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Harry Cassin
Publisher and Editor

Andy Spalding
Senior Editor

Jessica Tillipman
Senior Editor

Bill Steinman
Senior Editor

Richard L. Cassin
Editor at Large

Elizabeth K. Spahn
Editor Emeritus

Cody Worthington
Contributing Editor

Julie DiMauro
Contributing Editor

Thomas Fox
Contributing Editor

Marc Alain Bohn
Contributing Editor

Bill Waite
Contributing Editor

Russell A. Stamets
Contributing Editor

Richard Bistrong
Contributing Editor

Eric Carlson
Contributing Editor

State-Granted Monopolies: Are they your best (and worst) customers?

They are so familiar to those of us who follow FCPA enforcement actions that we’re likely to stop noticing them. Petrobras in Brazil, Corpoelec and PDVSA in Venezuela, Pemex and CFE in Mexico, Takilant in Uzbekistan, Sonangol in Angola, Alba in Bahrain, Telecommunications D’Haiti, 1MDB in Malaysia, and Pertamina in Indonesia. They’re among the state-granted monopolies connected to alleged bribe-takers in FCPA cases, including most cases on the FCPA top ten list.

If state-granted monopolies cause so many compliance problems, why don’t multinationals avoid them? They can’t. In much of the world, finance, telecommunications, natural resources, energy, transportation, and healthcare are under monopoly control. They’re the only customers or partners for anyone hoping to operate there. “Business comes through us or doesn’t come at all.”

Working with state-granted monopolies isn’t all bad. They can be single windows for inbound investors and providers. Any oil and gas-related company wanting to do business in Angola, say, knows it must deal exclusively with Sonangol. Learn how Sonangol works, and navigating the bid and doing-business process is simplified, at least in theory. There’s a comfort factor when working with state-granted monopolies. They’re protected from swirling market forces and therefore more stable and predictable.

Political leaders justify state-granted monopolies with reasons that sound legitimate. Protecting against foreign exploitation, encouraging onshore technology transfers, promoting local businesses, and preparing citizens to become national and global business leaders.

All that may be true. No doubt there are many state-granted monopolies with high aspirations and actions to match. Even monopolies named in past FCPA actions may be models of best practices that were victimized by corrupt actors inside and outside the enterprise.

Still, there’s a persistent dark side to so many state-granted monopolies.

What are the reasons? Sometimes monopolies are apparently conceived in corruption. Politicians and political parties intend to create sources of black money that will enrich leaders and keep them in power.

Sometimes state-granted monopolies start out clean but become targets of opportunity. Under the thumb of oppressive regimes, honest executives and employees might face awful choices: “Get rich by going along with the graft or die.”

Corruption at state-granted monopolies may have more obscure causes. Do underpaid executives and employees resent their counterparts in the private sector? Do political cronies and family members always take the top spots at promotion time? Is the dead-end monopoly the only employer in town?

Remember the single-window aspect of state-granted monopolies? Single windows are also narrow gates. The most valuable commodity in the hands of those running monopolies is access. That’s the story behind most of the FCPA enforcement actions that land on the top ten list. Multinational companies became partners in graft in exchange for access to otherwise closed markets.

A final thought: State-granted monopolies are surprisingly common, and that won’t change. They’re also an enormous and unavoidable compliance risk.

How companies assess that risk and manage it may be their biggest compliance challenge, testing even the most robust programs.

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