Foreign acquisitions and the FCPA

The Metro­politan Corporate Counsel, a publi­cation dedicated to legal issues relevant to corporate lawyers, recently inter­viewed Alfredo Avila, Assistant General Counsel at Monsanto about how they approach FCPA compliance for acquisitions.

Monsanto recently acquired a US-based company with a Turkish subsidiary, and found during the due diligence the sub had made inappro­priate payments to Turkish government officials. In 2005, Monsanto disclosed their own inappro­priate payments made to Indonesian government officials and submitted to a three year monitoring program as a result, and Mr Avila talks about how their prior experience has affected policies going forward, including for this latest acquisition.

On the subject of codes of conduct:

Codes of conduct and compliance policies are important but are only the first step in assessing a compliance program. Monsanto believes that the biggest deterrent against unethical behavior is strong leadership.

I agree that codes of conduct are but the first step in ensuring compliance with the FCPA and other anti-corruption legis­lation. As an internal auditor, you want to assess whether the code of conduct has been read and signed by every relevant employee of the organi­zation, and ensure that the code is complete and addresses issues covered by the FCPA. Typically new employees will receive the code of conduct when they join the company. Keeping the documen­tation to prove that everyone has agreed to the code is critical.

Assessing leadership is a much tougher job for an auditor. You will get a sense throughout your meetings and commu­ni­ca­tions with senior management of their commitment to ethical business practices, and from there form an opinion. Of course if you already know there were past incidents of non-compliance, leadership is called into question and probably requires more substantive audit proce­dures to ensure compliance since the preceding events.

On the topic of embedding compliance into policies:

We had to reevaluate our policies for petty cash, travel and enter­tainment, inventory, delegation of authority and so forth from the perspective of the document trail. It made us formalize some practices into policies and reevaluate policies to make sure we captured enough detail so that an independent third party could find all his inquiries answered within the four corners of a document. That forced us to recon­figure policies and also recon­figure our expense recording so that our documen­tation captured more infor­mation. While this takes a little bit more time on the front end, it answers many more questions on the back end and contributes to creating a trans­parent culture.

Prepa­ration and retention of documen­tation related to expenses is key to proving compliance with the FCPA. Any payments made to government officials, if they’re legit­imate, will have appro­priate evidence. I like the part at the end about creating a trans­parent culture because culture plays a huge role in estab­lishing ethical tradi­tions that can prevent situa­tions like the ones experi­enced by Monsanto and their acquisition.

Read the full interview for more.

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