I’ve talked about a plan by Kazakhstan’s president to revive the country’s struggling economy by privatizing about 7,000 state-owned companies and listing at least some of them on unspecified stock exchanges.
Should Kazakh companies list on U.S. stock exchanges to raise needed capital?
While additional investment by foreign companies in the U.S. markets is generally a good thing, in this instance I must sound a note of caution. Once Kazakh companies list in the U.S., they would become subject to the FCPA’s jurisdiction for any anti-bribery or accounting violations they committed after the listing. This assumes, of course, that they don’t already face FCPA liabilities for prior corruption-related acts committed on the U.S. territory or as aiders and abettors or co-conspirators with other persons subject to FCPA.
Those Kazakh companies must therefore ensure that they can be FCPA-compliant in all their dealings in their home country. Given the high levels of corruption in Kazakhstan (it ranks 126 on the Corruption Perceptions Index), this may be a tall order.
Kazakh companies should not undertake the decision to list in the U.S. lightly. The bad experiences of so many China companies that listed on U.S. exchanges is a cautionary tale.
Further, as noted in an extensive study by the Committee on International Business Transactions of the New York City Bar, the FCPA disincentivizes foreign companies from listing on a U.S. stock exchange. The study’s authors note that at least 60 companies delisted from an American stock exchange because of high administrative, regulatory, and other associated costs; Daimler announced its delisting in 2010 barely one month after paying $185 million in an FCPA-related settlement with the SEC.
Thus, the FCPA may act as an obstacle to cross-border investment, both by American and other multinational companies considering investments in Kazakhstan and Kazakh companies seeking to list in the U.S.
Which is too bad. As noted by Prof. Spalding, despite the intent of its drafters, the FCPA functions as de facto sanctions on the emerging markets, blocking investments and poverty reduction opportunities in countries that have high growth rates despite significant levels of corruption. Admittedly, this is a controversial theory, but doing business “the way the locals do” in a corruption-prone emerging market is a sure way for an American company or any U.S.-listed foreign issuer to incur FCPA liability. Similarly, a U.S. listing by a Kazakh company could require it to incur substantial costs to become FCPA compliant and would impose substantial liabilities were it to continue doing business the old-fashioned way, Kazakh style.
Where would Kazakhstan turn to for additional foreign investment? In my next post, I’ll look at some of the foreign investors who aren’t deterred by the FCPA.
Alex Nisengolts is a Chicago attorney focusing on cross-border M&A, electronic discovery, and investments and operations in Kazakhstan. He first traveled to Kazakhstan in 1994 as a legal advisor on a USAID-sponsored legal reform project and has been involved in Kazakh matters for the past two decades, for U.S. and Kazakh law firms and as a manager and senior manager for a Big Four international accounting firm. He can be reached here.