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27
Nov

Creating and Implementing Anti-Bribery Compliance Programs

 

Many countries, including the United States, have specific laws on conducting business with foreign government officials that may come into play in any given export sales or other international transaction.  The US Foreign Corrupt Practices Act (“FCPA”) includes comprehensive anti-bribery provisions and accounting and internal audit requirements designed to ensure that companies establish and maintain adequate compliance procedures.  In general, the FCPA prohibits US companies from making corrupt payments to foreign officials for the purpose of obtaining or keeping business.  The FCPA also requires issuers of securities to meet its accounting standards. These accounting standards, which were designed to operate in tandem with the anti-bribery provisions of the FCPA, require companies covered by the provisions to maintain books and records that accurately and fairly reflect the transactions of the company and to design an adequate system of internal accounting controls to ensure that transactions subject to the FCPA are properly executed and recorded.  The Department of Justice (“DOJ”) is the chief enforcement agency, with a coordinating role played by the Securities and Exchange Commission (“SEC”).  The consequences for a violation of the FCPA are extremely severe, both for the company and individuals, and may include criminal sanctions and civil liabilities.

While the FCPA is obviously a matter of principal concern to US companies with respect to corrupt practices in foreign countries, notice should also be taken of global initiatives relating to bribery and extortion such as the OECD Guidelines for Multinational Enterprises and the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, December 18, 1997, 37 I.L.M. 1 and UN Convention Against Corruption, G.A. Res. 4, UN GAOR, 58th Sess., Agenda Item 108, UN Doc. A/RES/58/4 (2003).  Other international agreements relating to bribery and corruption include the African Union Convention on Preventing and Combating Corruption (2003), the Inter-American Convention against Corruption (1996) and the European Union Convention on the Fight against Corruption Involving Officials of the European Communities or Officials of Member States of the European Union.

Numerous countries have also adopted their own laws relating to bribery of public officials and there is a decided increase in enforcement activities in foreign jurisdictions.  Anti-bribery training should be localized and should cover not only the company-wide policies adopted at headquarters in the US but also the actual requirements and prohibitions of local laws.  This means that all training and compliance tools should be translated as needed in order to be understood and followed by employees in all countries where the company is conducting business.  When necessary, advice should be obtained from local counsel; however, care should be taken in selecting local counsel since lawyer in many developing countries rely heavily on relationships with local governmental officials and those relationships may cloud the advice they provide to foreign companies considering inbound investment activities.

When assisting clients with developing anti-bribery programs for activities in foreign countries, business counselors should also refer to several useful indexes and related tools that have been developed to measure corruption around the world.  One well-known index is the Corruption Perceptions Index, or “CPI”, published annually by Transparency International. The CPI consists of scores for various countries based on how corrupt their public sectors are seen to be. Also useful is the TRACE Matrix developed by Rand Corporation and Trace International.  The TRACE Matrix is an index for business bribery risk in various countries that takes into account factors such as difficulty of doing business; need for interactions with government; the relevant antibribery laws and regulations; information concerning enforcement of domestic and international antibribery laws and regulations; a measure of government transparency and quality, including budgetary transparency; information about a government’s civil service quality and management; and civil society oversight, including the role of the press and media.

In addition, companies can and should adopt antibribery management systems.  Of note in this area is ISO 37001, the antibribery management systems standard adopted by the International Organization for Standardization (“ISO”) and set for final publication by the end of 2016.  ISO has described ISO 37001 as being designed to help an organization establish, implement, maintain, and improve an anti-bribery compliance program or “management system” by adopting a series of measures and controls that represent global anti-corruption good practice.  ISO 37001 applies both to bribery by the organization, or by its personnel or business associates acting on the organization’s behalf or for its benefit, and to bribery of the organization, or of its personnel or business associates in relation to the organization’s activities.  The recommended measures and controls should be familiar to companies that have consulted prior international standards and the DOJ guidelines and include an anti-bribery policy, procedures, and controls; top management leadership, commitment and responsibility; senior level oversight; anti-bribery training; risk assessments; due diligence on projects and business associates; reporting, monitoring, investigation and review; and corrective action and continual improvement.

ISO 37001, like ISO 9001 (the quality management systems standard), is a “requirements standard”, which means that companies will be able to seek and obtain certification from accredited third parties that their antibribery management systems meet the standard’s criteria.  It is expected that implementation of ISO 37001, including certification, will provide reassurance among investors and other stakeholders that an organization has an effective system in place to manage the risk of bribery.  It is also likely that companies will require participants in their supply chain to obtain ISO 37001 certification.  In addition, ISO 37001 certification will become an important part of a company’s corporate social responsibility initiative and can be cited as an indicator of the company’s commitment to ethical business practices.

New Chapter 271 of Business Transactions Solution on WESTLAW, titled “Anti-Bribery Compliance”, covers the design and implementation of compliance programs necessary for fulfilling the requirements of the FCPA as well as local anti-bribery laws that have been adopted by foreign countries around the world.  The chapter includes a detailed discussion of the key provisions of the FCPA and the essential elements of an anti-bribery compliance program.  The materials include a Master Form and Clause Library for an FCPA compliance policy. The specialty forms library includes a letter from the chief executive officer to employees regarding the FCPA compliance policy and FCPA policies and procedures.  The chapter also includes foreign subsidiary FCPA compliance audit worksheets and conflicts of interest policies, FCPA accounting and internal control review worksheets, a client executive summary regarding the FCPA, a template for a client alert regarding FCPA recent and anticipated developments and a slide deck presentation on FCPA compliance counseling suitable for law firm and department training purposes.  Related issues are covered in other Business Transactions Solution chapters on Compliance Programs (§§ 229:1 et seq.), Launching and Managing Global Business Activities (§§ 259:1 et seq.) and Building and Managing a Global Law and Compliance Program (§§ 269:1 et seq.).

Want to learn even more?  Sign up for the webinar on “A Short Course in Implemeting and Maintaining an Effective Foreign Anti-Bribery Compliance Program under the FCPA” being presented by West Legal Ed Center and the Business Counselor Institute on Tuesday, December 6th at 11:00 AM Central Time.  Follow this link for registration information.  It’s the third of a four part series on Going Global to help you be better prepared for client questions on growing their businesses in foreign countries.  You can learn more about the series here.

20
Nov

Smooth the Going Global Voyage with an International Business Plan

 

While companies are often heavily involved in a specific transaction or activity involving a foreign partner or assets and resources located outside of the US, it is always important to remember that the goals and objectives of the transaction or activity should be consistent with the company’s overall international business plan and strategy.  While companies, particularly small ones, can globalize their businesses without a formal plan, it is recommended that management invest the time and effort necessary to develop an international business plan.  While all plans will differ depending on the company, its products and services, and the key purposes for conducting business outside of the US, an international business plan will typically include a comprehensive analysis of global competitive conditions and the current status of the company and then set out strategies for using foreign markets and resources as a way to improve performance across all the company’s business functions and activities.  The guiding principle in preparing an international business plan is recognizing that the markets and resources that the company needs in order for its business to be successful can be found, and must be pursued, all over the world.  The planning process also has other important byproducts, including identification of potential export markets and customers and overseas investment opportunities and organization and presentation of information necessary to obtain capital from outside sources to expand foreign operations.

The structure and focus of the international business plan will be influenced by the type of business engaged in by the company and its stage of development in its traditional US markets.  For example, for an established company, the international business plan will focus on identifying and penetrating foreign markets that are most likely to be quick adapters of the company’s existing products and services.  The plan for these companies is also more likely to include a search for opportunities in foreign countries to reduce costs of manufacturing and raw materials, while still concentrating sales activities on their home market.  The international business plan for product-driven companies, such as consumer goods companies or software and computer manufacturers, will focus on identification and exploitation of new foreign markets for their products and sources of labor and materials.  For these companies, effective competition will be based on rapid innovation, brand identity and development of local distribution capabilities.  For a service-based business, the planning process should be used to determine whether there is sufficient potential demand for the services in the target foreign market and what changes will need to be made to the company’s domestic service offerings in order to accommodate local conditions and cultural attitudes.

There are no formal requirements that must be satisfied in determining the contents of the international business plan; however, there are certain guidelines that should be followed in order to insure that necessary information is collected and all the relevant issues are considered.  While there are a variety of ways to organize an international business plan, it is generally useful to begin by describing the company’s current business, including activities already conducted outside of the US, and the main products or services offered by the company.  The next step is evaluating the company’s current position, both in the US and within the broader global industries in which the company competes.  This competitive analysis is crucial to determining the content of the balance of the international business plan.  For example, if the analysis points to softening of the US market for the company’s products, exporting strategies should be an important part of the action items in the international business plan along with the possibility of launching product development initiatives in foreign markets.  Organizational changes should also be addressed in the plan since globalization generally requires a substantial shift of resources and management authority away from US headquarters.  Finally, as with any other business plan, the working group should expect to prepare budgets, schedules and tactical plans. For further discussion of the elements of a business plan and how a plan should be organized and prepared, see Strategic Planning (§§22:1 et seq.).

While there are a large number of books and articles available on how to write an effective business plan, relatively little is available on the preparation of a business plan that is global-focused, or international.  An international business plan is quite challenging to prepare and maintain because the following key differences always need to be carefully considered:

  • While a domestic plan must acknowledge the need for market segmentation based on demographic differences within a single country, an international plan must account for the unique cultural and language differences in each of the countries designated as targets for products and services.
  • Since countries have different regulatory policies with respect to foreign participation in the local economy, the plan must include entry strategies for each of the new target markets that will satisfy applicable local law requirements.
  • An international business plan is inherently more risky due to problems in obtaining and analyzing information on local markets. As such, the company must explore different scenarios and attempt to anticipate a broader range of problems than if the company was active only in its local market.
  • While a domestic-only business plan tends to be product and sales oriented (i.e., what products should be developed and how should they be sold within the domestic market), an international business plan should be broad enough to include acquisition of resources that can be exploited back in the domestic market. For example, a company’s “business plan” with respect to a given country might be limited to acquiring low-cost manufacturing capacity or raw materials, as opposed to actually selling products in the country.

This month’s supplement to Business Transactions Solution includes a new chapter on International Business Plans (§§ 261:1 et seq.) that covers the key steps in the development of an international business plan.  While companies can globalize their businesses without a formal plan, it is recommended that management invest the time and effort necessary to develop an international business plan.  While all plans will differ depending on the company, its products and services, and the key purposes for conducting business outside of the US, an international business plan will typically include a comprehensive analysis of global competitive conditions and the current status of the company and then set out strategies for using foreign markets and resources as a way to improve performance across all the company’s business functions and activities. The guiding principle in preparing an international business plan is recognizing that the markets and resources that the company needs in order for its business to be successful can be found, and must be pursued, all over the world.  The planning process also has other important byproducts, including identification of potential export markets and customers and overseas investment opportunities and organization and presentation of information necessary to obtain capital from outside sources to expand foreign operations. The chapter discusses the elements and special characteristics of an international business plan and the steps that should be taken to draft the plan and implement and monitor the plan once the drafting is completed.  Each of main sections of the international business plan is described with specific emphasis on content and focus that distinguishes an international plan from the plan that the company might otherwise prepare for purely domestic operations. The specialty forms library includes Examples of international business plans for the formation of multi-functional foreign subsidiary, a software company adapting foreign products to local market, a technology product company entering multiple global markets and a consumer goods company opening outlets in new foreign market.  The chapter also includes a checklist for preparing an international business plan and a slide deck presentation on international business plan preparation to be used for law firm and department training purposes.  Related issues are covered in the chapters on Strategic Planning (§§ 22:1 et seq.), Offering and Disclosure Documents (§§ 152:1 et seq.) and Evaluating Foreign Markets (§§ 260:1 et seq.).

Want to learn even more?  Listen to the webinar on “Assisting Clients with Developing and Implementing an Effective International Business Plan” presented by West Legal Ed Center and the Business Counselor Institute, which was available live and “on demand”.  Information on registration is available here.  It’s the second of a four part series on Going Global to help you be better prepared for client questions on growing their businesses in foreign countries.  You can learn more about the series here.

13
Nov

Learning to Be a Global Business Counselor

 

For the past several centuries, companies wishing to do business internationally were faced with two major problems: distance and time.  Fortunately, with the emergence of virtually instantaneous communication methods, including telephones, computers, videoconferences and mobile communications devices, and the ability to be in almost any other part of the world within 24 hours, distance and time are no longer major concerns for operating on a global playing field.  In fact, today all businesses, from start‑up firms to large mature companies, must operate and compete in a rapidly changing international environment that includes both opportunities and challenges.  For example, firms cannot afford to pass up foreign markets that can offer supplies, technology, low cost manufacturing, human resources and, most importantly, potential customers for their goods and services.  However, going global is not always easy and firms can expect stiff competition from local companies with access to emerging capital and credit markets.  In addition, foreign countries are joining together to form regional trading systems and US companies must invest time and effort in understanding these systems in order to successfully penetrate markets in these countries.  Many foreign governments are also aggressively supporting their own industries and firms through comprehensive industrial policies.  Finally, each new market has its own unique requirements with respect to product characteristics and distribution.  As a result, US firms must develop the capability to differentiate existing products to meet the needs of foreign markets and must understand the distribution channels in those markets.

Companies, both large and small, consider “going global” for a variety of different reasons.  Some of the more tangible benefits include opportunities to reduce costs and risks, secure additional access to necessary supplies, improve customer service and relations and, of course, gain access to new markets for the company’s goods and services.  For example, for most companies, one of the primary reasons for establishing a facility or function in a foreign market is to take advantage of perceived opportunities to reduce the costs of operations and production.  As for risk reduction, this will hopefully occur through diversification of the company’s market opportunities that comes from tapping into the interests of foreign customers.

Companies may also look at global operations as a way to learn about new ways to improve operations throughout the company and to gain access to attract talented managers, engineers and scientists from foreign countries who can make a contribution to the entire organization.  For example, a US company seeking to decrease the costs associated with its manufacturing activities can partner with firms in foreign countries that specialize in “lean” production techniques.  This allows the company to immediately lower its production costs and gain access to know-how and technology that can be deployed in the US and in other foreign countries.  In addition, companies are establishing offices and research centers in foreign countries to expand their knowledge network and improve the quality and breadth of their core competencies.  For example, a company can literally globalize its innovation processes by establishing multiple R&D laboratories around the world and connecting scientists and engineers from different countries through networks that allow them to collaborate on continuous development of new technologies and product concepts.

Since almost all of your clients will eventually globalize their activities, even if just in a small way, it is essential for you to see your role as a global business counselor and to take steps to familiarize yourself with the methods that your clients will use to “going global” and the legal issues they are likely to encounter.  This month we have added two valuable training tools to Business Transactions Solution on WESTLAW to help make you a better global business counselor.  A slide deck presentation on Globalization (§259:164) can be used for law firm and department training purposes and all of the basics are covered in a new Business Counselor’s Guide to Globalization (§259:165).

Want to learn even more?  Sign up for the webinar on “Why Your Clients Must (and How They Can) Go Global” being presented by West Legal Ed Center and the Business Counselor Institute on Tuesday, November 22nd at 11:00 AM Central Time.  Follow this link for registration information.  It’s the first of a four part series on Going Global to help you be better prepared for client questions on growing their businesses in foreign countries.  More materials relating to the subject matter of the post can be found here.

A version of this post originally appeared Thomson Reuters’ Legal Solutions Blog and all of Alan Gutterman’s posts on that blog can be accessed here.