Assisting international companies in their fight against corporate corruption

Interview with Amy Sommers and Dan Roules, Squire, Sanders & Dempsey L.L.P., Shanghai office by Richard Parnham

The Foreign Corrupt Practices Act is one of the world’s most significant pieces of anti-corruption legislation, because it affects many companies operating outside the US. In your experience, is its importance understood by local managers, internationally?

Amy Sommers: FCPA awareness varies greatly from company to company. It all depends on how much experience a company’s managers have working in the United States or for a US company. I practise in China and can tell you that many local managers here who work for international companies don’t realise that US law can extend to their operations. Even some managers at China subsidiaries of US companies aren’t aware of this.

When encouraging compliance, how do you address the cultural sensitivities that lie behind requiring foreign employees to obey US law?

Dan Roules: Of course, we’re obliged to mention FCPA explicitly in our training programmes in case the company ever falls subject to an investigation. When that happens, a company must demonstrate its commitment to compliance and prove it explicitly addresses FCPA requirements in its training and across its operations.

We keep several factors in mind to minimise potential culture shock. When we conduct compliance training for clients here, we focus not just on FCPA compliance, but also the need to comply with other relevant anti-corruption and antitrust laws. And we emphasise the company’s own internal policies such as its core values. We remind managers that their company expects all of its employees to embrace those values, and we point out how they naturally harmonise with compliance laws.

What involvement will a private practice law firm such as Squire Sanders have in a typical anti-corruption training programme?

AS: As a firm, we usually use locally trained PRC lawyers to conduct anti-corruption training in China. It’s important that employees be trained by someone who looks and sounds familiar, someone with the same cultural frames of reference. Our approach builds a cultural bridge between what the head office wants and how the Chinese operation conducts itself on the ground – that bridge is especially vital when what we’re advising sounds crazy at first.

DR: When we conduct anti-corruption training, we pose real-life scenarios as well as hypothetical situations to discover how local employees operate. For example, we ask employees what steps they take to select a supplier or how they sell their products. The information we get lets us target their training in a way that’s relevant to how they actually work. It’s not simply providing a checklist of laws and procedures – we counsel them, based on how they actually operate, on which issues to look out for.

AS: We find that employees are very sincere about trying to apply their training to their roles with a company. On occasion someone will respond, “So you’re saying that I’m not supposed to do this – but you should be aware that our policy for the past five years says this behaviour is acceptable.” And that leads to a discussion about ways to deal with local officials who might react badly when the company suddenly stops paying them bribes.

What is the most common misconception about anti-corruption laws in general?

AS: Some companies that don’t engage in bribery or corruption think it’s acceptable to let third parties do so on their behalf. But allowing someone else to engage in bribery or corruption for you is just as serious as doing it yourself. For example, US-based Avery Dennison is being investigated under the FCPA for its use of agents in China.

If a company believes that one of their employees may be breaking anti-corruption laws, how should they respond?

DR: The appropriate response to a possible incidence of corruption can only ever be fact-specific and really depends on several things, such as how “material” the breach of law may have been and whether any such information has been incorporated into important financial statements.

If an international company makes a voluntary disclosure of a possible incident of corruption in its home country without telling local regulators in the country where the corruption may have taken place, local anti-corruption enforcement is put in a difficult position. They may infer that such a disclosure to a foreign regulator was done because they did not do their job properly or had tacitly allowed the corrupt behaviour to continue.

AS: We often find local officials prefer to have informal discussions about possible incidents of corruption rather than risk a possibly premature or erroneous self-disclosure. The provisions of Chinese anti-corruption regulations can be very strict, and there isn’t always room for administrative discretion even if there are extenuating circumstances. Again, the decision on how to proceed is very fact-specific.

To whom should external counsel report a possible incident of corruption? To the company’s local management, or to its head office?

AS: When executing an implementation strategy for anti-corruption training, leadership must come from local management, especially those involved in revenue generation. But when we report back on anti-corruption training programmes or compliance investigations, we tend to report back to the head office function – either to the office of the general counsel, or to internal audit. These people depend on external consultants like us to give them a reality check about the situation on the ground.

The process of reporting back also creates a paper trail, which the company can use to defend itself if corruption is alleged. If a company discovers there is a problem and implements a strategy for dealing with it, it becomes far easier to demonstrate that a rogue employee was operating outside of approved rules and procedures.

After completing a training programme, how do you recommend a company continue to adhere to the policies you suggest?

AS: We carry out what we call “low-risk audits” in which we ask local companies to answer questions on their accounting principles and procedures – we do not overtly ask about FCPA or anti-corruption compliance. Only if the replies give us cause for concern do we move on to a second round of more detailed questions and guidance.

Last updated - 23 April 09

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