Trade pact could increase corruption risks

While the Trans-Pacific Partnership (TPP) may generate exciting new business opportunities for U.S. businesses, it could also expose those tapping into foreign markets for the first time to greater Foreign Corrupt Practices Act (FCPA) risks.

The TPP is intended to set common trade standards for 12 Pacific Rim countries, including Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. The agreement covers numerous issues ranging from labor rights to intellectual property protection.

While most large global firms have adopted stringent anti-bribery compliance policies and procedures in the wake of significant prosecutions under the FCPA, many mid-size and smaller companies have yet to invest in such compliance infrastructure. Companies enticed to expand into new Asian and Latin American markets by lower tariffs and trade barriers under the TPP will face the risk of FCPA enforcement actions. While the TPP’s focus on increasing transparency and predictability in member countries legal standards should ease compliance planning efforts, relationships between U.S. prosecutors and their foreign counterparts will likely strengthen as a result of the agreement. The trade pact’s anticorruption and transparency provisions are designed to bring conformity to anti-bribery laws across member nations.

Mexico and Vietnam, in particular, may prove to be high risk markets, as these locations have been targeted for several enforcement actions in recent years.

To manage this threat, companies new to foreign sales or expanding into additional foreign markets would be wise to factor corruption risks into their business decisions and to develop appropriate procedures and internal controls to ensure compliance with the FCPA and other anti-bribery laws. An increase in due diligence of third party sales agents and consultants is particularly worthwhile, as the U.S. prosecutors will impute the corrupt actions of third party agents back to the company that hired them, potentially resulting in significant fines and penalties, not to mention grave reputational damage.