The risk of unknown unknownsTypically companies hesitate to export because of concerns about known complications - normally falling into a category we call (borrowed from McGladrey) "transactional." Typical topics of concern include foreign receivables, foreign currency and logistics. But those can often be easily conquered by finding folks with the right niche experience.
There are other categories of expertise that are critical to success but often overlooked. These include international marketing and effective/artful channel management.
And then there's the scary stuff. The risks, often with real consequences, that many companies simply don't even know about to fret over them. FCPA enforcement exposure is one example.
What's the FCPA and why's it matter?The Foreign Corrupt Practices Act provides draconian penalties for officers and directors of companies which have engaged in corrupt business practices.
Experience tells me that at this point most stop listening - offering a quick and categorical assurance that it doesn't apply since they don't condone any corrupt practices.
Great. Except it's not that easy.
This isn't just about what a company and its employees are doing in the US, or directly overseas. This is often about "business as usual" in common export markets. Further, it's about liability for actions of reps and distributors, and the implications to a future sale.
Still convinced you're safe? OK. One more question. Are your products imported into overseas markets? With the exception of some business services, almost certainly yes. And therein lies the exposure of almost every business.
Statistically the vast majority of FCPA enforcement actions originate with customs irregularities. In a typical scenario, customs pulls your shipment for 'inspection.' Your local rep, aware of customer delivery commitments (and perhaps L/C expiration) goes to customs and 'facilitates' clearance. They probably do so in the course of routine business without you even being aware of it. And you're on the hook. (Want to really freak out? Did you realize that a typical D&O policy won't pay for your FCPA defense?)
And what if the experts don't even get it?Here's where it becomes even more concerning. Sometimes "the experts" don't even understand the exposure...
Take this recent excerpt from the blog of a company that specializes in helping US companies expand overseas.
"In many markets, one alternative to setting up your own operations is to sell your product through distributors. Scott Johnson, of New Atlantic Ventures in Boston, said that this form of entry can be especially attractive in South America, where the restrictions of the Foreign Corrupt Practices Act effectively prevent businesses that operate in the U.S. from also operating in many countries. Selling through a distributor gives businesses a channel into those countries without risking high levels of FCPA exposure."Wrong answer.
Your company (and you personally as an officer / director) are responsible for the actions of your distributors, even if they are done without your knowledge. The FCPA is clear on that point.
That being said, there are some steps which you can reasonably take to substantially mitigate your risk (more below) but the first step is recognizing your risk - and accepting that the 'firewall' of a 3rd party distributor protects you.
And further, when you get ready to sell your business someday, the buyer will certainly perform due dilligence to determine what FCPA enforcement exposure they will inherit along with your other assets and liabilities. You can imagine the impact on your valuation if they identify reason to be concerned.....
Prudent & reasonableThis needn't be a horror story. You can largely mitigate the risk through some common sense steps.
- commit unequivocally to a zero tolerance internal policy
- conduct periodic training for all employees
- include FCPA compliance stipulations in all contracts and t&c
- screen potential channel partners through resources such as Alexandra Wrage's (@AlexandraWrage) Trace International SMB products
- conduct periodic training for all contractors, channel partners and 3rd parties (and have them acknowledge understanding)
- NEVER simply wink or look away
And most importantly, seek and consult the right experts - folks that have done this themselves, owned companies, empathize with your perspective and challenges - and those that know what you need them to know.
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