Shepherding international interests

Ken Springer, head of Corporate Resolutions, describes how 2011 has seen GPs ramp up their use of investigators to ensure compliance across the globe.

There were two significant events in 2011 that caused private equity firms to assess how they handle business overseas: Lindsey Manufacturing/FCPA and the UK Bribery Act. While most people are probably familiar with the UK Bribery Act, the impact of the Lindsey Manufacturing decision on the ways in which companies respond to the US Foreign Corrupt Practices Act (FCPA) is substantial and probably went unnoticed by many.

In May 2011, Lindsey Manufacturing, and two of its senior officers, were tried and found guilty of violating the FCPA relating to how the company obtained contracts in Mexico. In the past, the Department of Justice (DOJ) dealt with FCPA violators through settlement agreements and hefty fines. This was the first time that a company went to trial for these types of actions. A similar case involving Control Components Inc. resulted in several guilty pleas of the company’s officers who used bribes to secure government contracts in Malaysia, United Arab Emirates, China and other foreign countries. In this case, the plea agreements involved levying enormous fines, sentencing of some corporate officers, among other things. There have been numerous companies who have been charged with, or are being investigated for, FCPA violations this year: from Diageo plc to Tyson Foods and Alcoa, and most recently, Avon. These cases highlight how seriously the DOJ is policing the FCPA and why firms must to be attuned to these decisions.

On a similar scale, the UK Bribery Act came into effect in 2011 and is a very broad law that basically says you are engaging in wrongdoing if you not only bribe officials for business (active bribery) but also if you accept bribes (passive bribery) and if you fail to prevent bribery. The act applies to companies in the UK and/or companies from the UK that have offices abroad and is punishable through fines and imprisonment.  

PE firms must revisit the policies of their multinational interests and endorse the education of their employees and officers

The impact of these two landmark events is this: PE firms must reevaluate how their international interests operate lest they become victims of this international increased inspection of business policies.

From our end of things, as experts in the field of business investigations here and abroad, we have conducted many inquiries that assist companies in ensuring their international offices (and third-party agents) are in compliance with the FCPA. Within the last year, these examinations have increased. More PE firms have heightened awareness of the repercussions of FCPA and UK Bribery Act and have responded accordingly. So, what does this mean?

Basically it boils down to two basic ways PE firms, and other US companies operating abroad, can ensure they are in compliance of these rules: education and enforcement. PE firms must revisit the policies of their multinational interests and endorse the education of their employees and officers.  Everyone should understand what is allowed and what is not allowed. Oftentimes, business for favours/money is so ingrained in the operations of a company that the premise of not behaving this way is incomprehensible. But, if the company understands the new ramifications of these old-school behaviors, it will become apparent that this is the only way to succeed.

Once the company’s officers and employees have been educated on FCPA and UK Bribery Act restrictions, it is crucial that these rules be enforced. This often results in a revamping of a firm’s Code of Ethics policies, hiring of, or designating, a compliance officer or someone who can properly and thoroughly monitor the actions of the company to ensure the company is doing its best efforts to actively comply with these regulations. Willful blindness is no longer an acceptable corporate policy. Governments typically respond favourably when they are aware companies have gone to great lengths to ensure compliance. Also, adding an Ethics Hotline for employees, vendors and others to anonymously report instances of bribery or wrongdoing in general is an invaluable tool for board members to keep a quiet eye on the operations of a company and will also score points with the regulators.

Kenneth Springer is President and Founder of Corporate Resolutions Inc., a business investigations firm that conducts background checks and business intelligence globally and other specialised investigative services