In two prior posts (here and here), I’ve talked about how American companies can do FCPA-compliant business in Kazakhstan and other emerging markets. In this post, I’d like to provide a few more practical tips.
The FCPA Guidance is right. Bribe-paying companies open themselves to further harassment by corrupt officials. To the chagrin of companies willing to pay bribes to “solve” problems, they often learn the tax audit is followed by a customs inspection, then the labor inspector, the fire department, and so on.
By contrast, companies that refuse to pay bribes present a less tempting target to corrupt officials, who see fewer opportunities for an easy victory and no chance for a personal gain.
Corrupt officials, like muggers, target those who appear weak and willing to be a victim. The prospect of a long legal battle with a well-prepared company that won’t pay a bribe often convinces corrupt officials to move on to an easier target.
Be ready to fight back and litigate when necessary
Corrupt officials sometimes seek to extort bribes from foreign companies by misinterpreting the law or threatening huge fines and sanctions for even minor violations.
The best response is to appeal to higher-level supervisory bodies. If that doesn’t work, it might be necessary to take the overreaching government agency to court. Unlike a government agency responsible for collecting as much state revenue as possible, most local judges have no personal interest in such cases and may rule in favor of the company if the state agency is clearly in the wrong.
Kazakh courts are often accused of lacking independence and favoring the government. That’s not always the case in routine disputes between a company and the state authorities. Foreign companies do sometimes win tax and customs cases and reduce or avoid fines and interest penalties in cases where the state authorities overreached and sought to impose sanctions on spurious grounds.
Investors can also consider invoking the provisions of a bilateral investment treaty or litigating abroad when their investment contract allows for international arbitration.
Seek help from the local investment promotion agencies
Kazakhstan is serious about attracting foreign investment and has established various institutions to help foreign investors. The president created the Foreign Investors’ Council as an advisory body to promote direct dialogue between the Kazakh government and major foreign investors to address key issues about their investment activities in the country and the country’s investment climate. The prime minister has his own council dedicated to investment climate improvements and the protection of investors’ rights, which has been helpful to many companies.
Kazakhstan also has an Investment Ombudsman, responsible for assisting with foreign investors’ grievances. The Investment Ombudsman has helped companies with the construction of necessary infrastructure, trade mark registrations, inclusion in the register of domestic producers, and other issues.
To reduce corruption by local officials during the permitting process, Kazakhstan’s government has also established a single-window Investors’ Service Center. It enables investors to obtain all licenses and permits required for the implementation of investment projects. Foreign investors can therefore seek Kazakh government assistance if they are being harassed by corrupt or overzealous local officials and seek redress through official channels.
Ask Uncle Sam for help
When all else fails, call Uncle Sam. If you feel that you’re being harassed, let the U.S. Embassy know about the problem so that they can intercede on your behalf. The U.S. Embassy advocates on behalf of U.S. firms with investment disputes and the U.S. Ambassador has regular meetings with the prime minister to discuss investors’ concerns. The embassy can advise you whether what you’re facing is an isolated issue or a systemic problem and cover your back if you are facing extortion.
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Just remember that paying bribes is not a solution, and that FCPA sanctions and reputational costs can significantly exceed the loss of any foregone opportunities or any taxes or fines avoided in another country.
I’ll provide my final thoughts on doing business in Kazakhstan in the next post.
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.