Jan 22 2009
fcpa avoidance and red flags
Sitting in a conference at Cooley Godward Kronish right now talking about the Foreign Corrupt Practices Act (FCPA), and I couldn’t help but laugh to myself that this is rampant in China business and law. (which is of course, what this blog is all about)
Anyways, I just wanted to highlight some of the red flags and avoidance mechanisms that the firm’s attorneys suggested. Here is an ounce of prevention they suggest, and my thoughts too:
- Designate a Compliance Officer. Not done enough. Actually, I think a lot of businesses view this as a nuisance. That is a no no if your business is large enough. (if it’s not, I empathize with your complaint about this) You have SOX (Sarbanes-Oxley) compliance. Get the right people thinking about FCPA too.
- Publish Corporate Policy. Again, not done enough. Stick it in your employee handbook. Publish this in your literature. Put it on your website. Just do it.
- Insert FCPA language into consultant agreements. This is something that most businesses are guilty of I think. And it’s a darn good idea. Why? Well, where do most of the FCPA violations occur? It’s with your foreign consultants. It’s with that guy you hired on the ground in China… don’t let them do the nudge nudge, wink wink thing and build it into their contract. Is that full proof? No. But do it.
- Foreign office audits. See my comments to the compliance officer one.
And of course, I wished I could laugh when I heard about the red flags, which I will share some of them:
- Unusual consulting agreements. See my comments above. My thought: have a standard consulting agreement… and then stick to it. I don’t know how many people capitulate when a consultant wants to have their own agreement. Don’t let them off the hook and insist on your agreement. If they don’t want to use it, you probably don’t want to hire the consultant.
- Bank accounts are controlled locally and not at HQ. Duh. If this is happening, I’m wondering why your CFO and controller hasn’t had a heart attack unless your local office is that big.
- Suppliers’ lack of standard invoices. This is opening a can of worms if your suppliers arent doing regular invoicing. Why? Kickbacks. So enforce this on your supplier. And trust me, you probably don’t want a supplier without one. Sure, you might save some money in the short term, but in the long run, find a good supplier. Who has decent invoicing.
- “You don’t understand how business is done here”. ‘Nuff said.
All very helpful advice. Get compliant if you’re a U.S. based business–one day, you don’t want to stare down the barrel of one of these investigations.
