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.


FIN 48, auditor confidentiality, and increasing the minimum wage

Since the last one went so well, and since there have been many posts this week on my fellow accountant blogs that I’d like to highlight, here’s another quick round-up of three interesting nuggets:

Dan Meyer of Tick Marks talks about a new standard in the US called FIN 48, which requires companies making assumptions regarding tax-related policies to document and disclose those assumptions and provide a range of possible outcomes.

He asks the natural next question: “With IRS personnel theoretically able to look up these disclosures, will companies be less willing to take aggressive positions?” It’s a good question, and I think we know the answer! I wonder if the same type of standard will show up in Canadian GAAP before we converge with international standards. (Wonder how that convergence thing is going – haven’t heard much lately!)

Accounting Blogs

The Sarbitch is back

The Accounting Observer has invented a new term: Sarbitching. I love it!


Simpler corporate income tax filing requirements

An agreement reached between the Canadian Federal government and the provincial Ontario government will simplify corporate taxes by 2009. The Ontario tax return, known as the CT23, will be amalgamated with the Federal return.

Ontario Finance Minister Greg Sorbara had this on the much-lauded move:

“Businesses have been asking us to reduce administrative overlap and duplication,” the Ontario treasurer said. “When governments work together, we can improve efficiency and help businesses free up resources that they can then invest in creating jobs.”

There’s no doubt this is a great move to simplify taxes in Canada – it leaves Alberta and Quebec as the only remaining provinces that require separate returns.

I’m not sure how much this is going to save businesses, however, since the only major difference between the information on an Ontario return compared to a federal one is with capital tax. I suppose that’s why the savings is only $100-million for all business in Ontario.

I hope this means only one Notice of Assessment to deal with, and a single toll-free number to call and get instalment amounts and other details.

But it will certainly allow the government(s), if they can manage it, to slim down and make operations more efficient on that side. I like to think we’re all winners when government improves.