Corporate donors involved in the recovery and development of post-conflict countries usually engage with local NGOs. In an ideal world, those partnerships — marriages of convenience to comply with legal restrictions placed on work permits, property ownership, and so on — would function seamlessly, and the last thing on anybody’s mind would be the FCPA.
However, the world is far from ideal.
Some not so farfetched examples of local NGO conduct that might expose donors to risks of investigations or even prosecutions (perhaps for books and records violations) might include:
- Falsifying sign-up sheets for events sponsored by foreign organizations to reflect a larger turnout in order to report higher expenses and “pocketing” the difference.
- Making arrangements with hotels and travel agencies to inflate prices of arrangements which are reported, while the partners split the difference.
- Putting fictive employees on the payroll (usually friends or partners) and paying the actual employees only a part of their salary.
- Falsifying signatures of employees on timesheets in order to pay them salaries below the amount budgeted for their position.
When these or other financial acrobatics occur under the auspices of the local NGO, a donor could fall under suspicion of being complicit. And if any form of corruption involving public officials is involved, potential FCPA anti-bribery liability could result.
Although there is no guarantee for avoiding such a scenario, certain practices could help shield a donor from risks created by local NGO partners:
Due diligence. When seeking a local partner NGO, due diligence based on public records will provide an incomplete picture. Donors should contact previous and current, local and international partners (if they exist) and ask direct question about their experience. The responses should be well documented. Donors should also check if the local NGO has been reported for, or appears on any international list, for financial or other misconduct.
Embed your policies. Prior to the beginning of the project activities, provide the local staff with the principles, standards and practices of your organization, especially related to financial reporting. And before any funding begins, make your Code of Ethics and Code a Conduct a binding part of a written partnership contract.
Know the rules. Learn about the local financial and tax rules and practices so that you monitor the partner NGO’s representations in their reports.
Create a feedback loop and whistleblower procedure. Create internal reporting channels for the partner NGO’s staff, either directly back to the donor corporation or through a specialist third-party, to enable safe and effective reporting of potential irregularities and to avoid reprisals against the local staff.
Be on site. Despite regular reporting, scheduled and unscheduled video calls, and the like, effective oversight is likely to require periodic site visits and direct communication with the local stakeholders. A written partnership agreement that spells out the rights of the donor and obligations of the NGO in connection with these visits — perhaps similar or equivalent to audit rights in commercial agreements — could enhance the effectiveness the visits.
These minimal steps should help shield the donor from the potential reputational and financial harm and operational disruption that could result from the actions of a local NGO partner.
Fahira Brodlija is an LLM graduate of the University of Pittsburgh School of Law and a graduate of the Sarajevo Faculty of Law. She was involved in the legal analysis leading to the development of the ACCOUNT anti-corruption action plan for Bosnia and Herzegovina. She has been an intern in the ethics and compliance department of a leading U.S. company and as an international arbitration trainee in Jordan. She can be contacted here.