FCPAméricas Blog

FCPA Enforcement’s Surprising Effect on Foreign SOEs, and Why It Matters

Author: Matteson Ellis

Robust FCPA enforcement over the last several years has had some obvious effects. Chief among then, it has caused companies to invest considerable attention and resources in anti-corruption compliance. It has inspired other countries to follow suit, enacting their own anti-corruption laws and enforcement programs. It has helped fuel the proliferation of treaties aimed at cracking down on corruption. One hundred and sixty two countries are now party to the United Nations Convention Against Corruption.

But less obvious, and perhaps more surprising, has been the effect of FCPA enforcement on foreign state-owned enterprises (SOEs), the entities that are often the recipients of the bribes themselves. And this might matter to FCPA compliance.

Consider three recent developments that have resulted from FCPA enforcement:

SOEs conducting internal investigations. Following FCPA enforcement actions, SOEs accepting bribes are starting to conduct their own internal investigations. For example, recent reports from Saudi Arabia signal that Saudi Aramco, the country’s national oil company (and the most valuable company in the world), recently launched an internal investigation into allegations that its staff took bribes from contractor Tyco. The move appears to have followed the announcement of Tyco’s settlement with the DOJ and SEC for $26.8 million to resolve FCPA charges that included improper payments to that company. (FCPAméricas wrote about the Tyco settlement here.) Saudi Aramco is reportedly seeking information from Tyco about the payments. It would not be a surprise if the Saudi government looks to U.S. authorities for information as well. Such mutual assistance is increasingly common, as in the Bizjet action.

The Saudi example is not an isolated one. When U.S. authorities announce an FCPA settlement involving payments to an SOE, the press in the SOE’s home country likely covers it (unless the country allows no journalistic freedom). Such bribe payments are newsworthy, and the stories can be sensational. Foreign governments are incentivized to respond, especially if the SOE is linked to the current administration in power. Bribery can tarnish reputations, and reputations are important.

SOEs inquiring about compliance. Some SOEs are subject themselves to FCPA jurisdiction. They might be publicly listed or have operations in the United States. We know from the FCPA enforcement action against Norway’s Statoil, resulting in a $21 million settlement, that the U.S. government is not opposed to proceeding against foreign entities that have significant foreign state ownership.

When headline cases break, like Wal-Mart’s alleged bribery issues in Mexico, SOEs begin to ask more questions about anti-bribery laws. They want to understand the risks. They seek to know more about anti-corruption compliance expectations of U.S. authorities. Eventually, they begin to take steps toward developing their own internal controls to address risk.

Multilateral development banks conditioning lending on corporate governance and compliance. In one case, a multilateral development bank that had supported an SOE with financing learned that authorities in the United States and other jurisdictions were investigating another company for paying bribes to it. As a condition for continued support, the bank asked the SOE to develop an internal compliance program and improve its corporate governance structures. It offered experts to provide technical assistance. The SOE is now working to rework its governance structure to minimize political interference, train its employees on compliance, and retool operations to mitigate the possibility that employees will steer contracts to briber-payers.

Why does this matter to U.S. companies working abroad? It begins to change the dynamic of the bribe requestor. Of course, SOEs come in all shapes and sizes. Political interference in SOEs can vary greatly. (FCPAméricas describes ways that governments meddle in the affairs of SOEs here.) Some SOEs are simply arms of the state. Others are highly advanced, independent, and sophisticated.

Nonetheless, when SOEs embrace compliance, it serves to increase transparency, promote accountability, and encourage checks, balances, and controls. The FCPA compliance practitioner of a company interacting with the SOE can appeal to compliance mechanisms on both sides of the transaction to help minimize risks. The framework of transparency makes it much harder for an employee at the SOE to demand a “favor” in return for business. Deals are less likely to be upended through bribe requests.

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.

The author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author.

© 2013 Matteson Ellis Law, PLLC

Matt Ellis

Post authored by Matt Ellis, FCPAméricas Founder & Editor

Categories: Anti-Corruption Compliance, Enforcement, FCPA, State-Owned Enterprises, UNCAC, Wal-Mart

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One Response to “FCPA Enforcement’s Surprising Effect on Foreign SOEs, and Why It Matters”

  1. High Tide: From a Bribing Rabbi to Kwok Trial Adjourned | Coffee Talk Shop… Says:

    […] agreements are a good thing. The FCPAProfessor runs his weekly roundup. The FCPAmericas blog explains how enforcement of the FCPA has had a surprising effect on foreign state-owned enterprises. Mike […]

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