With the world economy remaining stagnant, companies eager for reliable and aggressive growth are routinely looking at the unique opportunities offered by developing countries.
Over the course of 2015, the International Monetary Fund reported that while global economic activity remained "subdued," over 70 percent of this growth occurred in emerging markets. Further, the IMF estimates that these developing countries can anticipate 4.1 percent growth in 2016 and 4.6 percent growth in 2017, while "advanced economies" can expect an anemic 1.8 percent rate for both years.
In response, many organizations are offloading costs and establishing new operations in these previously ignored but now profitable regions. However, with this shift comes new challenges focused on maintaining corporate compliance far away from company headquarters.
You might assume that the four most developed countries in these emerging economies -- the BRIC markets (standing for Brazil, Russia, India, and China)-- would be less vulnerable to corruption or ethics violations.
However, one of the most widely-reported financial investigations in the past year focused on the Petrobas "car wash" scandal in Brazil, during which executives paid out an estimated R$6.2 billion in bribes to politicians and the leftist Workers' Party.
This wide-scale corruption has led to 179 people being charged with criminal offences and 93 convictions so far. The surrounding scandal even contributed to the impeachment and removal from office of President Dilma Rousseff.
Can the actions of your foreign branches really have that big of an impact? Read: Global Corruption Scandals and Non-Compliance to learn more about the Petrobas scandal and the true cost of global ethics violations.
While the likelihood that your business will be mired in similar levels of local graft is exceedingly slim, the threat of corruption still exists. Nations within the emerging market face underdeveloped regulations, political instability, inadequate infrastructure and currency fluctuations -- any of which can create the opportunity for corruption or unethical behavior. And any of these missteps by local operations can have broader, international impact to your reputation and finances.
The Organization for Economic Co-operation and Development (OCED) recommends building a culture of anti-corruption within your business from the top down. Management should develop clear anti-corruption policies and ethics standards, instituting mechanisms throughout the business, such as internal auditing committees, to provide multiple levels of protection.
You should make it clear to employees that all of them are responsible for maintaining compliance with corporate ethics and process standards. By creating a clear policy, you can more easily communicate these expectations and values to foreign offices.
According to attorney Alex Nisengolts, you should take time to familiarize yourself with the local laws and culture of any nation that hosts your offices. While most businesses are highly knowledgeable of U.S. law, many neglect to show the same level of diligence to local regulations.
Spend time learning your rights as a business in foreign countries and how those rights apply to government inspections and investigations. Some nations even maintain foreign investment councils that can serve as an invaluable source of advice and support.
Paul Mandell, the founder and CEO of Consero Group, advises performing your due diligence in person. By actually visiting the sites of your foreign operations, you can help accelerate initial vetting processes or anti-corruption investigations.
Take advantage of these trips to conduct in-person interviews with candidates for key positions. By spending more time and money to find highly-skilled and ethical employees, you can better protect your business.
This hands-on approach also offers the opportunity to interview local third-party suppliers directly. While these organizations may be familiar with regional regulations, they may not be familiar with U.S. or international laws and unknowingly violate policies while simply conducting business as usual.
Operating in emerging markets presents your company with significant growth opportunities, but it also creates serious risks for corruption. Remaining vigilant is key to protecting your business, as is clearly communicating your ethical requirements to employees, distributors and suppliers.
To learn more about our global anti-corruption and FCPA courses, you can fill out the form on the right to request a demo.
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