We often discuss the impact of the Foreign Corrupt Practices Act (FCPA) on companies in
relation to their third parties. Topics can include due diligence of third parties, contracting terms
and conditions, and management of these relationships. However, just as all US companies are
subject to the FCPA and therefore are required to implement compliance programs which meet
the strictures of the FCPA, many non-US companies are required to have compliance programs
in place to meet contractual requirements.
We considered the relationship of these non-US companies when we recently read the article
“Compliance Programs Redefined: Elevating Contractual Responsibilities to Their Proper
Place” by Steven Lauer, published in CCH, Corporate Governance Guide, Issue 551, March 21,
2011. Indeed when reviewing or discussing FCPA compliance programs, one part of the
discussion which is often overlooking by US companies is their own contractual obligations to
have such a program in place. Lauer posits that a “compliance program offers a company…a
truly positive benefit” in relation to its counter-parties. While his article is not specifically FCPA
focused, we found it to be an excellent perspective for companies to consider their overall
compliance program.
Lauer believes that there are two general forms of contracting compliance. The first is process
and the second is substantive. Process compliance encompasses all events leading up to contract
execution. Substantive compliance comes into play after execution when parties are obligated to
honor their respective contractual commitments.
An example of process compliance is where one contract may require a company to violate the
terms and conditions of a previously executed agreement. Lauer gives the example of a company
which enters into a foreign joint venture and pledges certain physical assets but the same
company has previously agreed with a lender not to limit the lender’s right to encumber any
company assets. A more recent example has been with BP and its attempts to enter into a
business relationship with Rosneft. BP’s joint venture partners from TNK-BP, claimed that such
agreement violated the terms of their joint venture agreement and successfully sued to enjoin the
action in the British courts.
Under the compliance terms and conditions of a Master Service Agreement or Master
Construction Agreement, it is not usual for a Company to require a Contractor to make the same
FCPA terms and conditions to all of the Contractor’s subcontractors who may perform work
under the Master Agreement for the Company. Failure to do so by the Contractor would violate
the FCPA compliance terms and conditions of the Master Agreement. This can be problematic
for a contractor initially entering the international arena and may not have FCPA compliance
program in place.
Lauer acknowledges that compliance with compliance terms and conditions in an agreement are
a subset of obligations which a company has to outsiders. Such outsiders can include
governmental authorities and lenders. However, contract requirements “may be the most specific
and relevant on a day-to-day basis.” Therefore, from the substantive contract compliance prong,
a company must ensure proper performance of its agreements and that individuals administering
the agreement understand its obligations. Once again in the context of FCPA compliance, it may
require a Contractor to require its subcontractors to have compliance program in place; require a
Contractor to train its subcontractors employee’s on basic FCPA compliance; and to audit a
subcontractor’s FCPA compliance component.
William Athanas has recently written an article advocating the proactive use of the results of a
company’s FCPA compliance program, in his article “Demonstrating “Systemic Success” in
FCPA Compliance: Identifying and Maintaining Evidence to Respond to Government
Investigations . . . Before They Begin.” He makes clear that if your compliance program does not
document its successes there is simply no evidence that it has succeeded. Just as this would be
true in any Department of Justice investigation, it would be equally true if a Contractor is audited
by its contracting counter-parties. So as always, the key is to document, document and document.
Lauer notes that an effective compliance department should not replicate other corporate
functions; rather, it creates mechanisms that implement and then track the performance of those
other units in respect of those activities regarding a company’s compliance with the various
behavioral expectations that apply to its operations. Some of those expectations arise externally
and others are created internally. FCPA compliance terms and conditions can arise from these
external expectations.
Lauer ends by stating his belief that by creating an ongoing FCPA compliance-assurance
mechanism a company can, among other things, strengthen its competitive posture and improve
the overall ethical culture of an organization. Further these benefits will serve as more than
simply a preventative; it will allow a compliance department to better realize its company’s
business objective and continue the company’s revenue stream.
We believe that Lauer’s article points out some issues which are not often considered in regard to
FCPA compliance. We hope his article will give you pause for thought on yet another role for
your compliance department.
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, 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.
© Thomas R. Fox, 2011
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