This Could Lead To Problems
Reading the news with Foreign Corrupt Practices Act goggles is an occupational hazard.
So it was with this recent Wall Street Journal article titled “Companies Silo China Businesses to Cut Risk.”
If you follow compliance lingo, you know that “silo” (an actual four letter word) is like other four letter words.
The article states “more western companies are siloing parts of their businesses in China as they try to lower risks from tensions between Washington and Beijing” and cites various examples of companies “effectively isolating its China businesses from its global operations.”
Walmart, Like Prior Issuers, Gets Whistled For Decentralized Compliance
Generally speaking, the FCPA’s internal controls provisions require issuers to “devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances” that certain limited financial objectives are met. The FCPA then defines “reasonable assurances” to mean “such level of detail and degree of assurance as would satisfy prudent officials in the conduct of their own affairs.”
The main problem with these provisions is there is no specific standards by which to judge compliance. Indeed, as highlighted in this prior post, in SEC v. Worldwide Coin (believed to be the only judicial decision to substantively construe the FCPA’s books and records and internal controls provisions) the judge stated: “The main problem with the internal accounting controls provision of the FCPA is that there are no specific standards by which to evaluate the sufficiency of controls; any evaluation is inevitably a highly subjective process in which knowledgable individuals can arrive at totally different conclusions.”