The root cause of many Foreign Corrupt Practices Act enforcement actions is a foreign law or regulation that forces a company (through an employee or agent) into a relationship with a “foreign official.”
This root cause analysis is often fairly straightforward: the foreign law or regulation often creates bureaucracy; bureaucracy creates points of contact with foreign officials; points of contact with foreign officials create discretion; discretion creates the opportunity for a foreign official to misuse their position by making bribe demands.
This analysis is not meant to excuse or condone the conduct at issue, but rather to understand how and why there was a “point of contact” with a foreign official in the first place.
For instance, there have been three FCPA enforcement actions against alcoholic beverage companies (Beam, Diageo, and ABInBev) doing business in India.
All three enforcement actions involved an industry that was highly regulated by Indian government authorities regarding topics such as import, shipments, inspections, label registrations, retail distribution, and shelf placement.
The world is often an interesting and quirky place.
Conduct common in one country, might be subject to government regulation in another country.
Returning to India and alcohol, a recent article in the Wall Street Journal caught my eye. Titled “Grab a Beer? Just Fill Out These Forms,” the article states:
“Executives doing business in India are used to labyrinthine red tape and mounds of paperwork. Those bureaucratic hurdles extend to grabbing a beer after work. In some parts of the country where religious and cultural norms still frown upon alcohol, tipplers go to Herculean lengths to secure a cocktail.”
As stated in the article:
“The state of Gujarat … launched a bold experiment last year: allow bars to open in a special economic zone known as Gift City, which has attracted international firms like Google, Oracle and Bank of America. The goal was to boost the area’s appeal to foreign investors.
Only two watering holes have opened. Both are inside five-star hotels, and are rarely even half-full. Would be revelers gripe that their doors are guarded more closely than a maximum-security prison.
The first hurdle is the permit: only those working in Gift City can apply, and many are rejected by their employers or local officials, who judge them too low-ranking to wine and dine clients. About 700 permits have been issued, said a local official.”
[…]
“States and cities have splintered in their approach to alcohol consumption. Four states, including Gujarat and Bihar are dry. In the financial hub of Mumbai, people are required to apply for a license to keep a small quantity of liquor at home.
[…]
Foreigners or Indians living outside of Gujarat can obtain a temporary permit that lasts for 30 days, or up to one unit of alcohol. Online, people lambast the process as “archaic,’ ‘designed by cretin’ and requiring more paperwork than buying a house.”
