What’s in Print

Shippers, carriers face increasing scrutiny overseas

THE improper actions of intermediaries or third parties doing business with and on behalf of a company can lead to liability under the Foreign Corrupt Practices Act (FCPA), UK Bribery Act (c.23), Anti-Bribery Conventions of the Organization for Economic Co-operation and Development (OECD), United Nations Conventions Against Corruption (UNCAC), Corruption of Foreign Public Officials Act (CFPOA), and a myriad of other laws designed to prevent corruption.

In “Logistics of Compliance,” Amy Hark, manager of international marine logistics for Huntsman Corporation, said the stakes have been raised. Hark made the presentation during the 2011 Intermodal Bulk Liquid Symposium that was organized by the Intermodal Tank Container Association and was held October 20 in Kemah, Texas.

On May 25, the Security and Exchange Commission (SEC) approved rules implementing the whistleblower award established by the Dodd Frank Bill that: establish SEC procedures administering the program; clarify the anti-retaliation provision on FCPA compliance; specifically increase the risk of criminal prosecutions for violations; and provide whistleblowers with the chance to receive 10% to 30% of collected fines.

“That's a big, big part of this, and why you're seeing this,” she said. “It's popular because it's fining bad and nasty corporations instead of taxing them. It's a heck of a way to produce revenue.”

Under the FCPA, Paris-based Alcatel-Lucent agreed to pay $137 million, pledged to eliminate the use of third-party sales and marketing agents, and had a former executive sentenced to 30 months in prison. Germany-based Siemens paid $800 million, US-based KBR/Halliburton $579 million, UK-based BAE $400 million, France-based Technip SA $338 million, Swiss-based Panalpina $81.8 million, and Holland-based Shell $48.1 million.

Hark said the rate of FCPA “resolutions” grew by 200% from 2005 to 2008. She dug around for statistics since then and was told that the rate has grown by 300%.

The UK Bribery Act went into effect on July 1, and takes anti-bribery legislation to a new level. “In many ways, it's tougher than the FCPA,” Hark said. “It's incredibly strict. With the way they're interpreting this, it's very painful. So everybody is watching very closely how they actually go out and administer the program.”

She said its reach extends far beyond the UK and will affect any organization with a UK presence. It contains a deliberately wide-ranging scope to aid the Serious Fraud Office's (SFO) successful prosecutions. SFO intends enforcement internationally.

The act specifies four offenses: offering, promising, or giving a bribe; the general offense of requesting or agreeing to receive a bribe; a separate offense of bribery of a foreign public official; and a new corporate offense of failing to prevent bribery.

“That basically means that if I hire you to go do something, and I need you to get it to the door of my customer, and you have to go through two or three intermediaries, and somewhere along the line someone commits an act of bribery, and it goes all the way up to me, I'm the one who actually started it, and it goes up,” she said. “They failed to prevent an act perpetrated by somebody acting on my behalf. I would expect we see a lot more resolutions coming from that one. It's high on the international agenda because of the revenue-producing element and visibility. They're all starting to convict, prosecute, and fine. They sentenced the CEO of one company for a corruption violation.”

She said SFO guidance recommends six principles:

  • Proportionality

    The actions the organization takes should be proportionate to the risk it faces based on the size of its business and exposure to markets in which bribery is prevalent.

  • Top-level commitment

    That those at the top of an organization are in the best position to instill an understanding within the organization that bribery is unacceptable.

  • Risk assessment

    Assessing the risk of bribery the organization faces based on the people with whom the organization interacts and the markets in which the organization operates.

  • Due diligence

    Knowing the character and work history of those with whom the organization deals by asking questions and conducting background checks.

  • Communication

    Communicating the organization's anti-bribery policies and procedures to staff and to others who will perform services for the organization.

  • Monitoring and review

    Engaging in ongoing assessment of the organization's anti-bribery risks and procedures and updating as necessary.

Hark said bribery is high on the international agenda and governments are seeking to co-ordinate their efforts in the eradication of all forms of corruption. The OECD (established in 1961) has 38 signatory parties, including Greece, Bulgaria, the Russian Federation, Argentina, Brazil, Indonesia, South Africa, Mexico, Korea, Chile, the UK, and US. Prosecuting and fining produce revenue for governments without raising taxes on the population.

“The failure to recognize and investigate a third-party's activities is an exposure to potential violations,” she said. “Ignorance is not a valid defense. With the $48 million Shell paid, they had no direct knowledge of what was happening with people down the chain on their behalf. They could prove clearly they had no knowledge of it. But the government's position was they should have known. So they paid for it.

“This vicarious liability is why conducting due diligence on potential third-party business partners is critical. Third-party business partners would include customers, agents, distributors, raw materials suppliers, service providers, contractors, consultants, and joint-venture partners.”

She said that vendor vetting through implementation of an effective due diligence program helps reveal red flags such as: the questionable reputation of a trade partner; close relationships with government or other public officials; large or frequent political contributions; the level of cooperation with a due diligence investigator (refusal to make representations and warranties); bankruptcies, defaults on obligations, civil suits alleging fraud, property seizures, criminal, or regulatory issues; the country where the company is based, or does business, has a reputation for corruption (Transparency International); use of child labor.

“Is there a VP in your company sitting in an office in Bulgaria that is related to something?” she said. “That's the level of detail going into it when you talk about vendor vetting. They're looking at every single possible element.

“Companies change. People change. You hire and fire and restructure. Any time there's change, how do I know that you haven't just hired somebody who has perpetrated a bad act three companies over? I don't know this. So the management of it, the auditing piece, is painful, or will be painful.” ♦

 

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