Categories
Governance

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.

Categories
Accounting Standards

Global ethics and international accounting standards

The Publish What You Pay campaign is where international politics, financial reporting, and the developing world intersect. The campaign seeks to force companies in extractive industries (such as oil and gas) to make public their payments to governments in the developing world.

It began in 1999 with an “exposé of the apparent complicity of the oil and banking industries in the plundering of state assets during Angola ‘s 40-year civil war. It became clear that the refusal to release financial information by major multinational oil companies aided and abetted the mismanagement and embezzlement of oil revenues by the elite in the country.”

The campaign is supported by numerous charities and political organizations such as Oxfam Great Britain and Human Rights Watch. They lobby bodies like the World Bank and IMF, as well the IASB, the International Accounting Standards Board.

Publish What You Pay calls for an International Financial Reporting Standard for the extractive industries to include a requirement that extractive industry companies disclose in their accounts all payments that they make to the governments of countries in which they extract resources, and to agencies or representatives of those governments.

Sounds like a good idea to me. It’s actually surprising to me as a young idealist that this isn’t already part of international standards. But the most recent letter sent from PWYP to the IASB on the matter expresses the campaign’s consternation with the IASB’s actions to date, and I have to agree.

The IASB’s proposed standard leaves segmentation up to management’s discretion, rather than mandating country-by-country grouping. The standard is barely even that – it basically just codifies laissez-faire.

I’m dismayed to say the least by the lack of support this has received from the Board thus far. In a few years I will be working primarily with IFRS as Canadian GAAP converges. I’d like to see a greater sense of urgency on their part in matters of this importance.

The PWYP letter smartly points out “companies already need to generate [country-by-country segmenting] in order to complete tax returns in each country of operation, this should not prove an additional burden.” They also use the lingo: “The citizens of [poor yet resource-rich] countries are important, if non-traditional, users of financial information.”

This is one of those areas where the IASB could showcase those pervasive qualities in public accountancy like ethical conduct and protecting the public interest.