by / Wednesday, 11 September 2019 / Published in Corporate compliance, International business transactions

Compliance programs expand for small businesses and startups

Formulating policies and procedures is a critical step in building the infrastructure for your business. These policies and procedures may be found in an employment manual or a compliance program. Every business and especially those doing business overseas should address the risks of corruption and should craft an anti-corruption compliance program. This article provides an overview of anti-corruption compliance programs.

Layers of complexity for companies doing business abroad or with foreign persons

If a business is doing business abroad, there are several additional layers of complexity grafted onto any transaction. If your business is exporting products, then you need to be concerned about export controls.

Related article: What Every Small Business Needs to Know about U.S. Export Controls

You need to assure that your business is not doing business with any Specifically Designated Nationals (SDNs).

Related articleOverview Russia Sanctions: Individuals and Companies on SDN List

Or if your company is being bought out by a foreign company, you may be subject to a review by the Committee on Foreign Investment in the United States (CFIUS).

Related articleBusiness Acquisitions in US: CFIUS Reviews Expanding

Why anti-corruption compliance programs

Companies large and small are increasingly becoming sensitive to the risks of corruption, collusion and bribery in domestic and especially in international transactions. Companies doing business internationally may have incorporated into their policies measures to prevent violations of the Foreign Corrupt Practices Act. They must also incorporate into their systems ways to minimize the risk that they will run afoul of the UK Bribery Act, Canada’s Corruption of Foreign Public Officials Act (CFPOA), Australia’s Criminal Code, and Brazil’s Clean Company Act. Not infrequently, management offers insufficient attention to an anti-corruption policy until it is too late and a violation has occurred.

Pattanaphong Khaunkaew ©

Directors owe a duty of care to the corporation. If they violate that duty, corporate directors may expose themselves to liability for breaching their duty of care. The Delaware Court of Chancery has held that corporate boards should ensure that reasonably designed systems should exist to provide senior management and the board with “timely, accurate information sufficient to allow management and the board, each within its scope, to reach informed judgments concerning both the corporation’s compliance with law and its business performance.” In re Caremark International Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996).

Otherwise, directors may incur civil liability for failing to make a good faith effort to assure that their company has an effective compliance program. Companies have hired lawyers, accounting firms and consultants to prepare comprehensive anti-corruption compliance programs.

Not every anti-corruption program fits all sizes

These programs are sometimes known by different names such as an integrity compliance policy or anti-bribery compliance. These programs should be tailored to the needs of each particular company, depending on the size of the company, the countries where it does business, the industry in which it operates and other factors affecting the nature of the risk. A small business doing business with Russian counterparts faces different risks than a large business doing business only with Western European countries.

We have seen programs that have been simply copied from the Internet and have no relation to environment in which the company is operating. There is little chance that such a program will be implemented. We suggest that a good place to start with developing an anti-corruption program is the Anti-Corruption Ethics and Compliance Handbook for Business jointly published by OECD, UNODC and the World Bank. Working with our clients, we approach the development of anti-corruption programs in several stages outlined below.

Assessing business risks

We analyze the key business issues pertinent to the corruption risk for the company. The major areas of concern include business contracts; business partners and third parties; dealing with government officials and state-owned enterprises; conflicts of interest; facilitating payments; lobbyists; and country risk.

Assessing corruptions risks

In the next stage, we assess the corruption risks that may affect the company. Certain areas may present red flags such as unusual payment patterns or financial arrangements; unusually high commissions; lack of transparency in expenses and accounting records; lack of qualifications of a local joint venture partner.

Preparing an anti-corruption program

An anti-corruption program is sometimes integrated into an employee manual, but we prefer a stand-alone program that complements other programs. The anti-corruption, which may also be called an integrity compliance program, addresses various aspects of the company’s business such as travel and entertainment; gifts; facilitation payments; and internal controls.

Implementation of anti-corruption program

An essential element of an anti-corruption compliance program is implementation. A recent article in the Harvard Business Review cited the U.S. Department of Justice as recognizing that companies are spending a lot time and effort creating compliance programs but actually producing “hollow facades.” Anti-corruption programs may simply be programs on paper and not put into practice.

The final and critical stage of an anti-corruption program is training and communication of the program to the company’s employees and the third parties with which the company works. This stage generally includes training. It should also include internal or external monitoring.

Anti-corruption programs are quickly becoming part of the compliance landscape for U.S. companies, regardless of size and even those who have little foreign activity. Companies that are involved in international business transactions should get a check-up from an anti-corruption compliance lawyer.