Imagine your company, a multinational corporation with operations around the world, uncovers a kickback scheme at one of its locations in which high-level managers are receiving personal payments from your company’s suppliers in exchange for ensuring those suppliers get your company’s business. As you weigh your company’s options, you are surprised to learn that the kickback scheme is not illegal under the country’s domestic laws. In fact, you may actually be violating domestic labor, privacy and contract laws if you attempt to discipline the managers or terminate the supplier relationships. Nevertheless, you are also potentially in violation of extraterritorial laws against commercial bribery like the U.K. Bribery Act and the books and records provision of the United States Foreign Corrupt Practices Act (FCPA).
This is the predicament that some companies may find themselves in when operating in countries that do make commercial bribery illegal. While much has been made recently over corruption enforcement actions like the FIFA indictment or the extra-territorial enforcement of commercial bribery under the FCPA, the more pressing challenge for multinational companies like the one described above is in combatting commercial bribery internally and in the marketplace in countries where commercial bribery is not illegal. Many countries still do not expressly prohibit, do not enforce, or have significant exceptions to commercial bribery laws, including countries like Mexico, Ecuador, Argentina, Italy, Japan, India, Taiwan, the Philippines, Indonesia, Myanmar, Thailand, Vietnam, Timor-Leste and Mozambique.
Commercial bribery is particularly daunting when it is your own employees who are soliciting or receiving the bribes, as opposed to paying them. The money or thing of value in the kickback scheme flows completely out of view and out of reach of the company’s compliance controls. The contractor, vendor or supplier makes a personal payment to your company’s employee and that’s it—there are no disguised company payments to review, monitor or approve.
In addition to the legal “lose-lose” that commercial bribery can put a company in, the practical consequences can also be quite significant. Companies that I often advise in sectors like energy, natural resources, maritime or other heavy industry must consider the potential safety risks commercial bribery poses when managers are making safety-critical decisions on supplier products and services pursuant to their own personal interest. A commercial bribery scheme can also increase a company’s costs given that the kickback will likely be built into the vendor’s price that it charges your company, whether you know or not.
To combat this type of commercial bribery, and to avoid the legal pitfalls that commercial bribery can present in countries where it is not illegal, companies must adopt a targeted and comprehensive compliance approach that properly addresses the unique challenges that commercial bribery presents.
1. Update and reintroduce your anti-commercial bribery policy
In most instances, a company’s compliance policy will reinforce, further define or raise a company and its employees’ level of expected behavior based on the existing laws that apply to them. However, in a country where commercial bribery is not illegal or not enforced, a strong anti-commercial bribery policy is your company’s main line of defense against such behavior. Therefore, it will be critical for your company to give managers, employees and vendors/suppliers proper notice of the company’s policy expectations when it comes to both commercial bribery and conflicts of interest.
Well-documented notice will also likely give your company more recourse options under domestic law if it is later discovered that the manager or employee is involved in a commercial kickback scheme. One critical way to do that is by obtaining certifications of ongoing compliance with an updated anti-commercial bribery and other related policies from your managers and relevant employees. The same holds true for the company’s suppliers, who should be addressed in a similar fashion through an updated supplier code of conduct that mirrors your anti-commercial bribery policy and is incorporated into purchase orders and supplier contracts.
You should also review any conflicts of interest language, whether in your code of business conduct or elsewhere in a stand-alone conflicts policy, to ensure that it is working together with your anti-commercial bribery prohibitions. It is often the case that a kickback scheme involving an employee and a supplier exists in tandem with multiple conflicts of interest that arise before any kickbacks are ever made.
2. Conduct separate trainings and interviews on commercial bribery and conflicts of interest
One of the biggest compliance challenges a company can face in addressing commercial bribery is trying to implement and socialize a policy that is not in line with the cultural norms of the business environment in which the company is operating in. After all, your company is trying to impose a stricter standard than is provided by local law and custom. On the other hand, many managers and suppliers often welcome the opportunity for an open discussion on conflicts of interest and commercial bribery. One of the best ways to get a better sense of the environment is to conduct separate, interactive training sessions with a series of commercial bribery hypotheticals for employee and manager groups to participate in.
Additionally, it can often be useful to schedule in advance one-on-one “general” interviews with mid- to high-level managers in conjunction with training to provide for specific discussions about particular risk areas. Just make sure that you are complying with all of the standard interview protocols, including complying with local labor laws, and that you make abundantly clear that the interview is not a part of any ongoing company investigation if that is the case.
3. Collaborate with friendly vendors, confront unfriendly vendors
When it is your own personnel who is soliciting and receiving commercial bribes, the vendors, suppliers or contactors on the other side can either be your company’s biggest ally or a great impedance depending on the situation. A vendor who does not tolerate commercial bribery can greatly assist investigating the matter internally by providing critical document access and insight of the scheme from the vendor’s point of view. The reverse, however, is also true. Ultimately, if there’s no threat of an enforcement action, it becomes a business decision whether to rehabilitate or terminate a relationship with a particular vendor.
To avoid having to make some of these tough decisions, separate trainings, interviews and certifications should also be conducted on the vendor/supplier side on a regular basis. This process should introduce clear reporting channels for vendors to communicate with the company’s legal compliance department so that a vendor knows it has a certain level of recourse should it be presented with an untoward request. While it is always critical to make sure that compliance information is being presented in the appropriate local languages, it is especially critical here given that local vendors, suppliers and contractors don’t always have the same level of English-proficiency as their counterparts.
4. Review and investigate your high-risk areas
Assuming every vendor or supplier is trying to bribe your employees to use their products and services, where is it most likely to occur and how would you be able to tell? The place to start is a review of internal controls on purchasing and contract authorization. This information and data will allow you to identify, in part, certain departments and personnel who face the most risk of soliciting or accepting a bribe or kickback payment from a vendor or contractor.
However, some of the most common risk areas are not easily determinable from standard contract, sales and accounting data. For example, a vendor’s sales agent can simply split his commissions with your company’s manager and there will be no trace of it in your sales or accounting records. The manager can also manipulate the bidding process to obscure the kickback costs that the vendor will build into its quotation. Similarly, business travel and company-sponsored events can be used to improperly influence your company’s employees if those processes are not properly managed.
Yet one of the most difficult commercial bribery areas for a compliance team to navigate is a “local content” quota, which is the common requirement on foreign companies operating in developing countries to use local labor, equipment, products and services. The normal red flags that might be raised by a particular vendor or contractor getting preferential or unusual treatment outside of the company’s internal controls can be obscured by local content justifications. Sorting out legitimate versus suspicious support of local content requires intimate knowledge of the company’s local operations and the ability to get the business information you need without making your in-country manager’s job more difficult than it needs to be.
In all cases, each potential risk area will need to be identified, reviewed and properly addressed. Those areas with greatest risk will then need to have their own compliance processes built up and integrated into the normal course of business, similar to the processes many companies already have for foreign government official bribery.
5. Install a permanent internal review team
The last key step is to institutionalize these compliance measures going forward. One way to do that is to assign key personnel within the company to assist legal compliance in the area of commercial bribery on both an annual and as-needed basis. The team’s primary functions should include ongoing participation in the above-mentioned initiatives as well as individual reviews and investigations where appropriate. While commercial bribery may be impossible to stop completely, taking the appropriate proactive steps to combat it can go a long way in reducing your company’s economic and reputational risks.