Anti-Corruption Laws May Feed on the Food and Beverage Industry

Also last year, the Ball Corporation, which manufactures metal packaging for food, beverages, and household products, settled FCPA administrative charges with the SEC by paying a $300,000 penalty.

Ball’s Argentine subsidiary, Formametal S.A., allegedly made improper payments prior to being acquired by Ball Corporation, and the parent allegedly failed to implement internal controls to prevent further payments. Senior Formametal managers, including its president, allegedly knew about the bribes, which were disguised in the company’s books and records as legitimate customs fees and business expenses.

Although the SEC noted that Ball Corporation did not promptly terminate the responsible employees when company accountants learned about the improper payments in February 2007, it assessed only a $300,000 fine because of the company’s other remedial efforts, voluntary disclosure of the misconduct, and cooperation in connection with a related investigation.

Understand Your Risk

What types of activities are you engaged in? Corruption is more difficult to detect in a mergers and acquisitions context, especially if due diligence is rushed. Certain undertakings are riskier depending on the jurisdiction. Setting up a plant, using advanced technologies, and relying on third parties to source materials can increase your risk profile. Every country has different supply chain and freight forwarding risks.

Certain countries may be more vulnerable to fraud and corruption or more tolerant of their companies engaging in fraud and corruption. Your non-U.S. operations may be dominated by individuals with a limited understanding of U.S. laws and norms. There’s the possibility of weaker internal controls, non-integrated financial reporting systems, inadequate monitoring, and infrequent audits. Your foreign business partners (e.g., agents, distributors, joint venture partners) may not realize they are subject to U.S. regulations, and local confidentiality and privacy rules may make it difficult to perform thorough due diligence on them.

Assess these risks, and address the highest priorities first. Focus on what you need to do to create or strengthen a defensible position.

Geographical Risk

Although corruption happens everywhere, higher risk geographies include Latin and South America, specifically Mexico and Brazil; India; China; Russia; and Eastern Europe. In Latin America, it’s all about personal relationships and who you know—personal favors are customary. Tax-avoidance pressure can lead to off-book transactions. Mexico’s drug cartels have infiltrated the business community, and corruption issues are present among local governments.

In certain locations, the definition of “government official” is quite different than in the U.S. Domestically, “government official” conjures an image of a politician or legislator, but in heavily regulated, bureaucratic China, nearly anyone can carry that title. Bribes may appear in books and recorded as “Extra Amount” and “Special Arrangement” fees.

Organized crime has infiltrated legitimate businesses in Russia. In addition, gifts to officials are allowed under Russian civil code. The lack of transparency in business transactions creates a reliance on third-party agents. In Russia, a country that is new to the market economy, a Wild West environment exists.

There’s one bit of good news: Regulators for most countries are headed in a cooperative direction. Even China and Russia are beginning to work with the Organisation for Economic Co-operation and Development in their commitment to fight corruption.

What to Do Now

Part of the challenge of staying on top of corruption threats involves seeing and knowing. In “The Anti-Corruption Handbook: How to Protect Your Business in the Global Marketplace,” author Bill Olsen says start with simple questions:

• Where are we doing business?
• Who are we doing business with?
• How are we conducting our business?

Olsen is a principal and leader of the Forensic, Investigation, and Dispute Services practice and National Practice leader for Global Investigation and Anti-Corruption Services for the U.S. at Grant Thornton LLC.