“After completing my education, I practised law in the Washington D.C. office of WilmerHale, an international law firm of 1200 attorneys, where I represented Fortune 500 companies in securities fraud investigations and litigation.” Dr Andrew Spalding revealed to the Riskpro team in the Fraud, Forensics and Corruption Symposium. Dr Spalding is the Nehru-Fullbright Scholarship winner and is engaged in the research on the topic of the Foreign Corrupt Practices Act and its impact on Investments in India.
“In the course of my securities fraud work, it became clear that the biggest issue in international business over the next decade or more would likely be the impact of anti-corruption laws, particularly the FCPA, on business in the high-growth emerging markets” Dr Spalding further added. He is following all the activities of Corporate Corruption across the world very carefully and has found the FCPA to be a very effective regulation.
Companies can even vanish from the business if they do not pay attention to the FCPA regulations. Dr Spalding cites the example of the recent failed acquisition which illustrates the perils of the FCPA in the context of emerging markets.
eLandia, a U.S. technology company that specializes in emerging markets, acquired a company called Latinode in 2007. eLandia apparently failed to conduct appropriate due diligence and relied on Latinode’s own representations about its prior practices. After closing the deal, eLandia discovered that Latinode had previously paid numerous bribes to governments in emerging markets. eLandia immediately disclosed these violations to the U.S. government, conducted an internal FCPA investigation, shared the results of the investigation with the DOJ, and cooperated fully in the government’s investigation. It also took appropriate remedial action, including terminating senior Latinode management involved in or having knowledge of the violations and terminating all contracts that had resulted from the bribes.eLandia bore all expenses for the investigation and sued the seller and one of Latinode’s executives for the fraudulent failure to disclose the illicit payments. When all was said and done, eLandia had incurred such substantial costs that it was forced to write off its investment in Latinode and eventually liquidated the company altogether. It must be emphasized that these financial substantial losses to the acquiring company resulted from conduct that had occurred prior to the acquisition. Although eLandia was in no way responsible for the prior violations, it nonetheless effectively lost the entire value of the acquired company.
Effective FCPA compliance prevents an FCPA investigation. Where companies can effectively train their directors, officers, managers, employees, agents, distributors, and partners about the FCPA’s terms, they can prevent violations. But even if a violation should occur, having a compliance program in place will likely result in much more favourable treatment by U.S. enforcement agencies, feels Dr Spalding.
Any company that does business with a U.S. partner, has a principal place of business in the U.S., is listed on a U.S. stock exchange, or otherwise is required to file periodic reports with the U.S. Securities and Exchange Commission, can subject either itself or its partners to potentially disastrous penalties if they do not thoroughly understand the FCPA. It is not enough that the general counsel, compliance team, or even the company’s officers and directors understand the statute; all employees must recognize how their conduct can raise FCPA problems.
Moreover, it is not enough that employees understand the law in the abstract; they must intuitively understand how the FCPA might apply to various scenarios that they will encounter. Providing a thorough and accurate explanation of the FCPA, and effectively disseminating it in understandable terms throughout the company, must be the focus of any FCPA training.
Dr. Spalding is inclined to train the employees of the companies in India on the topics of
- Understanding how recent economic and legal developments increase the likelihood of FCPA violations in India
- Identifying the sectors in India that are especially susceptible to FCPA violations
- Learning which of the FCPA’s legal principles will prove especially problematic in the Indian context