FCPAméricas Blog
Latin American Monopolies: FCPA compliance when dealing with the only game in town
7.10.2013
In a recent discussion with a compliance officer of a U.S.-based food products company expanding reach into Latin America, I was told about the company’s difficulties in one particular state in Mexico. The distribution network there was dominated by a monopoly that had been family-owned for generations. Not only was the U.S. company unable to get the monopoly to provide the basic anti-corruption compliance assurances as part of its third party due diligence process, it could not even open up lines of communication with the company’s owners, the ones who would need to give such assurances. Over generations, the family members had grown disconnected from the company’s management even though they still exercised final authority over company operations.
In Latin American countries like Mexico, monopolies are common. And they present common FCPA compliance challenges for companies doing business there. A recent article in the Atlantic entitled “How Mexico Became So Corrupt” discusses the connection between corruption and Mexico’s history with “entrenched power of monopolists.” The article explores the ways in which these power structures facilitate, and are supported by, practices like self-dealing, nepotism, and influence-peddling.
The prevalence of monopolies creates problems related to market power. Foreign companies find themselves negotiating with the only game in town. When a company needs the monopoly partner much more than the partner needs the company, it can be difficult to impose compliance conditions. At the same time, compliance conditions can be essential given the risk that a monopoly could make improper payments on the company’s behalf. This risk is more acute in countries and regions where a handful of families dominate both business and politics. In these places, monopolies are often run by politically connected elites who move back and forth between government and business. A father might own a conglomerate and his son might be a senator.
What can companies investing in Latin America do to protect themselves from these types of risks? Here are a few suggestions:
Understand the risks. By understanding the risks and recognizing the red flags associated with monopolies, companies, including the sales and other staff who deal directly with monopoly partners, can more effectively mitigate the potential for problems. This means understanding things like the monopoly’s ownership, its relationship with government officials, and its business reputation. A monopoly’s refusal to sign an anti-corruption compliance certification should raise concerns.
Use local actors, trained in compliance, to interface with monopolies. Monopolies will often be more responsive when engaged by locals. Those who are familiar will be more trusted. It could be a company’s salesperson in the region where the monopoly is based. It could be a third party agent with local know-how. Locals can better navigate otherwise complicated systems, such as setting up meetings with hard to reach owners. They can better understand negotiation cues. But local representatives should also be fully trained on FCPA risks and anti-corruption compliance expectations. If they are, they can be your best spokespeople for compliance.
Work with competitors to level the playing field. Some sectors are beginning to establish collective action strategies for compliance. When a monopoly is forced to deal with customers who have entered into integrity pacts, it might have no choice but to embrace compliance standards. This activity also has risks, as communications between competitors must be conducted in a way that does not run afoul of anti-trust and competition rules. Such risks can be addressed up front to avoid any actual or apparent impropriety.
Be willing to escalate. If a company confronts a monopoly that is unwilling to cooperate on compliance, shows signs of public corruption, or demands commercial bribes itself, the company should consider escalating these issues. It might choose to share its information with local, national, or federal authorities. It might engage chambers of commerce. Depending on the situation, such action can help establish new avenues for doing business in a compliant way. But these steps should be conducted with appropriate counsel so that any associated risks are fully understood.
Be willing to walk away. If the risks of partnering with a monopoly seem too high, a company should not be afraid to walk from the opportunity. This could mean missing promising business possibilities. Then again, given the risks of FCPA non-compliance, that might be the wisest decision to make.
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.
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@2013 Matteson Ellis Law, PLLC
Post authored by Matteson Ellis, FCPAméricas Founder & Editor
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