star-Tribune (here) was titled “Good Companies Don’t Bribe. Period.”
To be sure, certain Foreign Corrupt Practices Act enforcement actions are based on allegations that executive management or the board was involved in or condoned the improper conduct at issue. For this type of FCPA enforcement action, the title of the article is indeed spot-on. However, this type of FCPA enforcement action is not typical. As noted in this prior post, there are several companies that I call the “World’s Most Ethical FCPA Violators.” These are companies who have earned designation as one of the “World’s Most Ethical Companies” by Ethisphere yet still, during the same general time period, have resolved an FCPA enforcement action or are otherwise the subject of FCPA scrutiny. Companies on this list include: General Electric, Statoil, Deere & Company, Hewlett-Packard, Rockwell Automation, AstraZeneca, Novo Nordisk, and Sempra Energy. For more, see this article from Corporate Crime Reporter titled “World’s Most Ethical Companies and the FCPA.” See also this prior post discussing W.W. Grainger’s recent FCPA disclosure and noting that the company is consistently ranked as one of the “world’s most admired companies” by Forbes.
Say What? (2)
This recent post on the FCPA Blog states as follows. “There’s a reason why you don’t see many of the biggest U.S.-based government contractors on the FCPA top ten list [...]. Not that they didn’t struggle with compliance during the early years of enforcement, but they moved quickly to update their compliance and ethics programs once they saw the tide of FCPA enforcement turning. Then they moved on.”
Here is the list of the largest contractors in the government market based on an analysis of government procurement data during fiscal 2010. Seven of the companies in the top twenty-one have, in the past few years, resolved FCPA (or related) enforcement actions or are otherwise the subject of FCPA scrutiny: Raytheon, H-P, KBR, Dyncorp, ITT Corp., IBM, and BAE.
The “U.S.-based” and “FCPA top ten list” qualifiers were apparently chosen carefully in the FCPA Blog post.
World Bank News
Earlier this week, the World Bank announced (here) publication “for the first time a set of decisions issued by the World Bank Group’s Sanctions boards in cases of alleged fraud and corruption.” World Bank Managing Director Sri Mulyani Indrawati stated as follows. “The World Bank Group takes a hard line against corruption, and we believe that greater transparency must be part of that effort. By publishing Sanctions Board decisions, we are making all parties involved in the sanctions process more accountable. This move should deepen the deterrent effect of debarments and enhance the educational value of the Sanctions Board’s findings.”
The Sanctions Board decisions can be found here.
Antoine’s FCPA-Related Sentence Reduced
This recent post provided a Haiti Teleco roundup. As noted in the prior post, the Haiti Teleco case (minus the manufactured and now former Africa Sting case) is the largest in FCPA history in terms of defendants charged – 13. Among the group of defendants were three “foreign officials” charged with non-FCPA offenses including Robert Antoine, the former director of international affairs at Haiti Teleco who pleaded guilty in March 2010 to conspiracy to commit money laundering. In June 2010, he was sentenced to 48 months in prison.
As Samuel Rubenfeld (Wall Street Journal Corruption Currents) noted in this recent post, Antoine, ”who testified twice at trial on behalf of prosecutors in foreign bribery cases had [his] four-year prison sentence reduced to 18 months, and he will soon be out of prison.”
A good weekend to all.