Paying the Price for Corruption in Overseas Market Construction

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An understandable reaction may be to quickly dismiss the issue; assuming that it’s something only small, non-publicly traded or quasi-legitimate businesses are involved in. The reality is far more alarming.

With over 150 FCPA investigations by the U.S. Department of Justice (DOJ) in the past couple of years alone – largely bribery allegations – a majority of accused companies have been highly recognizable, publicly traded, blue chip brands or their subsidiaries.

The High Cost of Crossing the Line

Notable Recent FCPA Enforcement Cases

  • A well-known U.S. cosmetics and beauty products company was charged with failing to put proper controls in place to prevent illegal payments. The company agreed to a $135 million settlement.
  • A leading aluminum products company was charged for bribes made by subsidiary companies to government officials. They were fined and required to pay $384 million.
  • A huge international oil and gas company, cited for numerous fraudulent practices was instructed to set up a $440 million settlement fund.

Source: U.S. Securities and Exchange Commission (SEC) http://www.sec.gov/spotlight/fcpa/fcpa-cases.shtml

None of the settlement amounts listed here include the enormous litigation fees expended to fight the allegations. What’s more, the consequences for these types of offenses can be far worse, including prison terms for top company officials, along with incalculable damage done to the corporate brand reputation and loss of public trust.

10-Second Survey

What first step should companies take to prevent corrupt practices?

Accumulated results of surveys will be compiled and shared in a future summary report.

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Where the Law Lays Blame

The Foreign Corrupt Practices Act (FCPA), enacted in 1977... can apply to prohibited conduct anywhere in the world and extends to publicly traded companies and their officers, directors, employees, stockholders, and agents. Agents can include third party agents, consultants, distributors, joint-venture partners, and others.http://www.sec.gov/spotlight/fcpa.shtml

Many corporate executives also may not be aware that FCPA regulations expose them to legal responsibility or liability for the performance and actions of those they hire.

“I continue to believe that prosecuting individuals – and levying substantial criminal fines against corporations – are the best ways to capture the attention of the business community.”Lanny Breuer, Assistant Attorney General, Criminal Division, U.S. Department of Justice (Nov. 16, 2010)

Therefore, greater vetting of third-party vendors, consultants, agents, contractors and joint partners is a must in solving this pervasive problem. Another critical initiative is more effective and extensive global project management and control systems, coupled with in-depth knowledge of particular market dangers, coercions and warning signs.

Putting Practices in Place to Counter Corruption

An inside perspective by Craig Mohr, Director, Butler Global Corporate Accounts Group & Export Operations

This hot-spot map displays color-coded rankings of countries indexed from the most (dark red) to least (yellow) probability of corruption, presented by Transparency International. Click on map to view interactively.

Mohr said, “Butler has been well established (overseas) for a long time and has enough exposure to know what to look out for… how business is done… as well as hidden traps and how to navigate, and not participate, in illicit behavior.”

“For example, in foreign market construction, it is common to encounter what are referred to as ‘agents,’ often considered a code word for ‘someone with their hand out.’ However, there are legitimate and illegitimate agents. A solid best practice is to perform a TRACE International review in advance of doing business, and make sure the proper credentials are presented.”

Most legitimate agents are sanctioned by their governments. The good ones are invaluable. They can help identify dependable vendors and line up skilled, reliable labor. They know the local rules and regulations and can be invaluable in helping contractors avoid impediments.

So it’s absolutely necessary for project owners and their partners to take these best practice actions:

  1. 1 Establish firm guidelines and make ethical principles clear.
  2. 2 Make sure company management and employees are trained to those standards.
  3. 3 Institute effective internal control systems to identify potential problems early.
  4. 4 Hold all parties accountable by self-enforcement.
  5. 5 Work with partners, vendors and others who hold equally high ethical standards.

A Voice of Experience and Reassurance

“Dealing with a company that can demonstrate high ethics, supported by stringent conduct policies, is a strong value proposition for customers. Butler offers transparency. You might say, we ‘walk the talk’ in the way we train, coach, review, test and monitor employees’ compliance to FCPA regulations,” Mohr concluded.

The proof is evident. Having operated and provided building solutions internationally for more than 60 years, out of thousands of completed construction projects from Mexico to the Middle East and India to Asia, Butler has never been the subject of an FCPA violation.

For a more in-depth discussion of international construction risk mitigation, contact an experienced Butler Corporate Accounts Manager. If you would like to schedule a meeting, please complete this simple form.

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