Article by Felipe Allende1 and André Boivin
In recent years, changes to the landscape of corporate risk due to intensification of public scrutiny and evident tightening of foreign anti-corruption laws ("FACL") and their enforcement in North America, the UK and Europe, have prompted companies subject to such regulations2 ("Subject Entities") to be seriously focused on adopting and implementing rigorous internal policies, practices and compliance procedures in order to protect themselves against accusations of bribery and/or corruption of foreign public officials.
FACL do not apply to Latin American or other foreign companies unless they have certain nexus with a FACL jurisdiction. Nevertheless, FACL may still have serious indirect business implications for Latin American companies. A Subject Entity may be liable under applicable FACL for the conduct of its third party agents or intermediaries such as brokers, advisers, government relations experts, contractors, distributors and suppliers. Furthermore, a Subject Entity may also be liable under FACL for breaches by its foreign subsidiaries overseas. Therefore, in considering conducting business with Latin American and other foreign companies ("Local Partners") such as entering into partnerships, agency agreements, supply agreements, general investments or mergers and acquisitions, as a matter of practice, Subject Entities are now conducting (and are expected to conduct) serious due diligence processes with respect to their potential or current Local Partners in order to identify "red flags" and potential risks that may trigger liability for them under FACL as a result of their relationships with such Local Partners. Accordingly, Latin American businesses that act or want to act as Local Partners for, or seek to be acquired by, Subject Entities should be ready to meet the expectations of such Subject Entities who are subjected to very strict anti-corruption/bribery standards under FACL in their own local jurisdictions.
Whether or not Latin American businesses have compliance practices in line with FACL requirements will be likely a critical fact to be considered by Subject Entities at the time of choosing whom they conduct business with, especially in those areas or countries identified as having a high risk of corruption3.
Expectations under Subject Entities Anti- Corruption Programs
Subject Entities commonly conduct detailed anti-corruption due diligence over potential Local Partners or acquisition targets in order to identify whether or not they can incur risks of liability under FACL, as a result of dealing or acquiring such Local Partners or targets. In addition, they will require the Local Partners to provide certain representations and warranties as well as covenants to ensure FACL compliance, as part of their contracts. Consequently, Subject Entities' FACL compliance programs may generally entail:
- Conducting background checks of the local companies and individuals they will be dealing with;
- Requests to review the Local Partners' internal compliance policies and procedures with respect to preventing bribery and expect them to have rigorous internal accounting controls and procedures;
- Requiring the Local Partners to adhere to the Subject Entity's own FACL compliance policies and Code of Ethics;
- Requiring the Local Partners to provide very detailed accounting and back-up for expenses, payments and benefits procured to third parties on behalf of the Subject Entity or as part of the services performed for the Subject Entity.
How does a Local Partner get the edge and meet Subject Entity's expectations?
Adopting proper internal measures in order to be prepared to meet Subject Entities' expectations with respect to their FACL compliance programs may give a serious advantage over their competitors and the resulting economic benefits to those Local Partners interested to conduct business with or seek to be acquired by Subject Entities. A Local Partner can gain the edge and prepare to meet FACL compliance expectations of Subject Entities by adopting and implementing themselves FACL compliance steps and practices, which would include:
- Adopting, implementing and maintaining clear and simple anti-corruption policies that can be understood and applied by every employee within the Local Partner's organization. The adoption of a "zero tolerance" policy to any form of bribery is critical. The application of these policies should start and be encouraged by the senior management which, at the same time, should supervise such policies in its application by the employees. Additionally, engaging outside legal consultants in order to prepare effective anti-corruption policies along with anti-corruption procedures, suitable for the specific situation of the Local Partner according to its needs, the industry in which it evolves and the area where it is located is highly advisable.
- Conducting rigorous background checks of its own employees and prospective employees and agents to ensure individuals within the organization or who act on its behalf had not acted against in a manner inconsistent with FACL in the past;
- Adopting and implementing regular training programs for employees on anti-corruption/bribery compliance practices and require annual certification by each employee of his or her compliance with anti-corruption/ bribery policies;
- Ensuring proper internal controls, record keeping and accounting practices are in place, especially when it comes to expenses, payments and benefits procured to third parties on behalf of the Subject Entities or as part of the services performed for the Subject Entities;
- Assessing the relationships of the members of its organization with governments, public officials and politicians to ensure such relations are conducted in compliance with the FACL's principles. Be transparent and coherent in its communications and relationships with governments, public officials and politicians and be able to demonstrate the highest level of ethical behaviour when dealing with such persons. The discovery of undisclosed relationships between the Local Partner and governments, public officials or politicians will alarm any Subject Entities such Local Partner is dealing with.
- Establishing a monitoring process to control the effective application of anti-corruption/bribery policies and procedures adopted by Local Partners.
- With respect to a business that expects to be an M&A target of a Subject Entity, as it will be subjected to a detailed due diligence process regarding anti-corruption and bribery, it should be ready to set up and maintain an organized data base containing documentation related to anti-corruption/bribery compliance. Accordingly, sensitive information related to target's accounting, third parties/intermediaries/agents involved in the company's activities and participation of government agencies should be recorded and kept organized.
1. Felipe Allende is an associate at Bofill Mir & Alvarez Jana, in Santiago, Chile. He is currently working as a foreign consultant at Cassels Brock & Blackwell LLP.
2. See for reference the US Foreign Corrupt Practices Act of 1977, Canada's Corruption of Foreign Public Officials Act of 1999 and the UK Bribery Act of 2010.
3. Transparency International has identified Central and South America, Eastern Europe, the Middle East and South East Asia as areas with high risk of corruption.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.