Global companies are expending more time and resources to understanding their relationships with foreign officials.  This is a key focus of every anti-corruption compliance program.

Foreign government officials create different risks dep[ending on the relationship and the nature of the interactions.  A helpful way to examine the issue is by dividing government officials into two categories – foreign government official (FGO) owners and FGOs that interact with your company and/or third-party representatives.  Each scenario presents unique and significant risks.

Let’s start with FGO owners. 

If Company A retains a third-party Company B, which is partially or wholly-owned by an FGO owner, that creates a real risk.  In fact, corrupt FGOs have been using this scheme as a way to avoid their presence in specific high-risk transactions.  FGO owners may disguise their ownership in a third-party entity to secure payments through its equity ownership and distribution of proceeds. 

One of the more significant examples was Manuel Vicente, the then-head of Sonangol, Angola’s state-owned oil and gas business, hidden interest of 10 percent equity in a third-party employed by a US-based drilling company.  I often cite this example as a reason for companies to secure beneficial ownership of their third parties. 

There are other examples involving Russian Oligarchs and FGO owners in entities exposed in the Panama papers scandal.  The list of disguises and schemes goes on and on.  An ownership interest of as little as 1 percent in an entity may be part of a bribery scheme.  As a result, global companies have to screen, identify and assess corruption risks with an intense examination of all beneficial owners.

Now, let’s turn to FGO interactions.  In this risk area, we are focused on FGOs with whom our company or our third parties interact on our behalf. 

A common example is an FGO who is conducting or responsible for a competitive RFP.  In this situation, our risk is clear – if we pay money or provide an item(s) of value to the FGO, and we do so with corrupt intent, i.e. the intent to influence the FGO to act contrary to his or her officials’ duties and responsibilities, we may violate the FCPA.  There are a large number of these risky interactions beyond government-run RFPs. 

For example, our company may retain a third-party tax professional to interact on our behalf with an FGO responsible for collecting taxes from our company in China.  Such interactions are high-risk and we need to isolate, assess and build controls around such interactions to protect against illegal bribery schemes.

The complications arise in this specific area based on the nature and number of FGO interactions.  Our company’s sales department, lobbyists and other employees may interact with FGOs on a regular basis – monitoring each and every interaction is impossible and impracticable.  The issue begs various questions:

What interactions are riskiest?

Which types of interactions should be subject to monitoring?

How would a company effectively monitor such interactions?

What strategies would work best to ensure that such interactions do not veer off into potential corrupt transactions?

These are interesting issues and compliance officers face difficult questions in developing effective strategies.

Some adopt a “train and pray” approach – train the company employees and pray they nothing bad happens.  Other companies may employ proactive monitoring of expenditures connected to the company employees and potentially benefiting FGOs.

But the issue becomes even more difficult when companies retain a third-party to handle such interactions.  Global companies do not have  the requisite control and oversight of these third parties to prevent and detect corrupt schemes, and have to adopt robust training, monitoring and auditing strategies.

This is no easy task and companies are developing new and innovative strategies in this area, with the assistance of vendors offering automated solutions that incorporate data analytics and other new, cutting-edge solutions.