Foreign Corruption

Corruption Crack-Down

Governments around the globe step up efforts to wipe out corruption.
By: | October 15, 2013 • 7 min read

Around the world, social pressure against public corruption is resulting in huge demonstrations, investigations and legislation. And that is rebounding on multinationals that face their own pressure to keep business above board while trying to expand in countries where bribery is often necessary to get permits and permission.

A survey of CFOs and board members by Ernst & Young found that 95 percent of the respondents were “very” or “fairly” concerned about the potential liability resulting from fraud and corruption in Latin America — the area that offers the most concern.

Not far below were the Middle East and Africa, at 87 percent, and Central and Eastern Europe, at 84 percent.

While laws are almost universally clear — don’t do it — the risks are increasingly complex, as anti-corruption laws and their enforcement evolve both in the United States and overseas.

In the United States, investigators appear to be scouring industries that traditionally have not attracted notice, according to attorneys and experts in the field.

Retailers have been in the spotlight, for instance, ever since news surfaced in April 2012 of a probe into Wal-Mart. The retail giant is alleged to have paid bribes in Mexico to speed growth there.

Enforcement is intensifying in other countries as well, pushed along by public protests as well as by an anti-bribery convention overseen by the Paris-based Organisation for Economic Co-operation and Development. Forty countries, including Argentina, Russia and South Africa, have signed the OECD convention since it was drafted in 1997.

Today, more than 300 investigations are underway in 24 countries, according to Patrick Moulette, head of the OECD’s anti-corruption division. “It has not doubled from last year or the year before, but it’s 10 or 20 more every year, so maybe this is a positive sign,” said Moulette, who hopes greater attention will spur countries to crack down harder.

Advertisement




Other nations, notably China, are dusting off their own anti-bribery laws, exposing U.S. companies to potentially costly legal action on new fronts.

“It’s very hard to find a country anywhere where bribery is legal,” said Brian Loughman, Americas leader for Fraud Investigation and Dispute Services with Ernst & Young. “The challenge is always, what’s the enforcement like.”

To top it off, foreign prosecutors today are more likely to share information with their U.S. counterparts. “The world is smaller for prosecutors, too,” Loughman said.

For decades, U.S. companies only had to worry about the Foreign Corrupt Practices Act of 1977, or FCPA, which bans bribery of public officials in other countries. American executives often complain they are disadvantaged by the statute, as it does not apply to businesses based outside the United States.

Enforcement eventually prompted stronger controls and tougher policies, but investigators remain aggressive, according to Michael Himmel, an attorney and chair of the litigation and white-collar criminal defense departments at the law firm of Lowenstein Sandler.

“More and more cases are being investigated, and prosecutors are tending to take harder lines,” said Himmel. Over the last five years, he said, investigators have asked companies to open up more of their operations to review. “That’s obviously going to be a greater expense,” he said.

Equal Opportunity Scrutiny

Investigators also seem to be eyeing new sectors, expanding beyond defense, energy and mining to include pharmaceuticals and retail.

It’s a costly occurrence for the probed companies. The ongoing probe into Wal-Mart so far has cost the company more than $150 million, according to company filings with the U.S. Securities and Exchange Commission.

The SEC and the Department of Justice, which enforce the FCPA, do not explicitly target industries, said Timothy P. Peterson, a partner in the Washington, D.C., office of Murphy & McGonigle. But as investigators dig into one company’s operations, they may follow a trail to others in the same sector.

“The real danger for retailers is that when there are very large investigations, the government is going to start to get familiar with how that business works,” Peterson said. “They may, as they get more familiar with the business, decide they want to find more companies that operate in a similar way.”

It’s not just government investigators. Corporate rivals are another source of FCPA-related allegations, said Brett W. Johnson, a partner in the Phoenix office of law firm Snell & Wilmer. Companies may arouse suspicion if they are moving goods or opening stores more quickly than competitors, especially in countries where corruption is considered rife.

“The default is, ‘He’s paying somebody off,’ ” Johnson said.

For retailers, corruption risks extend throughout the supply chain, and they are compounded by the pressure to stock shelves in time to meet buyers’ needs. Bathing suits don’t sell well in November, at least in the northern hemisphere.

“Keeping the supply chain flowing is critical to a retailer, especially one that has any kind of seasonality,” said Randy Stephens, vice president of the Ethical Leadership Group of NAVEX Global Inc., a compliance technology firm based in Portland, Ore.

Foreign customs officials often recognize the time pressure — and the power it can give them to demand bribes, Stephens said.

“If you give them the sense that you’re going to participate in that scheme, at any level, you only open yourself up to more trouble, because you look like somebody who’s going to play that game,” Stephens said.

In addition to training employees and establishing clear policies, retailers need to examine internal incentives, Stephens said. If executives overseas are rewarded solely for growing revenue, opening more stores or hitting other bottom-line goals, they may overstep ethical boundaries.

Compensation should be tied, in part, to actions that avoid fines, penalties or stains on a company’s global reputation, Stephens said.

“You’ve got to be willing to let people make decisions that could negatively impact your supply chain, yet comply with the law.”

Another risk arises from the use of third-party agents, a requirement for doing business in some nations. When those agents pay bribes to expedite deals, the U.S. business is on the hook for any FCPA violations.

As a result, companies seeking overseas growth must know their foreign business partners and regularly audit their operations, as well as know the country’s laws and norms.

“You’ve got to be willing to let people make decisions that could negatively impact your supply chain, yet comply with the law.” —Randy Stephens, vice president, Ethical Leadership Group of NAVEX Global Inc.

What’s legal in one country may not be legal in another. And companies can no longer focus on the FCPA alone, attorneys said.

A Tangled Web of Compliance

The United Kingdom adopted a tough anti-bribery statute in 2011. And Brazil enacted a stringent new law this year, following public protests that coalesced around government corruption. In addition to increased penalties, the law allows companies to be found guilty of bribing public officials. Previously, only individuals could be found guilty of that crime.

Advertisement




“Very few companies today can comply, or attempt to comply, with just one home jurisdiction,” said Michel Léonard, chief economist and senior vice president of Emerging Markets for Alliant. “It’s a bit like antitrust laws. These days, mergers need to be approved in the U.S. and Europe as well.”

Experts said U.S. companies should partner with local attorneys who can can train employees, navigate the nuances of a country’s laws, and react quickly to problems.

“You’re not going to have the same processes; you’re not going to have the same protections,” said Joe Martini, co-chair of the White-Collar Defense, Investigations and Corporate Compliance Practice Group at the law firm of Wiggin and Dana.

Given the potential costs of an investigation, specialized insurance coverage is the next step in corporate compliance, said Machua Millett, a senior vice president with Marsh USA Inc. The brokerage firm introduced a specialized product in 2011.

In the past, Millett said, companies sought coverage for FCPA-related expenses under D&O policies. But underwriters and carriers hesitated, due to the size of the potential exposure.

Cooperation with the government does not necessarily lessen the expense. Although Ralph Lauren Corp. voluntarily disclosed bribes made by a subsidiary in Argentina, it still faced a penalty of $882,000.

Companies should focus first on compliance, with insurance as a backstop, Millett said. “At the end of the day, you might be able to show that you acted well.”

Joel Berg is a freelance writer and adjunct writing teacher based in York, Pa. He has covered business and regulatory issues. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

Advertisement




That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

Advertisement




Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]