Companies operating in emerging markets sometimes retain qualified government officials to provide services such as consulting or speaking. In some circumstances, particularly in developing markets, these services are necessary and can serve a company’s legitimate business needs.
For example, a well-known and highly qualified professor at a public university may have knowledge about technical issues that is needed from a consulting perspective, or an internationally-acclaimed physician who works in a public medical school may be hired to discuss research and development in her area of expertise.
In our e-book on navigating anti-corruption compliance in emerging markets, we discuss how these types of engagements pose a heightened corruption risk.
That’s because they
(1) involve employees of public institutions who therefore are considered government officials,
(2) involve compensation or other benefits
(3) may be subject to restrictions imposed by local law, and
(4) raise the possibility of conflicts of interests.
A threshold issue that must be considered before engaging a government official is whether local law or relevant professional codes permit the payment of compensation to the government official (as opposed to a payment to the foreign government).
In many countries, it is unlawful to compensate officials who make appearances or provide advice that is ordinarily part of their normal duties. If the work requested from the official is part of her ordinary duties, a paid engagement will likely not be appropriate.
Second, in developing markets, the law on private engagement of government officials may be not as clear as in more developed economies. Steps should be taken to determine the local regulatory environment, and it is prudent to consult with local counsel if local law is unclear or does not address the issue dispositively.
Third, the nature of the engagement and the relationship of the government official to the company’s activities should be carefully considered. If the proposed engagement involves a government official who has decision-making authority or influence over issues relating to a company’s operations, corruption risks are likely to be significant, and proceeding with the engagement is rarely appropriate. On the other hand, it may be appropriate to engage a public official to provide technical advice or educational information—for example, clinical healthcare information.
Assuming these questions are answered and the engagement is in fact appropriate, another consideration is whether it might be better from a compliance perspective to engage the government entity rather than the individual official directly. Contracting directly with the government will reduce the compliance risks, but will not eliminate them completely.
Many of the considerations discussed in this post also apply where a government entity is engaged. In some industries such as healthcare, pharmaceuticals, and life sciences, the practice of retaining government officials may be more common because many healthcare professionals work in government-owned healthcare facilities and may therefore be considered government officials. The qualifications of the healthcare professional, the nature of the engagement, and the clinical or scientific information to be provided must be evaluated closely.
In the next post, we’ll discuss ways to mitigate compliance risks when engaging government officials in developing markets.
* * *
Our e-book, Anti-Corruption Compliance in Emerging Markets: A Resource Guide, is available here.
Keith Korenchuk is a partner in Arnold & Porter’s Washington, DC office. He counsels and advises global companies on regulatory and compliance matters worldwide, with a focus on compliance program effectiveness, compliance program implementation, operations and evaluation, and related regulatory counseling and advice.
Samuel Witten is counsel in Arnold & Porter’s Washington, DC office. He helps companies develop and implement FCPA compliance programs. He also represents clients in arbitrations at the International Center for Settlement of Investment Disputes. He joined Arnold & Porter in 2010 after serving for 22 years in legal and policy positions at the U.S. Department of State.
Arthur Luk is a partner in Arnold & Porter’s Washington, DC office. He represents corporations, directors, officers, and executives, and “Big 4” accounting firms and individual auditors in investigations conducted by the DOJ, SEC, and Public Company Accounting Oversight Board, and in securities class actions and shareholder derivative suits.