Trade Pact Could Up FCPA Risk for Small Companies

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By Che Odom

Nov. 6 — While the Trans-Pacific Partnership may generate new business opportunities for U.S. companies, it also may expose small to mid-sized companies to higher Foreign Corrupt Practices Act risks, attorneys told Bloomberg BNA.

“The real risk in terms of FCPA issues is probably greater for small to medium-sized U.S. enterprises who may see TPP as providing good opportunities to tap foreign markets for the first time,” Eric Shimp, policy adviser in the Washington, D.C., office of Alston & Bird LLP, told Bloomberg BNA in an interview Nov. 6.

The TPP—lauded as the largest regional trade accord in history—sets common standards on issues ranging from workers' rights to intellectual-property protection in 12 Pacific Rim nations. Various interests on the political right and left have criticized elements of the agreement, which was reached by trade ministers of participant countries Oct. 5 after a decade of negotiations.

The 12 countries that negotiated the TPP—Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam—represent around 40 per cent of the global economy and a quarter of world trade.

Text of the TPP was released Nov. 5 by the White House and the Office of the U.S. Trade Representative.

Careful Due Diligence

Shimp, who served with the U.S. Trade Representative and specializes in Asian affairs, warned smaller companies to “carefully consider appropriate due diligence on customers and contracts” when entering any of these new markets.

Third-party agents and consultants are always among the top corruption risk areas for companies doing business abroad and should be a focus of due diligence. That's because third-party bribes, which may be carried out without the company knowing, can be imputed directly to the company, Andrew Mohraz, partner in the Denver office of Bryan Cave LLP, told Bloomberg BNA in an interview Nov. 6.

This will be a concern for small to mid-cap companies moving into new markets, as well as for large companies that may be persuaded to expand geographically by the TPP's lowering of barriers, said Mohraz, who counsels clients on white collar defense and investigations.

“While the TPP will increase international trade, it is also likely to build or strengthen relationships between U.S. enforcement officials and their counterparts in other countries,” he said.

The TPP's transparency and anticorruption provisions are designed to assimilate antifraud and corruption laws across the member states.

Risk for Trouble

Three-quarters of the participant countries actually are perceived to be relatively low risks in terms of bribery concerns, Mohraz continued.

Transparency International, an organization based in Germany that advocates against global corruption, gives high marks to eight of the member countries. Of the 175 countries included on the organization's Corruption Perceptions Index 2014, from least to most corrupt: New Zealand is ranked No. 2, Singapore 7, Canada 10, Australia 11, Japan 15, the U.S. 17, Chile 21 and Malaysia 50.

Mexico, ranked No. 103, and Vietnam, 119, which have been sites of enforcement actions in recent years, could continue to be FCPA hotspots, Mohraz said.

Wal-Mart Stores Inc. and Ernst & Young LLP may be the biggest names to become embroiled in FCPA-related woes in Mexico, while Bio-Rad made headlines in Vietnam.

Brunei was not included on the 2014 index.

Not a ‘Net Negative.'

The TPP, if approved by Congress, should have a beneficial effect in terms of improvements to legal transparency and predictability across member countries, which should help a company's compliance-planning efforts, Shimp said, adding that TPP “should not be viewed as a net negative in terms of FCPA risk.”

Michael Koehler, a Southern Illinois University law professor who focuses on corporate compliance and ethics, partly agreed, explaining that the TPP could actually reduce FCPA risks in member economies.

“To the extent the TPP opens up new markets for companies subject to the FCPA, there no doubt will be varying degrees of FCPA risks in those markets, depending on the specific industry and company,” Koehler, who maintains the FCPAProfessor.com website, told Bloomberg BNA in a Nov. 5 e-mail. “On the other hand, trade barriers and distortions are often the root causes of bribery. Thus, to the extent the TPP reduces or eliminates such barriers, FCPA risk may be reduced.”

Factoring in FCPA Risks

Small to mid-sized companies, however, may not have the compliance infrastructure in place to immediately take advantage of whatever opportunities the TPP may offer, Mohraz said.

“Such companies should factor corruption risk into foreign business decisions and make sure that they develop or enhance appropriate policies and procedures to comply with the FCPA and other anticorruption laws,” Mohraz said.

Big, global companies also must be careful if they expand their business, Mohraz said.

“For larger companies, the TPP could mean increased business in existing international markets and access to new countries,” he said. “Those opportunities could trigger additional or new FCPA risk that warrants revisiting existing compliance protocols and internal controls for managing risk.”

To contact the reporter on this story: Che Odom at codom@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

Text of the Trans-Pacific Partnership is available at https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/tpp-full-text.