Thai firms at risk from long arm of foreign anti-bribery and corruption laws

Companies across ASEAN may be familiar with their own country’s AB&C laws, but are too often surprised to learn that wrongful conduct could also run afoul of foreign AB&C laws. Moreover, they often don’t realise that extra-territorial laws have been successfully enforced even when a company’s connection to the foreign regulator’s country appears tenuous. 
In Thailand, we have seen this become a problem when, for example, a multinational company takes an interest in buying or partnering with a local firm, but upon conducting their due diligence realises that the local firm’s successful track record was in part achieved by paying bribes to obtain business. 
This can greatly reduce the value and increase the risk of doing business with what once may have been a promising acquisition target. Multinational companies that have already established a local subsidiary can also face problems if, for example, their subsidiary has been making illegal payments to obtain necessary permits. Such issues can often set in motion a costly investigation, reporting and remediation process. 
Foreign investors in ASEAN however, cannot place all of the blame on their local operations. The executives of multinational companies may understand the seriousness of their home country’s AB&C regulations and have the perspective to see that paying bribes to increase sales in one small country is just not worth the potential damage to their much larger global brand value.
Yet frequently they fail to effectively communicate the policies and the importance of compliance to their subsidiaries, especially in countries where a culture against paying bribes hasn’t yet deeply taken root. When we’ve had the opportunity to interview individuals who have confessed to paying bribes, all too often they tell us that they thought their actions had benefitted their employer and they are genuinely surprised that their actions led to high levels of alarm at their head office.

Thai execs need to understand laws
Moreover, as Thai companies continue to expand into other countries, they are increasingly taking on the role of the foreign investor who is losing sleep over AB&C compliance in foreign locations. Thai executives looking to develop in new overseas markets, whether through their own investments or through the use of business partners, need to understand the relevant laws and regulations and be careful in controlling and monitoring the activities they employ to grow in these markets. 
For many years, the United States was the only country to have laws against bribing foreign officials, but over the last two decades, Thailand and many of its key trading partners, including China, Japan, Australia and Singapore, as well as EU member states, have been strengthening their own AB&C laws. Thailand itself has passed a number of AB&C regulations, which can be seen across various legislation including the Thai Penal Code, the Offence of State Organisation Staff Act and the Organic Act on Counter-Corruption, the latter of which was amended in 2015 to, among other things, include the bribing of foreign officials as a crime. 
Of course, passing legislation is one thing, but enforcing it is quite another. The US has taken the lead in enforcing its Foreign Corrupt Practices Act (FCPA). Although this act was passed almost 40 years ago, enforcement only started gathering steam in 2007. Enforcement has since continued to increase, reaching a record of 27 corporate enforcement actions in 2016. More recently, the UK has started to enforce its own extra-territorial UK Bribery Act, which is even stricter than the FCPA. While other countries have been less active in enforcement, many have worked together with US and UK authorities on cross-border bribery cases. In Thailand, we have observed a mixed level of awareness of foreign AB&C laws. Thailand’s Coalition Against Corruption (CAC) has been instrumental in creating greater awareness and helping companies to improve their controls to prevent corruption. 
Nevertheless there remain a significant number of companies, particularly small to medium sized privately owned businesses, which are increasing their interactions with foreign suppliers, customers and business partners, with little awareness of the applicable laws. There are also still too many companies that adopt anti-corruption programmes simply as “window dressing” to appeal to their stakeholders but in practice make little effort to live by the underlying principles.
Even among companies that are aware of extra-territorial laws, many still choose to risk non-compliance. Some common excuses that don’t hold up to scrutiny have included:
1. “We do not fall under that foreign jurisdiction” – But in fact, the US FCPA has been applied to prosecute many non-US citizens and non-US companies for bribery that was committed outside of the US, even when their connection to US interests has seemed remote. For example, a recent case involved a foreign company whose employees had sent emails through a US-based server and wired payments in US dollars through US correspondent banks.
2. “We can use our agent to pay the bribes for us” – But in fact, many AB&C regulations are very clear that the use of a third party to make an illegal payment is not acceptable. The use of third parties is also one of the most obvious tricks that investigators tend to watch out for.
3. “These laws can’t be enforced in Thailand” – But in fact, to respond to potential violations, many multinationals will initiate investigations of their own overseas subsidiaries and business partners and take remedial actions. Moreover, the high-profile nature of a cross-border corruption case can attract the attention of local authorities too. For example, the well-known FCPA case of the Bangkok International Film Festival ended with successful prosecutions in the US in 2009 and in Thailand this March.
The ultimate goal of extra-territorial regulations is not to pass judgement or to collect fines, but to support the establishment of a level playing field for fair competition. To this end, regulators are increasingly trying to motivate companies to do the right thing. The UK Bribery Act, for example, allows a defence to prosecution if the company has adequate procedures in place to prevent bribery. The US Department of Justice may also be able to provide incentives including lower fines and penalties or the closing of their inquiry where criteria is met, including the voluntary disclosure of wrongful conduct, cooperation in investigation and remediation efforts, through its 2016 Pilot Program which was recently extended. 

Companies learning the hard way
Unfortunately, for many companies it often takes a major scandal to get them to take the importance of AB&C compliance to heart. This has been especially true for multinational healthcare and life science companies, which have been a particular target of FCPA enforcement actions. These companies are now going to much greater lengths to monitor and review their expenditures in countries like China and Thailand, where many of their customers are state-owned hospitals and doctors which may be considered government officials.
Despite growing AB&C awareness, a quick check of the local newspaper headlines shows that far too many companies are still learning the importance of an effective AB&C programme the hard way. 
As Thai businesses continue to become more globally integrated, and as more countries adopt and enforce anti-bribery and corruption regulations, without an effective AB&C compliance programme the risk of getting caught up in a damaging scandal will continue to grow. 

DOUGLAS WEBB is a Partner in KPMG in Thailand. He can be reached at [email protected]