Beware corrupt payments abroad

A company with operations abroad looking for some excitement can likely find it by avoiding affirmative management of its risks arising from the potential that corrupt payments are made in its foreign operations. Given the enhanced enforcement environment surrounding corrupt payments abroad, it is a good bet that the failure to affirmatively manage these risks will produce some genuine corporate angst. This opportunity is now also open to those financing such businesses and their foreign operations, especially if they take both an equity position in a deal and board or management representation. Moreover, the increased use of U.S. wire and mail fraud statutes brings other corrupt payment schemes not involving foreign officials—a necessary element of a Foreign Corrupt Practices Act (FCPA) case—onto the U.S. prosecutors’ radar.

Tongue-in-cheek? Not entirely. Despite abundant evidence of increased enforcement, and even as corporate and individual heads roll, many business leaders and their counsel remain complacent about managing these risks. (See, e.g., Alan Rappeport, The Real Price of Payoffs, according to E&Y CFO.com, May 19, 2008.) The risks are much greater than even serious financial penalties: Major loss of revenue; trashing of corporate reputations; good deals going south through discovery, after-the-fact, of corrupt payment schemes in acquisitions and joint ventures; and individuals losing their jobs—and their liberty—are all features of the fallout from enforcement cases.

Why are these and related risks, including the imposition of enhanced penalties and outside corporate-compliance monitors, often given relatively short shrift? One reason is that conventional wisdom often says that only other companies are at risk, and this perspective, in turn, is commonly fostered by or coupled with a genuine belief that a sound compliance policy on paper—without more—is insulation against the dark side of human behavior that can visit any business organization.

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Foreign Corrupt Practices Act (FCPA): News and Updates.