One of my favorite FCPA compliance visuals is the one about the ambulance and the cliff. The saying goes that it is much easier to park the ambulance on top of the cliff, where it can keep people from falling off, than it is to park it at the bottom, where it must pick up the bodies. In terms of the FCPA, modest, up-front precautionary measures can avoid significant FCPA liabilities on the backend.
But can FCPA compliance actually be good for business too? The proposition might seem counterintuitive. How can more breaks on business actually be good for business? Compliance is time consuming and misdirects scarce company resources.
However, practitioners who have worked with multiple companies on compliance see it happen. Companies that do compliance right are positioned to achieve concrete business benefits. Here are the reasons that FCPA compliance experts give:
Strength. Compliance projects strength. When a company sends a consistent message that it conducts itself ethically, foreign officials are less likely to ask for bribes. Conversely, tolerating improper payments is a slipper slope. Once foreign officials tag your company as one that will pay bribes, the requests become more frequent and the amounts much larger. Sergio Cicero Zapata, the former Wal-Mart de Mexico executive who ran its bribery scheme, told the New York Times about “contending with ‘greedy’ officials who jacked up bribe demands.” FCPA attorney Sanjay Bhandari explains the correlation between bribery and weakness:
Strong competitors with strong management generally do not engage in illegal payments. Bribes flourish where you have weak competitors and/or poor management. Similarly, in remediation efforts, my experience has been that replacement of bribery by strong management rarely results in any loss of business, and often leads to increased profits.
Certainty. Tolerating bribery leads to business uncertainty. Contracts built on corruption are generally not enforceable in courts. Off-the-books accounts set up for bribery can be used for fraud and other abuses. Before the company knows it, it could have Enron-sized problems. In contrast, adhering to the rule of law helps ensure certainty and continuity.
Quality. FCPA compliance improves quality control. For example, procedures create a protective check on the types of partners with whom a company chooses to do business. Due diligence and monitoring help identify third parties that are essential. They weed out the ones that are not. M&A due diligence for corruption issues means that partners are fully vetted. As FCPA attorney and author Aaron Murphy explains: “In the M&A context, robust FCPA due diligence helps ensure you don’t buy a catastrophe, and if you’re hoping to be a target, a strong compliance program will make you more attractive to buyers, because you won’t be that catastrophe they’re trying to protect against.”
Reputation. While some short-term sales may be lost, compliance serves as a long-term investment in reputation. Compliant companies understand that the cost of an enforcement action is not only the fine, it is also the consequences of a damaged reputation in the marketplace. No company wants to be known as the poster child for a new and unique bribery scheme.
Optimization. When well-designed internal controls are in place, companies are positioned to operate more efficiently. Controls create accountability that leads to better performance. They also help companies obtain better information about their businesses – the types of sales practices being used, the circumstances that employees confront in the field, the obstacles that logistics teams experience. When companies better understand the landscape, they can structure operations to respond more effectively. They are positioned to navigate pitfalls. Compliance lawyer Paul Liebman explains, “When you understand the boundaries of your bets, you make better bets.”
Morale. Employees tend to have better morale when they work for companies committed to doing business the right way. Better morale leads to better productivity. It is not easy to work for an organization that tolerates unlawful activity.
The FCPAméricas blog is not intended to provide legal advice to its readers. The blog entries and posts include only the thoughts, ideas, and impressions of its authors and contributors, and should be considered general information only about the Americas, anti-corruption laws including the U.S. Foreign Corrupt Practices Act, issues related to anti-corruption compliance, and any other matters addressed. Nothing in this publication should be interpreted to constitute legal advice or services of any kind. Furthermore, information found on this blog should not be used as the basis for decisions or actions that may affect your business; instead, companies and businesspeople should seek legal counsel from qualified lawyers regarding anti-corruption laws or any other legal issue. The Editor and the contributors to this blog shall not be responsible for any losses incurred by a reader or a company as a result of information provided in this publication. For more information, please contact Info@MattesonEllisLaw.com [1].
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