ANTI-CORRUPTION COMPLIANCE AND INVESTIGATIONS IN HIGH-GROWTH MARKETS

R&C: How would you characterise corruption risks for companies operating in high-growth markets? In what ways have these risks evolved in recent years?

Donovan: For multinational companies, operations in high-growth markets are frequently managed or organised through subsidiary entities or joint venture partners. This increases third-party risk, as UK-based executives are removed, both geographically and structurally, from employees, service providers and customers on the ground in high-growth markets, which, in turn, makes effective oversight and due diligence all the more important. In high-growth markets, the frequent involvement of politically exposed persons (PEPs) and other government officials in bid, procurement or contracting processes remain a significant corruption risk. The enforcement risk for corruption has also significantly increased as governments globally, including in high-growth markets such as Brazil, have introduced strict anti-corruption laws and resourced local law enforcement agencies to pursue cases of suspected corruption.

Trahan-Liptak: Companies operating or expanding into high-growth markets have always had to be keenly aware of corruption risk. Such markets often lack robust anti-corruption protocols or a compliance culture, making it challenging for companies to expand without engaging in illegal practices. The current geopolitical climate has exacerbated many of these tensions. For instance, efforts to evade new Russian sanctions are on the rise, and increased inflation and cost of living have made people more susceptible to corruption and made spotting inflated payments more challenging. Reduced oversight of employees and vendors as part of pandemic-era policies has also contributed to corruption risks. Not only is the risk of corruption high in such markets, but the prevalence of corruption risk has also invited the US government to turn the spotlight on those areas. Last year, the Biden administration released the National Security Study Memorandum, announcing that combatting corruption would be a major strategy in protecting national interests. Viewing anti-corruption as a matter of national security is likely to lead to aggressive investigations and prosecutions by the US Department of Justice (DOJ). High-growth markets, which often pose their own risks to US interests, are likely to be a focus.

Jan-Mar 2023 Issue

Ashurst

BDO

K&L Gates LLP