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240 Certifications and Inspections

Why do FCPA violations occur?

Do companies subject to the FCPA do business in foreign markets: (i) intent on engaging in bribery as a business strategy and without a committment to FCPA compliance; or (ii) with a committment to FCPA compliance, yet subject to difficult business conditions in foreign markets.

In this prior guest post, Joseph Covington (a former DOJ FCPA Unit Chief who favors an FCPA compliance defense) said that he has “rarely seen American companies affirmatively offering bribes in the first instance.”  Rather, Covington observed that companies doing business in international markets are “reacting to a world not of their making” and that “as the world shrinks companies who seek to do the right thing can’t help but confront corrupt officials – as customers, regulator and adjudicators – and confront them often.”

Covington’s observation is included in my article “Revisiting a Foreign Corrupt Practices Act Compliance Defense” (here) in which I highlight specific reasons warranting an FCPA compliance defense including various barriers and other conditions that serve as breeding grounds for harassment bribes to flourish in foreign countries.

Barriers include arcane and complex licensing, certification and inspection requirements which often funnel companies seeking to do business in a foreign country into an arbitrary world of low-paying civil servants who frequently supplement their meager salaries through payments condoned in the host country.

I was reminded on this dynamic by this recent NPR’s story “From Iowa To Russia, Tractors Build Economic Bridge.”  The story begins by noting that “Russia is one of the 10 biggest economies in the world, but it isn’t even among the U.S.’s top 30 trading partners.”  The story then profiles a new John Deere factory near Moscow.  According to general director of John Deere Russia, the company had “more than 240 certifications and inspections that we had to go through to build” the factory.

Think about it. 

This is 240 separate and distinct points of contact with Russian “foreign officials” that the current enforcement agencies  view (notwithstanding Congressional intent that payments seeking to induce foreign officials to do ministerial and clerical acts are exempted from the law) as implicating the FCPA.  Not because the company is seeking to obtain or retain business with any foreign government, but just because the company is seeking to do business in the general sense in Russia.

Indeed, the article then states as follows.  “Many Russians might say officials here are most effective at padding meager state salaries with bribes. John Deere is the subject of an SEC investigation for allegedly violating the Foreign Corrupt Practices Act in Russia and neighboring countries.”

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