Regulators in many parts of the globe have increased enforcement of anti-corruption laws. Anti-corruption experts offered the following tips on how companies doing business overseas can step up vigilance to reduce corruption risks.
Assess internal and external risks. Enforcement actions by the Department of Justice and the SEC highlight the most likely trouble spots: Overseas activities and engagement of third parties—such as distributors, sales agents, intermediaries, or suppliers—tend to increase a business’s corruption risks, especially when the activities and parties operate in developing economies. Potential risks are noteworthy when engaging in hospitality activities and when offering gifts and donations.
Conduct thorough background checks. Thorough background checks can reveal red flags, including close relationships between third parties and foreign officials; third parties whose fees are contingent upon sales going through and customers paying; third parties with a history of corruption issues; and a third party’s desire to keep the representation of the company or the terms of the retention secret. A third party’s hesitancy or unwillingness to promise in writing to observe applicable anti-corruption laws is also a red flag.
Get commitment from top management. A company’s board of directors, senior executives, or owners should develop the company’s policy against corruption and bribery and lead by example. This is commonly referred to as establishing the appropriate “tone at the top.” Top management’s tone can be reflected and reinforced in, for example, an ethics code, employee training, a compliance program, annual certifications, and other communications.
Develop comprehensive policies and guidelines that are proportionate to the risks. A robust compliance program should include a code of conduct, written policies, a confidential hotline to report potential instances of improper conduct, a nonretaliation policy, a rapid response plan, tracking of compliance incidents, regular compliance training programs, monitoring and auditing programs, disciplinary policies, annual recertification of employees, and a risk assessment process. Corporate compliance teams should be staffed with senior, qualified people and headed by a chief compliance officer. Someone at the parent company should oversee compliance at subsidiaries and joint ventures.
Establish controls over promotional expenses, travel, entertainment, sponsorships, and gifts. Provide training to sales and marketing and other personnel who are authorized to offer or provide gifts or other items to current or potential customers and business partners. Establish policies and procedures governing management’s authorization of promotional expenses, travel, entertainment, sponsorships, donations, and gifts.
Make sure everybody knows the procedures. The company’s principles and policies need to be stated clearly and rolled out in a manner—face-to-face sessions, intranet messages, or e-learning—that is most suitable for the business. It is important to not overlook overseas operations and third parties. Business and geographic risks should dictate the depth of the training and the prudence of offering or providing training to business partners.
Monitor compliance and review procedures regularly. The business should conduct regular, region-specific risk assessments and monitor closely payments to third parties to ensure that there are no cash payments, that commission percentages are reasonable and based on work performed, and that invoices and receipts are available for all requested payments and reimbursements. Revisit procedures regularly and adjust them as the business and its risks change.
—By Sabine Vollmer (email@example.com), a JofA senior editor, based on presentations by Joseph E. Decilveo Jr., a McGladrey partner in New York City; Andrea Deegan, a fraud investigator and financial accountant with RSM Tenon in the U.K.; and Paul Solomon, a litigator with the law firm Skadden in Washington.