Many businesses have been forced to adjust their business models quickly because of the Covid-19 pandemic. The novel and exigent circumstances brought on by the pandemic significantly increase companies’ risk exposure under the Foreign Corrupt Practices Act and global anti-bribery laws.
Some companies are repurposing their assets to pursue new opportunities, including the production of supplies essential to combatting the virus, while others are scrambling to adapt unpredictable supply chains to endure the economic crisis and build a more resilient business.
Many companies are devoting substantial resources to locating and obtaining personal protective equipment (PPE), sanitizer and other supplies so their factories and retail locations can safely stay open. Meanwhile, domestic and foreign governments have taken measures to control and allocate critical supplies, and fewer government agencies continue to function at full capacity.
Companies that do business globally need to mitigate the risk of bribery violations that can include substantial penalties, loss of reputation, and restricted access to government and other customers.
Heightened Risk of Corrupt Payments
The FCPA requires that companies take steps to ensure that their employees and agents do not make corrupt payments to government officials on their behalf. Anti-bribery laws prohibit providing anything of value to such officials, not only for obtaining contracts, but also to secure any number of other government actions, such as the release of a cargo shipment.
Corporate enforcement of the FCPA has steadily increased over the years, with an approximately 50% increase in total fines from $2 billion in 2018 to $2.9 billion in 2019. There is no indication that this trend will decline in 2020 or as a result of the Covid-19 pandemic. In fact, Attorney General William Barr has directed the DOJ to prioritize prosecution of Covid-19-related fraud schemes and related crimes.
Spurred by the urgency the pandemic has created, governments and companies around the world are paying exorbitant sums to secure critical supplies. The price of PPE has skyrocketed, in some cases increasing by more than 1000%. New York was reported to have paid 15 times the normal amount for PPE. Companies and governments purchasing PPE from China are realizing the market is overrun with profiteering, middlemen and bidding wars. Many of these purchases are being authorized under emergency powers or expedited approval procedures.
A relaxation of normal controls, a sense of urgency, and large amounts of money all combine to make a corruption-prone environment. The mushrooming of new suppliers, distributors, and middlemen all make the situation riskier.
In addition, 80 foreign governments have introduced export restrictions on critical medical supplies, equipment and medicines. The urgency of clearing shipments of these supplies may tempt even generally law-abiding persons to pay bribes to officials regulating this process. And companies using middlemen to obtain or help process shipments of goods may well find that their agents pay such bribes as matter of course.
It seems likely that as the Covid-19 pandemic eases, we will see a rash of bribery allegations aimed at persons obtaining these lucrative supply contracts.
Identifying Red Flags and Best Practices to Mitigate Heightened Risk Exposure
Considering this high-risk environment, companies must be extra vigilant of potential corruption throughout critical supply chains by identifying red flags, including:
- Transactions that require obtaining or relying on export licenses or authorizations or customs clearances;
- High-value government contracts or subcontracts seeking swift execution and expedited turnaround with minimal terms;
- Business dealings in countries where foreign governments have instituted broad government procurement authority over private business operations in relevant sectors; and
- Requirements to use middlemen for government contracts.
U.S. companies involved in the production, import or export of goods abroad during the Covid-19 pandemic should consider the following best practices to remain in compliance with anti-bribery laws:
- Reiterate corporate commitment to compliance. Compliance professionals and corporate leadership should reaffirm the company’s commitment to compliance with the FCPA and other laws and regulations during the pandemic. Quick refreshers and reminders in the form of anti-bribery fact sheets and bulletins can be effective tools. Managers in operations and sales may need to reevaluate expectations and be made aware of the new or increased risk.
- Maintain strong internal reporting mechanisms. Implement or continue pre-engagement and ongoing due diligence efforts, which may require identifying new barriers or challenges to internal reporting mechanisms and updating policies and procedures accordingly. Companies can leverage normal commercial due diligence as a means of satisfying FCPA obligations. All employees should understand when and how to report potential FCPA violations internally.
- Heightened screening of new deals and new relationships. Company management should consider expanding due diligence efforts for relationships that seem out of the ordinary business practice for the company or otherwise pose an unusual risk. For emergency actions, alternate diligence methods, such as the use of third-party investigators, may be more time-efficient than traditional FCPA questionnaires. All new relationships and related diligence should be documented in writing and contracts should accurately reflect each parties’ obligations and FCPA commitments. Ongoing monitoring of the deal and parties involved should continue during engagement.
While the pandemic’s ultimate consequences for businesses still largely remain to be seen, by remaining vigilant and actively ensuring compliance with the FCPA and other anti-bribery laws, companies that do business globally can help mitigate the risk of bribery violations that can include substantial penalties, loss of reputation, and restricted access to government and other customers.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Francesca M.S. Guerrero is a partner in Thompson Hine’s International Trade practice group in Washington, D.C. She regularly counsels clients on compliance with export controls, sanctions, import regulations, and the FCPA and anti-bribery laws. She works closely with companies to develop tailored compliance programs that fit their specific needs.
Joyce Rodriguez is an associate in Thompson Hine’s International Trade practice group in Washington, D.C. She has experience with economic sanctions, export controls, import regulations, anti-bribery laws and related corporate compliance programming and white-collar litigation.