Get smart about corruption laws
Morocco, the Maldives, Thailand, Greece, China, India, Mexico, the Dominican Republic, Argentina and Russia. Exciting tourist destinations? Yes. Areas of significant interest for potential hotel and resort development? Definitely. But these sometimes exotic locales have another, darker, thing in common: They all have 2010 Corruption Perceptions Index scores of 3.5 or less. The Corruption Perceptions Index, published annually by Transparency International, measures the perceived level of public sector corruption in 178 countries around the world. It ranks countries on a scale of 0 (Highly Corrupt) to 10 (Highly Clean). By way of example, Somalia was in the cellar with a rating of 1.1, and Denmark, New Zealand and Singapore topped the index with a rating of 9.3.
As it happens, some of the most interesting hotel and resort development opportunities happen to be in locales where public corruption can be a significant issue, and unknowing investors and developers are one small misstep away from running afoul of the highly technical requirements of the United States Foreign Corrupt Practices Act (FCPA) and the United Kingdom equivalent, the UK Anti-Bribery Act, which is scheduled to become effective in April of this year.
Understanding the parameters of the FCPA and the UK Anti-Bribery Act is paramount for both U.S. and UK companies as well as any other companies falling within the reach of the FCPA or the Anti-Bribery Act looking to do business in foreign jurisdictions overseas. Since the UK law has not yet taken effect, its scope is not yet fully known, although the reaction to the extraordinarily broad-reaching provisions has caused nothing short of “hysteria” in the words of one of our London based partners who regularly works in the area and who has been discussing the new legislation with some of our clients.
Although similar, the FCPA and the Anti-Bribery Act have some material differences that astute global investors/developers should be aware of. Generally speaking, these statutes are intended to prevent the payment of bribes to foreign government officials, although the UK law prohibits both the solicitation of bribes and payments to any person (not just a government official) if the payment is made to induce the person to act “improperly.” While not all payments are improper (for example, “facilitating payments” are permitted under the U.S. law, but not its UK counterpart), payments to government officials should be carefully scrutinized against the proscriptions of these laws to prevent even inadvertent violation. Case in point: It was recently announced in the Wall Street Journal that some financial institutions are being investigated in connection with their dealings with sovereign wealth funds and the foreign employees who worked with the funds who would be considered government officials covered by the FCPA.
The consequences for failing to comply with these laws can be severe, including large fines (astoundingly, fines under the FCPA have reached nine figures, and fines under the UK law are unlimited), restitution, incarceration for individuals and prohibition from bidding for government contracts. The specific requirements of these laws are arcane and technical, and are beyond the scope of this blog. But, investors/developers who don’t take steps to seek proper guidance and implement a plan to ensure compliance may get caught in the traps and pitfalls of doing business in certain destinations where corruption may be rampant. I am concerned that some people may get trapped by these laws where they didn’t intend to do anything wrong.
Rather than avoid those locales, smart investors/developers will get familiar with the FCPA and the Anti-Bribery Act, will implement adequate protections and seize the opportunities that these destinations offer. Global investors/developers can’t afford not to get smart about this stuff.