FCPAméricas Blog
FCPA Contract Provisions for Latin American Third Parties: Other important provisions
11.14.2013
This post is third in a series regarding local particularities that multinationals should take into account when drafting FCPA contract provisions for Latin American counterparties. Part I of this series describes how to avoid pitfalls in connection with audit rights clauses. Part II discusses complexities in requiring third parties to actively report certain information. This post discusses other provisions that can present challenges to efforts to reduce FCPA exposure.
Reps and warranties. In addition to representations and warranties that the third party has not violated and will comply with the FCPA, it is important to obtain such commitments with respect to local anti-corruption and procurement laws (which often have prohibitions similar to the FCPA anti-bribery provisions). If contracts have to be enforced locally, local courts and arbitrators will be familiar with local laws, making enforceability easier.
Contract termination. Companies often include provisions that allow them to terminate the contract if the third party violates the FCPA or other anti-corruption laws. In Latin America, when companies exercise such clauses, it is possible that a court might require a final judicial or decision in arbitration on whether a violation has occurred, which is often time-consuming. Given this, companies should consider clauses that allow them to terminate the agreement immediately, at their sole discretion, if the company has reason to believe that the third party has violated anti-corruption laws or other compliance provisions of the contract, or if the company finds out that the representations and warranties are inaccurate or incomplete.
Use of subcontractors. Under the FCPA and many local laws in Latin America, companies can be held liable for the illicit acts of their third party agents as long as the acts are committed in the company’s interest or for the company’s benefit. These risks can be heightened if a company’s local counterparty engages subcontractors to carry out their activities. Because of this, companies doing business in Latin America should consider including contract provisions that prohibit third parties from engaging or using subcontractors for activities described in the contract without prior and express authorization, in writing, by the company.
Obligation to maintain accurate books and records. Local counterparties in Latin America often keep little documentation about the activities they carry out for companies. As such, companies may consider requiring their local counterparties to accurately document in their books and records all transactions and information related directly or indirectly to their engagement. This could include, for example, expense reports of the local counterparty’s employees, and emails related to a project. Moreover, companies should consider requiring their counterparties to keep such documentation for a certain period of time after the expiration or termination of the agreement (e.g., 5 years).
Information about political contributions. As mentioned in an earlier post, political contributions in Latin America have often been a source of compliance issues. To address this, companies should consider requiring third parties to provide information about political contributions made by the third party to any political party or candidate. This would allow companies to identify red flags. For example, if a sales agent for a specific state is also one of the biggest contributors to the Governor’s campaign, the company might need to conduct additional due diligence, apply additional safeguards, or decide not to use the agent.
The opinions expressed in this post are those of the author in his or her individual capacity, and do not necessarily represent the views of anyone else, including the entities with which the author is affiliated, the author`s employers, other contributors, FCPAméricas, or its advertisers. The information in the FCPAméricas blog is intended for public discussion and educational purposes only. It is not intended to provide legal advice to its readers and does not create an attorney-client relationship. It does not seek to describe or convey the quality of legal services. FCPAméricas encourages readers to seek qualified legal counsel regarding anti-corruption laws or any other legal issue. FCPAméricas gives permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author and to FCPAméricas LLC.
© 2013 FCPAméricas, LLC
Post authored by Carlos Henrique da Silva Ayres, FCPAméricas Contributor
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January 22nd, 2014 at 7:56 pm
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