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Home Compliance

Seamus Heaney and Compliance With a Seat at the Table

by Thomas Fox
December 15, 2014
in Compliance
Seamus Heaney and Compliance With a Seat at the Table

This article was republished with permission from Tom Fox’s FCPA Compliance and Ethics Blog.

I have long been fascinated with the Irish poet Seamus Heaney. I came to know him through his 1999 translation of Beowulf. While I was aware that he had been awarded the 1995 Nobel Prize for Literature, I did not know his work as an Irish poet. However, this was rectified in a piece in the Times Literary Supplement (TLS), entitled “A stay against confusion – Seamus Heaney and the Ireland of his time,” by Roy Foster. In this piece, he reviewed the evolution of Heaney’s poetry from the 1960s through the 1990s. Foster believed that Heaney’s work in many ways mimicked the growth of “Irish intellectual as well as social and economic life.” Heaney began as a “nuts and bolts” type of poet and moved to become a Yeatsian figure as the national poet of Ireland.

I thought about that growth and Foster’s article when I considered the question, what happens if you seek for something and then actually get it? For instance, you may have wanted a seat at the C-Suite table as a Chief Compliance Officer (CCO) and now you have one. What happens now, for instance, in the situation where you find out that your company has decided to enter a new overseas market with a new product offering? The Chief Executive Officer (CEO) who championed you coming on board with the big boys (or perhaps big girls) looks down and says, “We need an analysis from the compliance perspective by the end of the week.” Where do you begin?

Obviously there are some preconditions for success; for example, your company should have a product that you can make and sell overseas for a profit. Further, you should have the time, money and sophistication to develop an international distribution network, and you must have the home office infrastructure to support a truly international business. Finally, you should have a senior management team with at least an appreciation of compliance challenges in the target market and with the personnel, technological solutions and internal training to address and meet these challenges. As you begin to think through this assignment, you fall back on the four basic questions of (1) Who will we sell to? (2) What are we going to sell? (3) Where will we sell? (4) How will we sell?

Who will we sell to?

For any anti-corruption analysis, you need to begin here, as the Foreign Corrupt Practices Act (FCPA) applies to commercial relationships with foreign governments or instrumentalities such as state-owned enterprises. Will your direct customers be foreign governments or privately owned companies? What if your customers are distributors or other middlemen who will then sell to foreign governments or state-owned enterprises? What about licenses; will you need special permits to sell to a foreign government or state-owned enterprise, or will you need some type of basic permit simply to transact business? If your company is subject to the UK Bribery Act, this public/private distinction does not exist.

What are we going to sell?

What is the product or service you wish to take internationally? I will assume your company has done the market studies to ascertain whether it is a viable commercial concept. If it is a product, is it a complete or partial product? Will you manufacture here in the U.S. and only sell internationally, or will you manufacture abroad as well? If it is here in the U.S., what about spare parts and accessories, will you need to obtain any licenses overseas? What about your technology, will that component require any licenses? If you will manufacture outside the corporate offices in the U.S., how will you ensure quality in your supply chain? Conversely, if you manufacture in the U.S., do your supplier agreements allow you to resell outside the U.S.?

Where will we sell?

This question may seem more important for export control issues; however, it is also important in the anti-corruption world. Obviously this is because certain geographic areas are more prone to corruption than others. A starting place might be the Transparency International Corruption Perception Index, but you can also use tools such as the recently released TRACE Matrix, which provides a much broader assessment of corruption indices and gives you additional insight into a fuller panoply of corruption risks in a country. In addition to the basic corruption analysis, you need to ascertain whether you can even sell your products in a new country, either because of U.S. export regulations or the jurisdiction laws. You should also focus on the business culture of a country and whether it is compatible in doing business in compliance with relevant anti-corruption legislation. This will also help you in your search to find any local business partners. 

How are you going to sell?

This is one of the most important questions you can ask under an FCPA analysis. It is because well over 90 percent of all FCPA enforcement actions involve third parties. If this is your first international sales effort, your company probably does not have an international-based employee sales force. This means you will most probably need in-country partners for your target markets. Some of the most basic sales arrangements for third parties are as follows:

  1. Agent/Sales Representative – This person or entity is a third party, independent from the company. Compensation is usually commission-based or combined with a periodic fee plus commission. It is generally viewed as the highest risk from the anti-corruption perspective, but you will have a direct relationship with the end-using customer.
  2. Distributor/Retailer – This person or entity is a third party, independent from the company. Your company will sell to the distributor/retailer, who then resells your product. You will have less visibility into the end user and hence a greater export control risk. Consignment is a variation on this model, but if you are warehousing, you will need to be aware of other U.S. rules such as revenue recognition under U.S. GAAP or local, indigenous rules on storage and warehousing.
  3. Consultant – This is also an independent third party who is paid a periodic fee. The fee can be more easily assessed for an hourly or service-based structure rather than one simply based on commission.

There are some other sales arrangements that you may wish to consider. You can acquire a local business and run it as your own company. Of course if you do so, you may buy all of these liabilities, both known and unknown. You can joint venture with another local company. Here you may have the dual problems of less actual control, yet the same amount of potential exposure, particularly under the FCPA if you fail to perform the requisite pre-acquisition due diligence and allow any illegal conduct to continue going forward. You can issue a manufacturing license to an in-country manufacturer and allow them to make and then sell your product using your technology. Finally, you can issue a brand license where you license an existing company to put your brand name on your product manufactured by another entity. Of course, if you use any of these types of arrangements you will need to go through a full third-party management cycle that consists of business justification, questionnaire, due diligence, contract and management thereafter.

From the internal control perspective, you will need to make sure you have several key compliance-related controls in place. This will include the aforementioned vetting of all customers and third parties; appropriate controls over each transaction, including both quotes and contracts; empowered and non-conflicted employees; and finally training and self-auditing. You will need separate controls over payment terms and payment mechanisms and controls to align shipping and export controls. Finally, do not forget the omnipresent segregation of duties and control over the vendor master file.

Lastly, you should focus on your high-risk points in any of the above. These include your full vetting and management of third parties. You should pay attention as to how you became aware of these third-party sales representatives. You will also need to pay attention to your freight forwarders and other export control representatives. You will need to be vigilant going forward for outright bribes paid in either cash or other values such as free products, lavish travel, gifts and entertainment, especially if the travel has no business purpose.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business advice, legal advice or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The author gives his permission to link, post, distribute or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.


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Thomas Fox

Thomas Fox

Thomas Fox has practiced law in Houston for 25 years. He is now assisting companies with FCPA compliance, risk management and international transactions. He was most recently the General Counsel at Drilling Controls, Inc., a worldwide oilfield manufacturing and service company. He was previously Division Counsel with Halliburton Energy Services, Inc. where he supported Halliburton’s software division and its downhole division, which included the logging, directional drilling and drill bit business units. Tom attended undergraduate school at the University of Texas, graduate school at Michigan State University and law school at the University of Michigan. Tom writes and speaks nationally and internationally on a wide variety of topics, ranging from FCPA compliance, indemnities and other forms of risk management for a worldwide energy practice, tax issues faced by multi-national US companies, insurance coverage issues and protection of trade secrets. Thomas Fox can be contacted via email at tfox@tfoxlaw.com or through his website www.tfoxlaw.com. Follow this link to see all of his articles.

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