Reading the news with a pair of FCPA goggles is an occupational hazard and it was hard not to see the Foreign Corrupt Practices Act implications in this recent Wall Street Journal article titled “Global Hoteliers Take Spending Spree to Africa.
As stated in the article: “The world’s biggest names in hospitality are battling for a slice of one of the world’s fastest-growing markets for hotels: Africa. To be sure, many African markets are notorious for issues with land rights, slow construction progress and graft. “These hotels tend to take so much longer,” said Mark Martinovic, president and CEO of Hotel Spec International Inc., a South Africa-based hotel-development consulting firm. He also cited challenges in getting raw materials through customs in the continent’s ports, saying, “I call the [African hotel] pipeline the ‘pipe dreams.’” But many of the world’s biggest names in hospitality say that despite the enduring challenges for investors in Sub-Saharan Africa, the continent’s growth prospects are strong.”
FCPA risk, as its most basic level, is all about having points of contact with foreign officials in the global marketplace and building buildings (whether hotels, manufacturing facilities, or stores) provides numerous points of contact with foreign officials from site approval and inspection, zoning issues, environmental clearances, permitting issues and the like.
For instance, as highlighted in this prior post, to build a new manufacturing facility in Russia a company needed more than 240 certifications and inspections.
Not surprisingly, as highlighted below several FCPA enforcement actions or instances of FCPA scrutiny have involved the process of building in foreign countries.
For instance, the recent Cognizant Technology enforcement action involved “a total of approximately $3.6 million in bribes to Indian government officials to obtain government construction-related permits and operating licenses in connection with the construction and operation of commercial office buildings.”
The Elbit Imaging enforcement action involved “millions of dollars of payments made by Elbit, and its then majority-owned indirect subsidiary Plaza Centers NV (“Plaza”) … to third-party offshore consultants and sales agents purportedly for their services related to a real estate development project in Romania and the sale of a large portfolio of real estate assets in the U.S.”
The Mondelez International enforcement action involved the retention of an agent retained an agent “to interact with Indian government officials to obtain licenses and approvals for a chocolate factory in Baddi, Himachal Pradesh, India.”
The Nortek enforcement action involved improper payments in China “to local officials from multiple different governmental departments, including customs, tax, fire, police, labor, health inspection, environmental protection, and telecommunications.”
The PBSJ enforcement action involved, in part, a hotel resort development project in Morocco.
The Saybolt enforcement action involved, in part, payments to “secure a more permanent facility for Saybolt Panama’s operations on highly coveted land near the Panama Canal.”
Perhaps the most high-profile instance of an FCPA enforcement action involving building issues is forthcoming as Walmart’s long-standing FCPA scrutiny focuses, at least in part, on building issues in Mexico. As highlighted in this prior post, according to the NY Times article:
“In the interviews, Mr. Cicero [an individual who spent decade in the Walmart – Mexico’s real estate department] recounted how he had helped organize years of payoffs. He described personally dispatching two trusted outside lawyers to deliver envelopes of cash to government officials. They targeted mayors and city council members, obscure urban planners, low-level bureaucrats who issued permits — anyone with the power to thwart Wal-Mart’s growth. The bribes, he said, bought zoning approvals, reductions in environmental impact fees and the allegiance of neighborhood leaders.”
“The idea, [Cicero] said, was to build hundreds of new stores so fast that competitors would not have time to react. Bribes, he explained, accelerated growth. They got zoning maps changed. They made environmental objections vanish. Permits that typically took months to process magically materialized in days.”
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