Corporate Executive Board

How Foreign Growth Can Land You in Jail


Western multinationals are looking to find growth in developing markets this year. In many of these places, paying bribes is expected—but beware. It can land you in jail back home. With weak growth prospects at home, western firms are increasingly looking to grow in developing markets. But to get things done in those places—and especially to get anything done fast—companies often find that they are expected to pay off local officials. Doing business always requires licenses, permits, and approvals. However, in many developing countries, such things can be hard to get without paying bribes. While this may be common practice in developing markets, it is a crime back home here in the U.S. This leaves companies in a tough spot. Just when companies need to move fast in foreign markets to drive growth, U.S. authorities are stepping up their enforcement of the Foreign Corrupt Practices Act. This summer, an American investor was sent to jail because he allowed bribery to happen at a foreign company in which he had an interest. He didn't offer any bribes; he went to jail for tolerating bribery by others. This kind of enforcement is expected to continue—American authorities have over 100 investigations under way currently—and it puts companies at real risk. Consider the fact that Western managers often hire consultants to help get operations going in a new country, and consultants sometimes quietly pay bribes to move the process along. Even if the consultant pays the bribes, the bribes are a federal crime—and American managers can go to jail for them. Times have changed because enforcement has changed. Until recently, companies tried to stay in the dark about their consultants' activities. They figured that they couldn't be held liable for actions they never directed or approved. But today, ignorance is no longer a defense as far as the Department of Justice is concerned. And yet far too many companies still fail to take an honest look at what their foreign employees, agents and consultants are doing. With corporate practices quickly changing and authorities increasingly coming to expect a certain level of due diligence in foreign operations, every company doing business abroad should have the following key things in place to manage corruption risk: • A policy prohibiting bribery • A way for employees to report violations of the policy • Education on the requirements of foreign and American law • Financial controls allowing the tracking of money and payments • Audit practices to test the effectiveness of the policy, reporting lines, education and controls

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